Friday, April 12, 2024

Synlait staying afloat in its sea of debt

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Delayed results include possible recovery routes even as they chart extent of the problem.
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Synlait’s FY2024 delayed interim results have disclosed the extent of its debt predicament and some possible recovery routes.

The deleveraging options include sale of the Pokeno processing plant and the Auckland blending and canning plant, a discounted sale of Dairyworks subsidiary and, reluctantly, an equity raise backed by its largest shareholder, Bright Dairy.

However, the interim results make no mention of Synlait’s largest customer and second-largest shareholder, a2 Milk, a rumoured possible buyer of the main Dunsandel plant where A2 infant formula is made.

 For the six months to January 31, Synlait reported a net loss of $96.2 million after tax, hammered by massive writedowns of underutilised North Island manufacturing facilities and Dairyworks.

Acting chair Paul McGilvary and chief executive Grant Watson said the No 1 priority is to reduce the debt level, which was $559m on January 31.

“Net debt is $145.5m higher than FY23 due to poor operational performance, seasonal inventory build, and higher financing costs.

“Synlait is facing several material uncertainties with regard to the timings and outcomes of deleveraging options which are currently progressing, and which are critical in ensuring Synlait will continue to meet financial obligations as they fall due,” they said.

“As the balance sheet has come under continued pressure, cessation notices from our farmer suppliers have increased compared to previous years.”

Because the cessation notice period is two years, Synlait hopes that farmers will reconsider when the debt problems are fixed.

“We are confident, given the progression of the reset plan, that there is currently limited material risk to our future financial performance.”

The company was placed in a trading halt last Thursday pending today’s announcement. Shares traded at 65c, down 10c, when trading resumed.

The forecast base milk price for the current season has been lifted by 30c to $7.80, plus an expectation of 29c premiums from Lead With Pride.

Synlait’s bank syndicate has extended the deadline for $130m debt repayment from March 28 to July 15.

It also has $180m of five-year unsecured subordinated fixed rate bonds which mature in December 2024.

The letter of support from Bright Dairy includes a commitment to participate in a future equity raise and extend a loan, if required.

Given that Synlait’s share price is trading at a significant discount to its net tangible asset value, the board prefers asset realisation, but equity raising remains an option.


In Focus Podcast: Full Show 28 March

This week we’re looking at herd fertility. CRV’s national sales and marketing manager Julia Baynes tells Bryan why improving six-week in calf performance is the key to a more profitable and sustainable farm business.

Later in the show Sandra Faulkner of Federated Farmers discusses her concern at the massive rates rises being proposed by councils around the country. Feds are watching the situation closely and calling for councils to focus on core services to minimise the damage.

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