Is it merely a coincidence that NZ Milk processing company Synlait revealed plans for a big restructure and job cuts five days after it was announced the company would be dropped from the ASX 300, which lists the top 300 most valuable companies on the ASX?
That announcement late last Friday also saw its biggest customer a2Milk dropped from the even more exclusive ASX 50.
Both delistings happen on September 20 and both are for the same reason – the collapse in the share prices of both companies since the Chinese ‘daigou’ sales channel was ended by the Covid-pandemic driven closing of Australia and NZ’s borders to international travel.
Synlait is a major supplier to a2 and the latter’s troubles became Synlait’s headache, with the addition of problems the company was having in its own marketing and rising costs.
In a statement to the NZX and ASX on Wednesday, Synlait said it had informed its staff that a two-week consultation period had begun to assess a potential organisational restructure. The company looks like cutting 15% of staff or around 150 employees.
CEO John Penno said the company had experienced a lot of change in the last year and some parts of the business were now over-resourced, while others were under-resourced.
“We need to review and reset the structure of our business to match our current goals to be successful,” he said.
The cuts will be looking to save upwards of $NZ12 million a year, most of which will come from the loss of around those jobs in NZ.
Mr Penno said in the statement the business would look to remove “unhelpful hierarchy” to better focus the company on its three main divisions: nutritionals, ingredients and liquids.
The business is expected to announce a loss for the financial year when it reports later this month.
In May, Synlait warned that it was heading for the first loss in the eight years as a listed company. Synlait is expected to post a full-year loss of between $NZ20 million and $NZ30 million in the year ending July, after previously saying in March that it had expected to break even.
Demand from a2Milk had weakened due to disruptions caused by Covid-19, including shipping delays, lower prices and concerns around too much inventory.
Mr Penno said the business had undergone significant change in the last 12 months.
“This means some areas are now over-resourced, and some areas are under-resourced,” he said. “We need to review and reset the structure of our business to match our current goals to be successful.
“Synlait has been heavily affected by the current lack of demand for infant formula in key markets such as China. The business is a key supplier to milk company A2 Milk, which recently announced it would review its China business due to the persistent issues caused by the virus,” he said.
The hit to sales was after Synlait increased its debt to diversity its products, manufacturing sites and customers to reduce its reliance on a2 and set the stage for future growth.
That has come to a halt.
The company has already received a waiver on its debt covenants from its bankers earlier this year.
Synlait said the restructure will be detailed along with the weak results on September 27.
Investors at first liked news of the cost cuts and marked the shares up by 1.3% but then had second thoughts and the shares ended the day 1% lower at $3.
