Food and Beverage Business
Finance

Chinese shareholder comes to the rescue of Synlait Milk

Chinese shareholder comes to the rescue of Synlait Milk bailed out, Chinese shareholder, Synlait Milk Food and Beverage Business Synlait

Synlait Milk’s main shareholder has stepped in to assist the New Zealand dairy business by providing funds to meet debt obligations. In a bid to address its financial challenges, the company has secured a NZ$130m ($79.7m) loan from China’s Bright Dairy, a move that follows talks with creditors regarding debt waivers.

Furthermore, Synlait is facing pressure from its farmer suppliers, who have threatened to terminate their service agreements unless the company addresses its debt issues. This development comes amidst a multi-faceted announcement that includes a profit warning and the postponement of the sale of the Dairyworks cheese business.

The Bright Dairy loan will cover a missed debt repayment revealed in March, with creditors extending the deadline to mid-July. Synlait has also expressed plans for an equity raise to further reduce its debt levels, as Chairman George Adams acknowledged the importance of achieving a sustainable financial position.

At the half-year mark, Synlait reported a net loss after tax of NZ$96.2m, signaling a significant decline from the NZ$4.8m profit recorded a year earlier. Despite a 3% increase in revenue to NZ$793.5m, the company experienced a 47% decrease in gross profit. EBITDA dropped to NZ$19.9m, with adjusted EBITDA also declining.

Looking ahead, Synlait maintains its full-year EBITDA guidance of NZ$45-60m but anticipates that the final result may fall towards the lower end of the range. Factors contributing to this outlook include softening ingredients margins, inventory adjustments, forecasted write-downs, and increased financing costs.

The company also highlighted challenges related to its banking covenants, noting that it is unlikely to meet certain financial ratios by July 2024. The banking syndicate is currently reviewing proposed waivers from Synlait in response to its financial performance.

In response to the evolving situation, Synlait’s shares experienced a decline on both the New Zealand and Australia stock exchanges. Additionally, the company confirmed that the sale process for the Dairyworks cheese business has stalled, despite interest from potential buyers.

As Synlait navigates its financial challenges, the retention of farmer suppliers remains a critical focus. A significant number of suppliers have submitted cessation notices, reflecting concerns about the company’s performance. Synlait emphasized the importance of deleveraging its balance sheet to address these concerns and retain milk supply.

In conclusion, Synlait’s financial woes underscore the need for strategic restructuring and financial discipline to secure its long-term viability in a challenging market environment.

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