Synlait Milk has agreed a debt extension with creditors as the New Zealand dairy business slumped to a loss and slashed its profit guidance.
After disclosing a missed NZ$130m ($77.5m) debt repayment last week and suspending its shares from trading, Synlait has been granted an extension from 28 March to 15 July at the latest to meet those obligations.
In a multi-faceted stock-exchange announcement today (2 April), Synlait also outlined financial commitments from its largest shareholder, China’s Bright Dairy, amendments to the company’s banking facilities and plans to raise additional capital from debt and equity.
A review of Synlait’s infant formula blending and canning plant in Pokeno in New Zealand’s North Island and the manufacturing facility in Auckland will also be launched as the business seeks to reduce NZ$559m in debt and improve its financial performance.
Synlait reported a first-half 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.
After previously guiding to a “broadly flat to down” full-year EBITDA for the current 2024 fiscal year, Synlait now projects it will be “significantly down” from the previous 12 months in the range of NZ$45-60m.
EBITDA in the 2023 financial year was NZ$90.7m.
Synlait’s shares dropped 7% on the NZX, New Zealand's stock exchange, today to NZ$0.70 as CEO Grant Watson described the first half as “challenging”.
EBITDA was hit by “softening demand and/or margins across all business units”, Synlait explained, throwing in the impact from foreign-exchange rates and “increased operating expenses”.
“Synlait is facing material uncertainties in respect of the timings and outcomes of various deleveraging options which are currently progressing,” according to the filing.
Watson said: “It has been a challenging half-year for Synlait as we continue to reset the company to better achieve our strategic objectives, while working to significantly reduce our elevated levels of debt.
“The delivery of our half-year results brings together several reset initiatives, with the announcement of an amendment to our banking facilities, and a strategic review of the North Island assets.”
Synlait is now focused on infant nutrition and the out-of-home channel after a strategic review in 2022, areas where it said today that the company has a “clear competitive advantage to deliver diversified, high-value growth”.
Watson added: “The balance sheet reset initiatives are underpinned by a letter of support from our largest shareholder, Bright Dairy. Bright Dairy’s support, coupled with the banking syndicate’s support, offers Synlait additional stability and confirms that our largest shareholder and banking syndicate remains very supportive.”
Synlait also secured NZ$30m of short-term funding, which will come due on 27 June, and plans to pursue an equity raise. Bright Dairy, which has a 39% shareholding, has committed to participate and to “extend a loan at the request of Synlait”.
“Equity raising remains an option under consideration by the board in parallel to achieve deleveraging of Synlait’s balance sheet,” the company said.
The review of the Pokeno and Auckland facilities and assets is expected to take “several months”. Meanwhile, the previously announced sale of the Dairyworks cheese business is “ongoing” and Synlait said it “remains in discussions with potential purchasers, but no sale has been completed or assured”.
