The slate has largely been wiped clean for Synlait Milk, but the dairy processor still faces challenges.
The company has had numerous hoops to jump through - among them a balance sheet reset delivered by a shareholder loan and an equity raise, underpinned by bank refinancing.
Then there was theresolution of a dispute with key customer a2 Milk, and a review of its North Island assets.
A market analyst said today’s result, against the background of a torrid few months of restructuring, was something of a sideshow.
But for the record, the company plunged into a $182.1 million loss for the July year, with most of the red ink coming from a $114.6m non-cash impairment of its long-term North Island assets - mostly from its loss-making processing plant at Pōkeno.
Synlait did not give an earnings guidance for the current year, but it is targeting net debt of $200m to $250m by the end of 2025, down from $551.6m in 2024.
“There is still a lot to prove, looking ahead,” the market analyst said.
“It’s all well and good to have targets for the year ahead, but as we saw in 2024, they are not particularly easy to meet.
“The primary balance sheet concerns are allayed but there is still water to flow under the bridge and they still have to prove the delivery of cash flow and debt reduction, so there is plenty of work to do yet.”
Synlait chief executive Grant Watson said it was a disappointing result and it was good to draw a line under it and “get the year behind us”.
“We have started the year really well, but when you look at the size of the impairment, we have had very challenging trading conditions on many fronts, and significantly higher financing costs off the back of such a leveraged balance sheet.”
The way ahead would involve still more deleveraging of the balance sheet, a return to profitability, and retaining farmer suppliers, he said.
Synlait still faces challenges.
On the latter, Synlait plans a one-off 20c/kg payment to its South Island farmers and an extra 5c for its North Island farmers.
Synlait’s forecast for the current 2025 season is $8.60/kg.
“If you look at some of the banking covenants, we have got our work cut out but we are confident that we will deliver against the numbers that we have planned,” Watson said.
Kiwibank has joined Synlait’s banking syndicate, along with China’s ICBC and the Bank of Communications.
ANZ leads the syndicate, and the Bank of China is sub-managing the Chinese banks.
Consumer goods maker Dairyworks - which the company came close to selling - put in a record Ebtida of $22.8m - underpinned by strong sales growth and increased demand from Woolworths in Australia and other Australian partners.
Dairyworks’s growth is expected to continue in 2025.
The price of lactoferrin - a highly specialised protein known in the industry as “pink gold” - fell by US$200 ($313) a kg due to global oversupply.
The highly prized product - made at Synlait’s Dunsandel facility - is used extensively in the Chinese infant formula market.
Advanced nutrition margins were down due to softening of lactoferrin market sales prices, inflationary pressure on manufacturing costs, and short-term inefficiencies as North Island production volumes scaled up.
Inventory write-down costs remain at elevated levels across both 2023 and 2024 years.
Watson said the focus now would be getting Pōkeno’s to a position of breakeven, in terms of cash flow, within two years.
From next year on, he expected to see roughly $7m of costs come out of the Pōkeno operation.
Pōkeno’s biggest customer is US nutrition giant Abbott.
As it stands, Pōkeno is running at15% capacity but Watson expects more volume to come on board.
“The key for the next four or five years will be getting that up to, say, 70%.”
The bank’s refinancing takes effect from tomorrow,
In his review of the year, Watson said Synlait began 2024 with too much production capacity, unsustainably high levels of debt, significantly higher interest rates, and sharply declining demand for infant formula at a macro level.
Commenting on the upped payment to farmers, Watson said the company acknowledged it needed to regain confidence.
“Farmers have been clear in their expectations of Synlait to reduce its debt levels while paying a competitive milk price and strong advance rates,” the company said.
Synlait’s capital restructure means China’s Bright Dairy will go to 65% from 39%
A2 Milk’s holding will remain just over 19%.
Jamie Gray is an Auckland-based journalist, covering the financial markets and the primary sector. He joined the Herald in 2011.
