Synlait Faces Supplier Exodus and Financial Strains Amid Market Pressures
Source: The DairyNews
Synlait, the New Zealand-based dairy company, is facing a critical period as a significant number of its farmer suppliers issue cessation notices, potentially jeopardizing the firm’s future operations. This development was highlighted in Synlait's recent market update.
Unlike its larger counterpart Fonterra, which boasts a vast network of suppliers, Synlait's smaller scale could amplify the impact of these departures. Willy Leferink, an Ashburton-based farmer and Synlait supplier, expressed concerns about the company's ability to retain its supplier base. “Finding the sweet spot where suppliers remain is critical,” Leferink noted.
Maintaining milk supply is now a “critical priority” for Synlait, which suggests that the cessation notices might represent a tactical move by farmers to keep their options open, rather than a definite plan to leave the company. Synlait's CEO, Grant Watson, emphasized the company's value proposition to farmers, highlighting its Lead with Pride program and specialty milk premiums as key incentives.
The company's financial health has come under scrutiny following a reported $96 million loss in April and a substantial debt load of $500 million. Recent major investments, including a $280 million manufacturing plant in Pokeno and a $125 million upgrade at their Dunsandel plant, along with acquisitions like Talbot Cheese and Dairy Works, have contributed to this debt.
Efforts to sell Dairy Works were unsuccessful, leading Synlait to withdraw it from the market and to undertake a strategic review of its North Island assets. “When trying to sell when you are on your knees, you aren’t in a strong position,” said Leferink, indicating that the company's negotiating leverage may be compromised.
Farmers have voiced a desire to see Synlait's balance sheet deleveraged, a sentiment that aligns with broader concerns about the security of their payments in a non-cooperative model. “A lot of farmers are worried about not being part of a co-op. In the end, you are an unsecured creditor to the dairy company, which can be serious,” Leferink added.
To address its financial obligations, Synlait has secured a $130 million loan from Bright Star Dairy, a Chinese firm holding a 39.01% stake in Synlait, contingent on NZX rules and shareholder approval. This funding is intended to help Synlait meet its debt repayment due by July 15.
Maintaining milk supply is now a “critical priority” for Synlait, which suggests that the cessation notices might represent a tactical move by farmers to keep their options open, rather than a definite plan to leave the company. Synlait's CEO, Grant Watson, emphasized the company's value proposition to farmers, highlighting its Lead with Pride program and specialty milk premiums as key incentives.
The company's financial health has come under scrutiny following a reported $96 million loss in April and a substantial debt load of $500 million. Recent major investments, including a $280 million manufacturing plant in Pokeno and a $125 million upgrade at their Dunsandel plant, along with acquisitions like Talbot Cheese and Dairy Works, have contributed to this debt.
Efforts to sell Dairy Works were unsuccessful, leading Synlait to withdraw it from the market and to undertake a strategic review of its North Island assets. “When trying to sell when you are on your knees, you aren’t in a strong position,” said Leferink, indicating that the company's negotiating leverage may be compromised.
Farmers have voiced a desire to see Synlait's balance sheet deleveraged, a sentiment that aligns with broader concerns about the security of their payments in a non-cooperative model. “A lot of farmers are worried about not being part of a co-op. In the end, you are an unsecured creditor to the dairy company, which can be serious,” Leferink added.
To address its financial obligations, Synlait has secured a $130 million loan from Bright Star Dairy, a Chinese firm holding a 39.01% stake in Synlait, contingent on NZX rules and shareholder approval. This funding is intended to help Synlait meet its debt repayment due by July 15.
