Synlait plunges into deep half-year loss, wins debt payment extension

Synlait Milk says it has won an extension for a $130 million debt repayment. Photo / NZME

Cash-strapped dairy company Synlait Milk says it has won an extension for a $130 million debt repayment after asset impairments plunged the company into a $96.2m loss for the first half to January 31.

The loss compared with a $4.8m profit in the previous corresponding period.

The company, whose shares went into a trading halt last week pending this morning’s announcements, traded at 65c, down 10c or 13 per cent, when trading resumed.

Synlait, which has extensive facilities at Pōkeno, said a strategic review of its North Island assets was under way.

It also said it had a letter of support from 39 per cent shareholder Bright Dairy, and banking amendments, including an extension to the $130m “prepayment” which fell due on March 28.

The company also raised the possibility of a capital raise.

Synlait recorded an impairment charge of $50.3m, driven by under-utilisation of its North Island manufacturing facilities.

There was also a $31.1m adjustment recorded to write down the net assets of its consumer goods unit Dairyworks - which it has up for sale - to fair value less costs of disposal to reflect the value of non-binding offers received.

The company’s earnings before interest, taxes, depreciation, and amortisation (ebitda) were $19.9m for the half.

The result was driven by softening demand and margins across all business units, foreign exchange adjustments and increased operating expenses.

Synlait’s adjusted net loss after tax was $17.4m - near the bottom of a previously advised guidance range.

Net debt was up 8 per cent to $559.0m.

Chief executive Grant Watson said it was a challenging half-year for Synlait as the company worked to cut debt.

“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.”

He said Synlait had a clear plan to deleverage its balance sheet and reduce total debt to a sustainable level.

It had five elements:

- The banking syndicate staying supportive, with amendments confirmed

- Extension of the $130m prepayment from March 28 to no later than July 15

- An additional $30m of short-term funding from March 28 to June 27

- Amendment of the shareholders’ funds covenant from $600m to $400m

- Amendment of the interest cover ratio from 2.25 times to 1.75 times for 2024

In terms of capital raise, Synlait said that given Synlait’s share price was trading at a significant discount to its net tangible asset value, the board believed asset sales “should be progressed” to produce maximum value for shareholders.

“Equity raising remains an option under consideration by the board in parallel to achieve deleveraging of Synlait’s balance sheet,” it said.

Jamie Gray is an Auckland-based journalist, covering the financial markets and the primary sector. He joined the Herald in 2011.