Synlait Milk to raise $200m, earnings to flatten in 2021

Synlait is raising $200 million from the market. Photo / NZ Herald

Synlait Milk said it planned to raise $200 million from investors for further investment and to strengthen its balance sheet.

Canterbury-based Synlait said it planned to raise $180m from an underwritten placement at a fixed price of $5.10 per share and a $20m from a share purchase plan (SPP). The stock last traded on Monday at $5.93.

Proceeds would be used to complete the investment phase of its strategy including the customisation of Synlait Pokeno and Auckland for processing and packaging equipment to service its new, multinational customer.

Synlait said last week that $70m of investment would be required at its Pokeno and Auckland facilities to cater for its new, as yet unnamed, customer.

At the same time, Synlait said that it expects its 2021 net profit to be level with or slightly lower than the 2020 profit.

The equity raising is supported by Synlait's cornerstone shareholders Bright Dairy Holding and the a2 Milk Company, with pro rata pre-commitments to take up shares by them and guaranteed allocation amounting to approximately $114m in total which have been excluded from the underwrite. The balance of the equity raising is fully underwritten.

Under the placement, Bright Dairy will be allocated its pro-rata portion of the equity raising to ensure that its 39.01 per cent holding in Synlait does not fall.

Synlait said the new capital would also act to strengthen its balance sheet to provide more financial headroom as it navigates Covid-19, which is having an unpredictable impact on the stability of its current and future earnings.

It expects consumer-packaged infant formula volumes to be lower than 2020, with softer demand in 2021 than previously expected as its key customer - a2 Milk - resets its own inventory levels.

Synlait still expects volumes to increase in the second half of 2021 once stocks have cleared.

However, the company expects its half year 2021 net profit to be "significantly lower" than the 2020 half year result.