Tuesday, 04 June 2024 08:55

Synlait farmers give notice to withdraw milk supply

Written by Sudesh Kissun

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Synlait says most of its farmer suppliers have submitted mandatory two-year cessation notices.

Troubled Canterbury milk processor, Synlait has delivered more bad news to its shareholders.

The listed milk processor says most of its farmer suppliers have submitted mandatory two-year cessation notices and this could affect milk supply from 2026 financial year.

The company says it’s unlikely to meet three of its banking covenants as of July 3. It has also withdrawn subsidiary Dairyworks from the market after failing to reach a binding offer with potential buyers.

Synlait released a market update on the Australian Stock Exchange yesterday. The NZX was closed due to a public holiday.

Synlait says retention of milk supply remains “a critical priority”.

“Farmer suppliers have signalled they want to see Synlait’s balance sheet deleveraged, so advance rates can be lifted further,” the company says.

It notes that submitting a cessation notice provides an option, rather than a clear intention to sign with other processors.

Synlait chief executive Grant Watson says the company still “presents an excellent value proposition to farmers”.

It also announced that majority shareholder Bright Dairy of China was providing a $130m shareholder loan to prop up the company. Synlait will use the loan to pay off its senior lenders, due July 15.

Bright Dairy, which owns 39% of Synlait, is loaning the money under NZX rules, which means shareholder approval is required.

Synlait chair George Adams says it is grateful to support from Bright Dairy.

“We are actively working with Bright Dairy on the remaining work relating to this shareholder loan and a future equity raise.

“The shareholder loan, and the future equity raise, will enable Synlait to reduce its debt to a sustainable level.”

The company also announced a further revision of its expected gross profits.

It had earlier signalled an EBITDA range of $45m to $60m for the 2024 financial year. Yesterday, it said the EBITDA will now be at the lower end of the range.

Synlait is blaming softening of ingredient margins, increased financial costs and more inventory write-downs for the revised forecast results.

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