Synlait Milk Faces Financial Challenges as Half-Year Results Predicted to Show Significant Loss
Source: The DairyNews
Synlait Milk, the Canterbury-based milk processor, is grappling with mounting financial difficulties, causing concern among farmer suppliers.
The company, which is set to announce its half-year results on March 25, has signaled a potential net loss ranging between $17 million and $21 million, in stark contrast to the $4.8 million net profit recorded during the same period last year.
Investor confidence has waned, leading to a substantial decline in Synlait's share price, plummeting to 68 cents and valuing the company at just $149 million. A year ago, the shares were trading at $3.48.
Willy Leferink, an Ashburton-based Synlait supplier and former Federated Farmers dairy chair, expressed concern about the company's situation, echoing worries shared by other farmers. One major concern highlighted by Leferink is the lower advance rate Synlait is offering its farmer suppliers compared to Fonterra, exacerbating cash flow stress.
Synlait's challenges are attributed to increased financing and operational costs, reductions in ingredient margins, and advanced nutrition margin reductions. The company emphasizes that the provided range for the half-year results is based on its initial consolidated result, subject to further review and potential adjustments.
Looking ahead, Synlait anticipates its full-year results to be either flat or down compared to the 2023 financial results, projecting a net loss of $4.3 million. The company's board and management are actively addressing the need to deleverage Synlait's balance sheet, with an update expected with the release of the half-year results in March.
Synlait, with 39% ownership by China's Bright Dairy and a 19% stake owned by a2 Milk Company, faces additional challenges due to an ongoing dispute with a2 Milk regarding an exclusive deal on the manufacture and supply of A2 infant formula. The falling share price has raised speculations about a potential takeover bid by Bright Dairy.
Despite these challenges, Synlait has increased its forecast base milk price for the 2023-24 season by 25 cents to $7.50/kgMS, citing improvements in dairy commodity prices and tightening global milk production as contributing factors. This adjustment aims to provide relief to Synlait's farmer suppliers amid challenging economic conditions. Fonterra has also increased its forecast milk price for the season, indicating a dynamic and competitive dairy market landscape.
Investor confidence has waned, leading to a substantial decline in Synlait's share price, plummeting to 68 cents and valuing the company at just $149 million. A year ago, the shares were trading at $3.48.
Willy Leferink, an Ashburton-based Synlait supplier and former Federated Farmers dairy chair, expressed concern about the company's situation, echoing worries shared by other farmers. One major concern highlighted by Leferink is the lower advance rate Synlait is offering its farmer suppliers compared to Fonterra, exacerbating cash flow stress.
Synlait's challenges are attributed to increased financing and operational costs, reductions in ingredient margins, and advanced nutrition margin reductions. The company emphasizes that the provided range for the half-year results is based on its initial consolidated result, subject to further review and potential adjustments.
Looking ahead, Synlait anticipates its full-year results to be either flat or down compared to the 2023 financial results, projecting a net loss of $4.3 million. The company's board and management are actively addressing the need to deleverage Synlait's balance sheet, with an update expected with the release of the half-year results in March.
Synlait, with 39% ownership by China's Bright Dairy and a 19% stake owned by a2 Milk Company, faces additional challenges due to an ongoing dispute with a2 Milk regarding an exclusive deal on the manufacture and supply of A2 infant formula. The falling share price has raised speculations about a potential takeover bid by Bright Dairy.
Despite these challenges, Synlait has increased its forecast base milk price for the 2023-24 season by 25 cents to $7.50/kgMS, citing improvements in dairy commodity prices and tightening global milk production as contributing factors. This adjustment aims to provide relief to Synlait's farmer suppliers amid challenging economic conditions. Fonterra has also increased its forecast milk price for the season, indicating a dynamic and competitive dairy market landscape.
