Synlait Milk is focused on returning the dairy and infant-formula business to profitability now that an equity raise and refinancing has been completed.
The New Zealand company confirmed today (1 October) the successful raise of NZ$217.8m ($137.5m) from its two largest shareholders – China’s Bright Dairy and The a2 Milk Company.
With the closing of the transaction, a provisional settlement with A2 Milk over a long-running contractual and pricing dispute has also been put to bed. That agreement was conditional on completing the funding exercise and also finalising the debt refinancing process with creditors.
Chairman George Adams said in a stock-exchange filing: “Today’s transactions provide a new foundation on which Synlait can further progress its business recovery. It is good to have these distractions behind us and the space to solely focus on our strategy to return the company to profitability.”
Nevertheless, New Zealand and Australia-listed Synlait still has NZ$551.6m of debt on its balance sheet, 33% more than in its previous fiscal year, according to an annual report filing yesterday.
While revenue for the year to 31 July inched up 2% to NZ$1.64bn, Synlait delivered an EBIT loss of NZ$182.7m versus a NZ$31m profit in the corresponding 12 months.
Net profit after tax was in the red to the tune of NZ$182.1m, compared to a loss of NZ$4.3m a year earlier.
Commenting on those results, Adams said the past year had been “unprecedented” and mainly characterised by “deleveraging”.
As well as the challenges to get the equity funding, debt refinancing and a settlement with A2 Milk through the door, Synlait also needed a NZ$130m bailout loan this year from Bright Dairy.
With the equity raise now complete, Bright Dairy extends its position as Synlait’s largest shareholder with a stake of 65.3% versus 39% previously.
A2 milk remains the second-largest investor with 19.8%.
“We can now confidently draw a line under several of the difficulties faced and move onto the more important matters concerning running a growing and viable business,” Adams said in the results commentary.
Amid the struggles, Synlait’s farmer milk suppliers had threatened to withdraw supplies unless the company was able to raise a financing buffer, an issue CEO Grant Watson touched on in the results announcement.
“Our future success depends on a strong, stable and competitive farmer base. Providing farmer suppliers with compelling reasons to remove cessation notices is a top priority, ensuring we have the secure milk supply to underpin our business recovery,” Watson said.
“We have announced additional payments for our farmer suppliers to recognise how critical their milk supply is to Synlait’s future. We hope these combined actions will accelerate cease notice withdrawals.”
