Synlait Milk Faces Supplier Exodus Amid Financial Struggles, Secures Crucial Loan
Source: The DairyNews
Synlait Milk, the New Zealand-based dairy company, is experiencing a significant shift as a majority of its farmer suppliers have issued cessation notices, signaling a potential exit from the company. This development, disclosed in a recent market update, reflects broader concerns about Synlait's financial health and the desire among farmers to see the company's balance sheet deleveraged.
The cessation notices, which commence a two-year withdrawal process, are not immediately affecting Synlait’s operations but indicate potential disruptions starting from 2026 if the decisions are not rescinded. The company views these notices as part of its suppliers' strategy to explore broader options rather than definitive plans to switch to other processors.
In response to its financial challenges, Synlait has secured a significant lifeline from Bright Dairy, its largest shareholder, with a proposed $130 million loan. This financial support is subject to shareholder approval and is critical for meeting upcoming prepayment obligations to senior lenders by July 15. "We are grateful for Bright Dairy’s support and are focused on executing the remaining work related to this shareholder loan and a future equity raise," stated George Adams, Synlait's chair. This influx of capital is aimed at reducing Synlait’s debt to a more sustainable level.
Despite these efforts, Synlait anticipates challenges in meeting its banking covenants by July 31, due to its ongoing financial difficulties and deleveraging process. The company's banking syndicate is currently reviewing proposed waivers to support Synlait through this turbulent period.
Further complicating matters, Synlait has retracted the sale of its Dairyworks brand after failing to receive acceptable offers. While there was some interest, no binding offers materialized, prompting the company to close the formal sale process, though it remains open to credible proposals.
Financially, Synlait is bracing for lower earnings, projecting its EBITDA for the 2024 financial year to be at the lower end of the $45m to $60m range, primarily due to softer ingredients margins affected by foreign exchange rates, revised inventory provisions, forecast write-downs, and increased financing costs.
In a related development, Ruth Richardson will retire from the board to make way for Leon Fung, aligning with governance changes as Synlait navigates its restructuring. Fung, currently the CEO of NIG Nutritionals, brings additional expertise in nutritional food products to the board, which is partly controlled by Bright Dairy through its significant shareholding and board representation.
As Synlait continues to address its operational and financial challenges, the support from Bright Dairy and the strategic board reshuffle are seen as crucial steps towards stabilizing the company and preparing it for future sustainability.
In response to its financial challenges, Synlait has secured a significant lifeline from Bright Dairy, its largest shareholder, with a proposed $130 million loan. This financial support is subject to shareholder approval and is critical for meeting upcoming prepayment obligations to senior lenders by July 15. "We are grateful for Bright Dairy’s support and are focused on executing the remaining work related to this shareholder loan and a future equity raise," stated George Adams, Synlait's chair. This influx of capital is aimed at reducing Synlait’s debt to a more sustainable level.
Despite these efforts, Synlait anticipates challenges in meeting its banking covenants by July 31, due to its ongoing financial difficulties and deleveraging process. The company's banking syndicate is currently reviewing proposed waivers to support Synlait through this turbulent period.
Further complicating matters, Synlait has retracted the sale of its Dairyworks brand after failing to receive acceptable offers. While there was some interest, no binding offers materialized, prompting the company to close the formal sale process, though it remains open to credible proposals.
Financially, Synlait is bracing for lower earnings, projecting its EBITDA for the 2024 financial year to be at the lower end of the $45m to $60m range, primarily due to softer ingredients margins affected by foreign exchange rates, revised inventory provisions, forecast write-downs, and increased financing costs.
In a related development, Ruth Richardson will retire from the board to make way for Leon Fung, aligning with governance changes as Synlait navigates its restructuring. Fung, currently the CEO of NIG Nutritionals, brings additional expertise in nutritional food products to the board, which is partly controlled by Bright Dairy through its significant shareholding and board representation.
As Synlait continues to address its operational and financial challenges, the support from Bright Dairy and the strategic board reshuffle are seen as crucial steps towards stabilizing the company and preparing it for future sustainability.
