The troubled Kiwi dairy group Synlait Milk (ASX:SM1) may have received a loan from its major Chinese shareholder to pay off its bank debt on Monday to the tune of NZ$130 million, but it is still in a precarious position, as evidenced by its withdrawal of already weak 2024 guidance on Wednesday.
The previously announced guidance forecasted that Synlait expected its earnings before interest, taxes, depreciation, and amortisation (EBITDA) to be at the lower end of the NZ$45 million to NZ$60 million range, excluding a non-cash adjustment for the product costing method change of approximately NZ$17 million.
That guidance was already questionable due to the company’s well-known issues with its biggest customer, a2Milk, over a supply contract, among other problems.
Wednesday’s statement highlighted the unrealistic nature of that guidance.
“The company’s immediate FY24 performance has been impacted by unforeseen year-end timing differences between July and August for manufacturing and shipping, along with additional costs incurred in relation to the strategic review and deleveraging plan due to the extended timeframes to execute,” the company told stock exchanges in a statement on Wednesday.
“Because of this, Synlait advises that its final EBITDA result will be below the current FY24 guidance, but continuing uncertainty means that it is not able to provide an updated outlook.”
Synlait said its Board “is committed to resetting Synlait’s balance sheet to help it return to a position where it can deliver on the growth potential seen in its core Advanced Nutrition and Foodservice businesses.”
“To achieve this, considerable steps are being taken to complete the deleveraging plan. The first step was completed on Monday, 15 July 2024, with the $130 million payment made to Synlait’s banks. The Board continues to progress plans for a proposed equity capital raising and bank refinancing.
“In addition to reducing debt, the business recovery plan for this financial year and next focuses on accelerating volume growth and optimising cost and operational performance. Synlait’s priority is to deliver on this broader plan.”
Synlait said it remains on track to meet its minimum adjusted EBITDA for FY24 for bank covenant purposes, as announced on 3 July 2024.
Synlait also said that it “has agreed with its banking syndicate that the minimum adjusted EBITDA for bank covenant purposes will add back several one-off costs that impact the previously announced EBITDA guidance.”