In a notice posted on the ASX, dairy processor Synlait acknowledged support from its milk suppliers is flagging badly. Support from its bankers remains uncertain too.
It said "a significant majority of the company's farmer supplier base have submitted cessation notices".
But those notices won't become final until the 2026 financial year, giving it some time to win withdrawal of these notices.
In the meantime, it says margins are under pressure from a number of factors.
So it has had to take a NZ$130 mln loan from 39% shareholder, Bright Dairy of China. (A2 Milk owns 19.8%.) And this facility will be used to pay back lenders when the next major loan repayments are due mid July.
In turn, this is because it also acknowledges it is unlikely to be able to meet three of its banking covenants by July 31, 2024, namely the interest coverage ratio, the leverage ratio, or the senior leverage ratio. It is seeking waivers from its banking syndicate.
They are now signaling an equity raise in its drive to deleverage its financial position.
At the same time, it has said its current season payout is likely to be $7.80/kgMS, and signaled that the next season will be $8.00kg/MS. It claims that the average incentive payment to farmer-suppliers is $0.28/kgMS on top of the base payout levels and expects next year to be similar. These levels are similar to Fonterra's published levels. (Fonterra suppliers also receive a dividend on their shares, one that is likely to be higher than last year's 50c.)
You can compare payout levels and forecasts on this page resource.
Keith Woodford's recent assessment of Synlait's prospects and position is here.
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