Synlait sweetens milk supply deal

Acting chief executive Tim Carter told Dairy News that last week’s announcement of new milk premiums for its South Island farmer suppliers “is a tangible way to show them that we are back on track”.

Carter says the response from farmers has been “very positive”.

The listed company has signalled that it expects half-year earnings before interest, taxes, depreciation, and amortization (EBITDA) to January 31 to be in the range of $58 million to $63 million. Last year the company reported a bottom- line loss of $70m.

To keep its South Island supplier base, many of whom had issued notice of cessation of supply to the company, Synlait has announced new premiums.

Carter says that while “the job is not yet done”, the company has made a good start to recover.

He admits that farmer suppliers want surety that Synlait is here for the long term.

“Since 2000s, we have delivered consistent performance except for last few years.

“Our farmers are rightly asking for surety that we are here for the long term.”

Carter says the positive financial forecast and the new milk premiums go hand-in-hand.

“Without our farmers and their milk, we have no business.”

Synlait says it will pay 10c/kgMS premium to South Island farmers committed to a future with Synlait without a cease notice in place. The premium will be in place for the next three seasons, and paid on top of Synlait’s base milk price and in addition to the incentives for specialty milk and its Lead With Pride programme.

The company will also amend milk supply agreements to enhance cashflow security – guaranteeing, from the current season, an average Synlait milk price that matches the market base milk price, and from next season, to match the market advance rate.

Carter says the Synlait team has worked extremely hard to lift productivity and performance in the past six months.

“The announcement demonstrates the huge progress being made and, while we cannot take our foot off the pedal, we are pleased to announce we expect to return to profitability at our upcoming half year result,” he says.

“Farmers are an important backbone to our business. To further recognise that, we have increased our commitment to existing and new South Island suppliers with additional premiums in place for each of the following three seasons. We are confident this will secure our milk supply which is critical to our future.”