Release Date: April 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Synlait Milk Ltd (ASX:SM1, Financial) reported an adjusted EBITDA of $36.1 million, showing some operational profitability.
- The company has a clear deleveraging plan supported by its banks and largest shareholder, Bright Dairy.
- Synlait Milk Ltd (ASX:SM1) announced an increase in its base milk price forecast from $7.50 to $7.80.
- The company has several new products in development and trials with new customers at scale.
- Synlait Milk Ltd (ASX:SM1) has strengthened its leadership and governance with a refreshed executive team and the appointment of George Adams as an Independent Director.
Negative Points
- Synlait Milk Ltd (ASX:SM1) reported a significant adjusted net loss after tax of $17.4 million and a total net loss after tax of $96.2 million.
- The company has a high net debt of $559 million, which is a major concern.
- Interest rates have roughly doubled, adding financial pressure on the company.
- The company faces material uncertainties over the next 3 to 12 months, including the need to deleverage and manage excess capacity.
- Operating cash flow was negative $98.1 million, although this was an improvement on the prior period.
Q & A Highlights
Q: Hi, guys. Good morning. I might just start with your outlook commentary. I'd just be keen to understand, I guess what's changed in the last six weeks or so dramatically. I mean, if I look at there, the factors you've called out in terms of margins and costs, consistent with what was articulated in February. And so I'd just be keen to understand within each segment and with some detail what what's driven the big step change.
A: Hi, Matt. I'm going to give a little bit more color to what's going on. First of all, I'll touch on the advanced nutritional kind of statement. What we're seeing within there is impacts across our lactoferrin. So we've got uncertainty around and that market has really softened uncertainty around volumes and also prices. As you know, direct appear in some segments being quite profitable for us in the past. And we are seeing some volatility in that net space. The other effect, the hedging process and also the other segments as foreign exchange. So Frontier released a fix assessment and but January, early February which basically kind of crystallize the fact that actually we were behind on foreign exchange would hit a number of tailwinds. The foreign exchange, the previous two years were actually behind and that's affecting the Ingredients business recently significantly and also in other other segments as well. Some of the other some information has come through last six weeks is really around inventory and discounting of inventory. And so we still got a number of issues, particularly within our logistics and our warehousing around on inventory and products that I am not valued at what we think they're valued at. And so we're working our way through that at the moment. And then I guess the overlay is still and not quite knowing exactly how we're going to go across the next few months around expenses, costs, supply chain disruption, through the Red Sea and shipping kind of play there so that the things we're concerned about look, I would hope that the range just within the is a conservative range and that will be targeting to be towards the upper end of that range.
Q: Just within the advanced nutritionals business, I think prior commentary was volumes to be up 11% to 12% in FY24. What would that number be now? Presumably it's lower and I guess with the with the differential coming from, is that the EBIT volumes lower or is that a two moving volumes away from your facilities quicker than expected? We're in demand from them?
A: If you look at this is commercially seems different national trying to give you a little bit of color here. Look, we were actually expecting our infant formula volumes to be a little bit better than what we anticipated previously back in time, James produced up and the application I thought to be to be a little bit down on what we initially and we're projecting six months ago.
Q: Morning, guys. Just some in terms of the energy from here. It sounds like you're going to be sort of a single site kind of one customer business really again, is that something that you guys are sort of I'm able to sort of manage the risk appropriately of going forward and sort of what sometimes has been sort of working to get away from to the last five years?
A: Nick, clearly we haven't made any decisions on a complete sale or no sale of assets or potentially selling half of their asset base. And there's still a possibility that we might retain those assets regardless, it doesn't take us away from our focus on Advanced Nutrition & Foodservice. Foodservice creams come out of the done sandal side and any future category growth. Foodservice would also come most likely out of the done central site and clearly on the internal side, we've got capability for and the a2 Milk company business for other customers that we're in the process of acquiring. And there are other potential opportunities that we could develop in the data center side, if any have been and we did exit our northern position. So our strategy focused around advanced nutrition and it remains and focus on foodservice remains.
Q: Good morning, gents. Can we just extend on the asset sale program. And so could you just give us a little bit more of an update in terms of with Dairyworks sets? So you've had indicative offers at [120], you're still working on those or are those offers gone and you are re-starting?
A: Look, we've had a lot of offers nonbinding and but we use that, we came very close last week. I'd say getting a binding offer, I can't say who the party was, but that it did not occur and it wasn't because the business was very much and a party that really liked the business. But for regulatory reasons, it just wasn't the right time and for them to bite down on it. So I think going forwards, we there was a setback, but we've still got at least two parties who are interested and we continue to work with them over the next couple of months to see if we can to build them into a credible offer.
Q: Good morning, team. Thank you for taking my question. My first one is around the capital raise. So it's great to see that the pull from your largest shareholder rights commitments to a potential capital raise and aboriginal if needed, given we haven't heard anything for a2 Milk being seen like stake in the largest shareholder on these. Does that mean you haven't gotten support from your second largest shareholder on a capital raise? I know it's probably a difficult question to answer, but any information you can share these will be helpful? Thank you.
A: And we haven't directly engaged with the a2 Milk company on the capital raise as we get to the position where our capital raises concerns. Clearly, we would engage with our second largest shareholder, our largest customer on that point. But at this stage, we have not engaged with them.
Q: My second question is around the interest causing several in the first half compared with PCP. And how can we think about the full year interest expense is in the context of these $130 million debt extension, also a potential inter-company bridge loan from bright, assuming that per agent alone would be charged at a market rate, if that's correct?
A: Look, it's a good question. And I think obviously, we are expecting funds to come into the business in February and March, and that's kind of been pushed out for a period of time, but it really is more likely that a de-leveraging funds that come in will be a closer to it's the believe, for instance, as opposed to and around April. So interest costs will continue to increase on our original forecasts, any kind of line that comes through from a related party such as private equity at market pay.
Q: Yes, good morning. Just picking up on Bright Diary letter of support for nuclearizing and are you able to elaborate a little bit more on the extent of the commitment we've provided some I mean, have they committed only to take up their rights on a pro-rata basis in
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
