New Zealand’s dairy and infant formula company, Synlait Milk, has announced that it will maintain its Pōkeno plant located on the North Island; however, this facility will discontinue its milk processing operations.
Recent local media reports indicated that Synlait was likely to finalize a deal to sell its North Island milk supply, with Open Country Dairy being a potential buyer. Today, however, Synlait confirmed that its 54 farmer-suppliers would have their milk collected and processed instead by Open Country Dairy.
In a stock exchange announcement, Synlait explained that after conducting a strategic review, it determined that a path to profitability required keeping the Pōkeno facility but altering its operational focus.
Despite this decision, the possibility of selling the asset in the future remains open. Synlait stated, “The board will not actively seek a buyer for Pōkeno. However, in the event a compelling offer was made for the asset, the company may consider it.”
In April, Synlait initiated a strategic review of its North Island assets to aid its recovery plan. This review aimed to assess the future of the Pōkeno plant in Waikato, along with the blending and canning facility in Auckland.
Today’s announcement did not mention the Auckland facility. we reached out to Synlait for an update on the future of this site, outside of regular business hours in New Zealand. The strategic review “explored a wide range of factors, including potential ownership structures, mothballing the Pōkeno facility, and how to balance its capability to process dairy and non-dairy hybrid nutrition products.”
Synlait CEO Grant Watson remarked, “The review has been detailed and thorough. It’s given us the insight needed to lift the financial performance of these world-class assets. We now have a pathway to profitability in our North Island operations.” Among the findings, the report noted that the plant’s ability to switch between processing plant-based proteins and dairy products affects operational efficiency.
Moreover, the review identified transport and manufacturing costs as significant barriers to maintaining milk processing at Pōkeno. Consequently, Synlait’s management has decided to focus the Pōkeno facility on producing advanced nutrition products that do not require raw milk, whereas the Dunsandel facility will continue to serve as the primary hub for dairy operations.
As part of this transition, Synlait has affirmed its commitment to meet all contractual obligations to the dairy farmers who previously supplied the Pōkeno plant.
Last month, it became known that China’s Bright Dairy is set to become the majority shareholder of Synlait. This change is part of a crucial NZ$271.8m ($166.8m at the time) equity raise aimed at stabilizing the troubled New Zealand company. After this subscription to the offering, Bright Dairy, which currently holds 39%, will increase its stake to 65.3%. This move is pending approval from a scheduled meeting later this month.
Synlait had previously secured a NZ$130m bailout loan from Bright Dairy and issued warnings that its business viability hung in the balance without additional capital. The planned equity offering, part of an agreement that resolved a long-standing contractual price dispute with The A2 Milk Co., also faced hurdles, as the company noted that a firm commitment from A2 for the offering was no longer forthcoming.
Under the arrangement, A2 Milk would receive NZ$32.8m in Synlait shares while maintaining its position as the second-largest shareholder with 19.8%. Bright Dairy is set to subscribe for NZ$185m worth of shares. Additionally, securing an agreement with banking creditors to refinance existing debt is deemed an essential step for Synlait’s long-term viability, as indicated in prior communications.
Chairman George Adams has cautioned in stock exchange filings that financial institutions might decide to call in existing loans if substantive measures are not taken.
Synlait is expected to release its full-year results on September 30, although in July, the company withdrew its EBITDA guidance, which was projected to be between NZ$45-60m.
With these developments, insights into the food and beverage industry trends become increasingly relevant. Synlait’s actions exemplify the ongoing adaptations businesses must make in the evolving landscape of the food and drink sector amidst changing consumer trends.
