Synlait Milk’s largest shareholder has bailed out the New Zealand dairy business by providing funds to meet debt repayment obligations.
While China’s Bright Dairy, which holds 39% of Synlait, will provide a NZ$130m ($79.7m) loan, the company said it was also talking with creditors over further debt waivers as it struggles to meet deleverage commitments.
Meanwhile, Synlait’s farmer suppliers have threatened to withdraw from service agreements unless the Christchurch-headquartered company reduces its debt as a multi-faceted stock-exchange announcement came with another profit warning.
Synlait’s shares fell on both the New Zealand and Australia stock exchanges today (3 June) as the announcement was accompanied by the news that the sale of the Dairyworks cheese business has been put on ice.
The Bright Dairy loan would cover a missed debt repayment that Synlait revealed in March before getting an extension in April with creditors to 15 July, as the New Zealand business also said it would seek an equity raise.
Chairman George Adams said in the filing: “We are grateful for the support from Bright Dairy. We are actively working with Bright Dairy on the remaining work relating to this shareholder loan and a future equity raise. The shareholder loan, and the future equity raise, will enable Synlait to reduce its debt to a sustainable level.”
Synlait had NZ$559m in debt at the half-year juncture, when it reported a net loss after tax of NZ$96.2m through to 31 January. A year earlier it was a NZ$4.8m profit, a result that was down 83%.
The company’s adjusted net loss after tax was NZ$17.4m, wider than the NZ$8.9m loss a year earlier.
Revenue was up 3% at NZ$793.5m but gross profit decreased 47% to NZ$43.6m.
EBITDA dropped to NZ$19.9m from NZ$51.5m in the corresponding period. Adjusted EBITDA fell to NZ$36.1m from NZ$55m.
Synlait said today that it would retain its full-year EBITDA guidance of NZ$45-60m but warned the final result is likely to come in at the lower end of the range.
The downbeat outlook was due to a “softening” of ingredients margins linked to foreign exchange and pricing, revised inventory and forecasted write-downs in the second half, and increasing financing costs due to the extended deleverage timeframe.
“Synlait is now forecasting it is unlikely to meet three of its current banking covenants as at 31 July 2024, the interest coverage ratio, leverage ratio, and senior leverage ratio,” the company said in the filing. “This reflects the timing of Synlait’s deleveraging and further weakening in its financial performance.
“The banking syndicate is currently reviewing a package of proposed waivers put forward by the company.”
Synlait’s shares closed down 5.4% at NZ$0.44 in New Zealand and down 2.3% at A$0.43 in Australia.
The Dairyworks cheese operation was put on the market in June last year as Synlait chose to focus on its B2B infant formula and foodservice businesses.
“While the board has received interest in the business from a number of parties, a binding offer has not materialised at a level that would be acceptable. Although the company would consider credible offers, the sale process no longer remains formally open,” Synlait said today.
Meanwhile, Synlait’s farmer suppliers could withdraw in the 2026 fiscal year after submitting two-year cessation notices.
“Synlait also notes a significant majority of the company’s farmer supplier base have submitted cessation notices, which is expected given its current performance,” the company said.
“Retention of milk supply remains a critical priority. Farmer suppliers have signalled they want to see Synlait’s balance sheet deleveraged, so advanced rates can be lifted further, and submitting a cessation notice provides an option, rather than a clear intention to sign with other processors.”
