Synlait may sell plants to repay $300m debt
Troubled dairy company Synlait is working to reduce its debts by $300 million by the end of the year as part of a plan to restore profitability and confidence among farmers supplying it with milk.
The Canterbury dairy processing company announced a half-year loss after tax of $96.2 million yesterday, and its management now expects to deliver a full-year result significantly lower than it did last year.
Trading in the company’s shares on the NZX was halted last Thursday when management said it had missed a $130m debt repayment, and was negotiating with its banking syndicate, which comprised ANZ Bank, Bank of China, China Construction Bank, HSBC and Rabobank.
The syndicate had now given the business until July 15 to make the repayment, shareholders have been told.
To reduce debt Synlait is trying to sell its consumer Dairyworks business, which owns brands include Rolling Meadow, and which it values after sale costs at around $120m, after writing its value down by $31.1m.
But Synlait is also exploring raising capital from shareholders, and is considering full or partial sales of its North Island manufacturing plants in Pōkeno and Auckland, which the company said were world-class, and were capable of handling plant-based milks as well as dairy.
“Material uncertainties” remained over the Dairyworks sale and a capital raise happening by July 15, its financial statements show.
However, Synlait chief executive Grant Watson said major shareholder Bright Dairy had committed to providing a bridging loan to make sure that deadline was not missed.
Synlait’s financial statements said the bridging loan was “subject to obtaining all requisite corporate, shareholder and external approvals on reasonable terms and conditions mutually acceptable by the Group and Bright Dairy”, and they were yet to be determined.
Watson also said Bright Dairy, which is based in China, had committed to taking up its rights in any capital raising that took place.
Revenue was up 3% to $793.5m in the six months to the end of January, but Synlait’s net debt was up 8% at $559m. The half-year result had been hit by softening demand and margins across all its business units, and Synlait had suffered from increased costs, and adverse movements in foreign exchange, shareholders were told.
Watson and McGilvary thanked shareholders, its majority owner Bright Dairy, its banking syndicate, and its farmer suppliers for their patience as they worked to reset the business.
But they noted that farmers had been signalling their intention to stop supplying Synlait in increasing numbers.
“Retention of our high-quality milk supply remains a critical priority,” they said.
“As Synlait’s balance sheet has come under continued pressure, cessation notices from our farmer suppliers have increased compared to previous years. The cessation notice period is two years and Synlait expects that many of these farmer suppliers will opt to withdraw their ceases once we deleverage our balance sheet.”
The write-down in the value of Dairyworks was part of a total asset impairment loss of $81.4m, which the company said created “further uncertainty” with respect to Synlait as a going concern.
While the company was considering the sale of its underutilised North Island manufacturing facilities, Watson said Synlait’s Dunsandel plant remained profitable, and was not being considered for sale.
Synlait remains locked in a legal dispute with A2 Milk, which has a shareholding in the dairy company. Watson said Synlait had not spoken to A2 Milk about whether it would be interested in participating in a capital-raising.