The Synlait Milk Ltd (ASX: SM1) share price is up 8% after reporting its FY24 result. What can owners of A2 Milk Company Ltd (ASX: A2M) shares learn?
Synlait is a dairy product manufacturer and A2 Milk (a major infant formula producer) owns almost 20% of Synlait.
FY24 result
Here are some of the highlights from Synlait’s FY24 report:
- Revenue increased by 2% to $1.64
- EBITDA fell to a loss of $4.1 billion
- Adjusted EBITDA was $45.2 million, down 53%
- Net loss after tax of $182.1 million, down from a FY23 loss of $4.3 million
- Adjusted net loss after tax of $60.4 million, down from a profit of $2.5 million in FY23
- Net debt of $551.6 million, up 33%
Synlait said that it has implemented changes which were driven by the need to reduce Synlait’s debt to more manageable levels. One of those changes involves a substantial bank refinancing package, which will be achieved on 1 October 2024.
The company announced additional payments to farmers to recognise how critical their milk supply is to Synlait’s future. Synlait said it hoped those combined actions will “accelerate cease notice withdrawals”.
The dairy product business said it needs to work hard to regain the confidence of farmer suppliers. Synlait said farmers have been clear in their expectation that Synlait would reduce its debt levels while paying a competitive milk price and strong advance rates.
Farmer payments
Synlait said to recognise the value of South Island farmers’ milk, it’s offering a one-off $0.20 per KG MS payment to all South Island farms that: do not have a cessation notice in place on 31 May 2025, are supplying milk to Synlait in the 2025/2026 season and “remain un-ceased until 31 August 2025”.
The one-off payment will be based on milk solids supplied in the 2024/2025 season and will also be made available to new suppliers.
North Island farmer suppliers will receive a one-off $0.05 per kg MS payment. The company said there was a “different set of circumstances” to South Island farmers.
Outlook for the Synlait share price
There are three focus areas for FY25.
First, deleveraging and improving working capital. Second, retaining milk supply and accelerating volume growth. Third, improving trading and operational performance.
Shareholders have voted to approve a $130 million shareholder loan from Bright Dairy and issue approximately $217.8 million of new share capital.
Synlait noted its ability to achieve a successful refinance of its banking facilities one year from now will require “a marked improvement in trading performance and retained milk supply (through a reduction in farmer supplier cessations.”
The company didn’t provide guidance for FY25. It seems there is a long way to go for a full recovery for Synlait shares, but the company is working hard on fixing the issues.
