Company says move was expected as farmers broaden their options by signalling start of two-year process.
A significant majority of Synlait Milk’s farmer supplier base are looking to exit the business after handing in cessation notices to the financially troubled company.
The move was expected, given its current performance, the company said in a market update statement.
“Farmer suppliers have signalled they want to see Synlait’s balance sheet deleveraged, so advanced rates can be lifted further, and submitting a cessation notice provides an option, rather than a clear intention to sign with other processors,” it said.
Synlait’s current financial performance is not impacted as the cessation period is two years.
Cessations received in the immediately preceding year up to the May 31 2024 cut-off date would affect milk supply from 2026 onward if they are not withdrawn, it said.
The company also revealed that Bright Dairy, which owns a 39% shareholding in Synlait, will provide it with a $130 million loan, subject to shareholder approval at a special meeting by way of an ordinary resolution.
Synlait expects to draw down the full $130m to meet its prepayment obligation to the company’s senior lenders, due on July 15.
Synlait chair George Adams said the company is grateful for Bright Dairy’s support.
“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 forecasts that it is unlikely to meet three of its current banking covenants as of July 31, the interest coverage ratio, leverage ratio, and senior leverage ratio.
This reflects the timing of Synlait’s deleveraging and further weakening in its financial performance.
The banking syndicate is currently reviewing a package of proposed waivers put forward by the company. The syndicate has continued to support Synlait and is actively engaging with the company on the requested waivers.
The board and management continue to prioritise the plan to deleverage Synlait’s balance sheet, it said.
The sale of its Dairyworks brand has been withdrawn due to a lack of acceptable offers, it said.
“While the board has received interest in the business from a number of parties, a binding offer has not materialised at a level that would be acceptable. Although the company would consider credible offers, the sale process no longer remains formally open.”
Its guidance update said Synlait expects its earnings before interest, taxes, depreciation, and amortization (EBITDA) for the 2024 financial year to be within the range of $45m to $60m, excluding a non-cash adjustment for the product costing method change of $17m.
Synlait is now forecasting the EBITDA result to be at the lower end of this range.
The expected result has been further impacted by a softening of ingredients margins due to foreign exchange rates and pricing, revised inventory provisioning and forecast write-downs in the second half and increased financing costs due to the extended time frames to deleverage the business and operational costs.
In a separate announcement, Synlait indicated that Ruth Richardson will retire as a director to accommodate the new appointment of Leon Fung to the board.
Both Richardson and Fung are directors appointed by Bright Dairy, which has a 39% shareholding in Synlait and four board seats.
Leon is currently CEO of NIG Nutritionals CEO, a privately owned business specialising in food supplements and goat milk.
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