A poor half-year financial result is forcing listed Canterbury milk processor Synlait to carry out “a strategic review” of its North Island assets, including its new plant at Pokeno and blending and canning facility in Auckland.
The company has also been thrown a lifeline by its banking syndicate – which has extended the $130 million prepayment due March 28 to no later than July 15 2024 and approved an additional $30m short-term funding until June 27.
Synlait’s largest shareholder, Bright Dairy of China has provided a letter of support that includes a commitment to participate in a future equity raise and to extend a loan at the request of Synlait. An equity raise is also on the cards.
Synlait shares were placed on a trading halt last Thursday.
For six months ending January 31, 2024, Synlait’s revenue rose 3% to $794 million. Earnings before interest, taxes, depreciation, and amortisation (EBITDA) was $19.9 million.
Net loss after tax was $96.2 million with adjusted net loss after tax was $17.4m. Net debt rose 8% to $559m. Gross profit was down 47% to $43.6 million.
On the possible sale of its North Island assets, Synlait says it will explore the highest-value ownership structure of these assets to maximise value for all shareholders.
The strategic review is expected to take several months, and there is no certainty that any transaction will result.
“No decisions will be made regarding any potential transaction or other outcomes until the completion of the strategic review,” it says.
Synlait is also progressing with an equity raise alongside its strategic review of the North Island assets.
“Given that Synlait’s share price is trading at a significant discount to its net tangible asset value, the board believes that asset realisation should be progressed to produce maximum value for our shareholders.
“Equity raising remains an option under consideration by the board in parallel to achieve deleveraging of Synlait’s balance sheet.”
Synlait chief executive Grant Watson says it’s been a challenging half-year for Synlait as it continues to reset the company to better achieve strategic objectives, while working to significantly reduce elevated levels of debt.
The delivery of our half-year results brings together several reset initiatives, with the announcement of an amendment to our banking facilities, and a strategic review of the North Island assets.
“The balance sheet reset initiatives are underpinned by a letter of support from our largest shareholder, Bright Dairy. Bright Dairy’s support, coupled with the banking syndicate’s support, offers Synlait additional stability and confirms that our largest shareholder and banking syndicate remains very supportive.
“Our strategic focus is on Advanced Nutrition and Foodservice where we have a clear competitive advantage to deliver diversified, high-value growth. It is supported by a well-run Ingredients business enabled by our market-leading Lead With Pride on-farm excellence programme. We have built a world-class and highly flexible asset base, and we are well positioned ahead of emerging customer demand trends. Combined with our refreshed executive leadership team, we have all the pieces in place to execute on this strategy and deliver strong returns for our shareholders.”
Synlait also provided an update on the sale or its Dairyworks cheese plant.
The company says it remains in discussions with potential purchasers, but no sale has been completed or assured.
“This is a high value business, and the board will ensure the best possible return is achieved for shareholders.”
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