Synlait Milk has received critical financial support from its chinese shareholder
Source: The DairyNews
Synlait Milk, a prominent New Zealand dairy company, has received critical financial support from its largest shareholder, Bright Dairy, as it faces mounting debt challenges. Bright Dairy, which holds a 39% stake in Synlait, has extended a NZ$130 million ($79.7 million) loan to help cover missed debt repayments, highlighting the dairy company's ongoing financial woes.
Amid these struggles, Synlait has halted the sale of its Dairyworks cheese business and issued another profit warning, signaling continued economic difficulties. The company, headquartered in Christchurch, has seen its shares fall on both the New Zealand and Australia stock exchanges following these announcements.
The loan from Bright Dairy arrives just in time as Synlait disclosed a missed debt repayment earlier in March, which was temporarily extended by creditors until July 15. The company is also considering an equity raise to bolster its finances further. "We are grateful for the support from Bright Dairy and are actively working with them on the remaining work relating to this shareholder loan and a future equity raise," stated Synlait Chairman George Adams. This strategic financial maneuver aims to reduce Synlait’s substantial debt, which stood at NZ$559 million as of the last half-year report, down from a net profit of NZ$4.8 million a year earlier to a net loss of NZ$96.2 million.
The company has maintained its full-year EBITDA guidance of NZ$45-60 million, though it anticipates results at the lower end of this range due to softer ingredients margins influenced by foreign exchange, revised inventory assessments, forecasted write-downs, and heightened financing costs. The financial outlook is further complicated as Synlait predicts it will not meet three critical banking covenants by July 31, 2024, concerning interest coverage, leverage, and senior leverage ratios.
Amid these fiscal challenges, the company's banking syndicate is reviewing a package of proposed waivers put forward by Synlait to ease some of the financial pressures. Furthermore, the potential sale of the Dairyworks cheese operation, initially put on the market last June to refocus on B2B infant formula and foodservice businesses, has failed to attract a satisfactory binding offer. Despite receiving some interest, the company stated that the sale process is no longer formally open, though they remain open to credible offers.
The situation is exacerbated by unrest among Synlait’s farmer suppliers, many of whom have submitted cessation notices potentially withdrawing from service agreements by the 2026 fiscal year unless the company can significantly deleverage its balance sheet. "Retention of milk supply remains a critical priority," Synlait noted, acknowledging the need for improved financial stability to retain its farmer suppliers and stabilize the business.
The loan from Bright Dairy arrives just in time as Synlait disclosed a missed debt repayment earlier in March, which was temporarily extended by creditors until July 15. The company is also considering an equity raise to bolster its finances further. "We are grateful for the support from Bright Dairy and are actively working with them on the remaining work relating to this shareholder loan and a future equity raise," stated Synlait Chairman George Adams. This strategic financial maneuver aims to reduce Synlait’s substantial debt, which stood at NZ$559 million as of the last half-year report, down from a net profit of NZ$4.8 million a year earlier to a net loss of NZ$96.2 million.
The company has maintained its full-year EBITDA guidance of NZ$45-60 million, though it anticipates results at the lower end of this range due to softer ingredients margins influenced by foreign exchange, revised inventory assessments, forecasted write-downs, and heightened financing costs. The financial outlook is further complicated as Synlait predicts it will not meet three critical banking covenants by July 31, 2024, concerning interest coverage, leverage, and senior leverage ratios.
Amid these fiscal challenges, the company's banking syndicate is reviewing a package of proposed waivers put forward by Synlait to ease some of the financial pressures. Furthermore, the potential sale of the Dairyworks cheese operation, initially put on the market last June to refocus on B2B infant formula and foodservice businesses, has failed to attract a satisfactory binding offer. Despite receiving some interest, the company stated that the sale process is no longer formally open, though they remain open to credible offers.
The situation is exacerbated by unrest among Synlait’s farmer suppliers, many of whom have submitted cessation notices potentially withdrawing from service agreements by the 2026 fiscal year unless the company can significantly deleverage its balance sheet. "Retention of milk supply remains a critical priority," Synlait noted, acknowledging the need for improved financial stability to retain its farmer suppliers and stabilize the business.
