Synlait Milk Faces Financial Crisis as Majority of A2 Milk Suppliers Plan to Exit

New Zealand-based dairy company Synlait Milk is facing severe financial difficulties, exacerbated by the impending departure of more than half of its 300 suppliers of special A2 milk by 2026. This development has led to a downgrade in the company’s earnings outlook and the cancellation of an asset sale.

Why this matters: The financial struggles of Synlait Milk have significant implications for the business, economy and the economy as a whole. If the company is unable to recover, it could lead to job losses, supply chain disruptions, and a ripple effect on related businesses.

The mass exodus of suppliers has prompted Synlait to warn that its full-year operating earnings are likely to be at the lower end of its forecast range of NZ$45 million to NZ$60 million. This bleak financial forecast highlights the significant challenges the company faces in stabilizing its operations.

In addition to the downgraded earnings outlook, Synlait has canceled the sale of its Dairyworks cheese business. The company cited the lack of acceptable offers being the reason for scrapping the sale, further complicating its efforts to improve its financial standing.

Synlait’s financial troubles are compounded by a substantial debt burden. The company reported a net loss of NZ$96 million for the half-year period ending January 31, with net debt levels standing at NZ$559 million. To address its immediate financial needs, Synlait has secured a NZ$130 million loan from its largest shareholder, China’s Bright Dairy.

Synlait Chair George Adams expressed appreciation for the support from Bright Dairy, stating, “We are actively working with Bright Dairy on the remaining work relating to this shareholder loan and a future equity raise. The shareholder loan, and the future equity raise, will enable Synlait to reduce its debt to a sustainable level.”

The company’s struggles are not limited to financial metrics. Synlait has been hit by high costs, falling sales, and a dispute with its major customer, A2 Milk. The company’s share price has plummeted approximately 80% over the past year, reflecting investor concerns about its viability.

In April, investment house Forsyth Barr analysts described Synlait’s outlook as *“very challenged”* as it needs to find about NZ$300 million to repay debt by the end of the year. The company is currently in talks with creditors to secure waivers for its banking covenants and is considering an equity raise to deleverage its financial position.

Synlait CEO Grant Watson remains optimistic about the company’s value proposition to farmers, stating, “We strongly believe that Synlait presents an excellent value proposition to farmers with our best-in-class Lead with PrideTM program and attractive specialty milk premiums standout features.”

Synlait Milk’s financial crisis, compounded by the planned departure of over half of its A2 milk suppliers, presents a dire situation for the dairy company. With downgraded earnings, high debt levels, and canceled asset sales, the company faces significant obstacles in its path to recovery.

Key Takeaways

• Synlait Milk faces financial crisis due to supplier exodus and high debt.
• Over 50% of 300 A2 milk suppliers to leave by 2026, impacting earnings.
• Company's earnings outlook downgraded, asset sale canceled.
• Synlait has NZ$559m debt, secured NZ$130m loan from largest shareholder.
• Job losses, supply chain disruptions, and ripple effects on related businesses possible.