SML - Synlait Milk Ltd

[billkiapi]

Westland Dairy as a reference point for how the Chinese operate:

Most of us can remember wondering (and then, laughing) at the Chinese company Yili paying $3.41 per share (vs independent valuation of $0.88 to $1.38) for the loss making Westland and taking over Westland's heavy debt burden of $342m.

Well, turned out Yili knew exactly what they were doing - turnover has increased by 52% to $1.065b from the $698m in 2019 when Yili took over the company. More importantly, Yili has turned Westland losses to profits - $38.9m in 2022 and $55.9m in 2023.

So a Chinese company with unequalled access to overseas markets (especially China) and deep pockets bought a NZ dairy company which was in financial distress and under its management and ownership, turned it into a highly profitable growth dairy company.

Sounds familiar?

Things very different in today's environment- the China domestic industry has grown up, has become very capable and much safer. CCP driving a nationalistic buy local campaign. Chinese companies were paying over the odds to buy expertise and process for reasons of food security. That ship has largely sailed with almost no stainless steel investment in NZ anymore, and places like Happy Valley, Bodco, DNL etc all facing huge capacity and no demand issues. What was true for Westland, and to an extent Synlait when Mitsui wanted out- that was good for Bright. Is more investment in NZ good for Bright? time will tell. Maybe not.

[Bikeguy]

Things very different in today's environment- the China domestic industry has grown up, has become very capable and much safer. CCP driving a nationalistic buy local campaign. Chinese companies were paying over the odds to buy expertise and process for reasons of food security. That ship has largely sailed with almost no stainless steel investment in NZ anymore, and places like Happy Valley, Bodco, DNL etc all facing huge capacity and no demand issues. What was true for Westland, and to an extent Synlait when Mitsui wanted out- that was good for Bright. Is more investment in NZ good for Bright? time will tell. Maybe not.

These are fair points,

[Balance]

Things very different in today's environment- the China domestic industry has grown up, has become very capable and much safer. CCP driving a nationalistic buy local campaign. Chinese companies were paying over the odds to buy expertise and process for reasons of food security. That ship has largely sailed with almost no stainless steel investment in NZ anymore, and places like Happy Valley, Bodco, DNL etc all facing huge capacity and no demand issues. What was true for Westland, and to an extent Synlait when Mitsui wanted out- that was good for Bright. Is more investment in NZ good for Bright? time will tell. Maybe not.

Yili via Westland is continuing to invest in new manufacturing plants - unlike Synlait, Westland has been restructured and focus on increasing supply of products in strong demand.

Synlait embarked on an ambitious debt funded expansion into manufacturing products without ascertaining proper demand - eg. $70m into Plant based nutritional products. Guess they thought they could come up with another A2 winner?

[Balance]

I don't own shares in Synlait so I don't follow them at all and haven't for years. So I was profoundly shocked when I became aware that their shareprice was 46.5c! The last I remember of them was before the pandemic when the shares were over $9! That is a staggering loss of capital for investors on the order of 95% or so. With a few exceptions, like the terrible (as in it should never have been listed) biotech Genesis Research and Development Corp and a few others, I haven't seen anything like this since the bad old days following the 1987 sharemarket crash when all the Corps went belly up and investors lost all the money they had borrowed from the bank. The dreaded permanent loss of capital, but, still owing the Bank! Judge Corp, Chase Corp, Renoulf Corp, Equticorp, et al. Corpse, rather than Corps, would be the more accurate description of them and that was even before the market collapsed. So I feel for any investors in Synlait who find themselves in this position, and there will be plenty of them too.

The question for me is how did this happen when New Zealand is supposed to be the Saudi Arabia of milk, and milk is our largest export earner? And can those lessons be applied to other NZX-listed companies in order to avoid investing in them?

https://www.stuff.co.nz/business/350...-wrong-synlait

Dairy company Synlait was at one point the best performing stock on the NZX.

But this week the company, which describes itself a “game changer” in the industry, reported a $96 million first-half loss and plans to offload under-performing assets in an effort to turn its fortunes around.

Shares in the former dairy industry darling, which once traded at more than $13, slumped to just 67 cents after the result was revealed on Tuesday.

Trouble has been brewing at the company for years.

[JimmyTrade]

Yili via Westland is continuing to invest in new manufacturing plants - unlike Synlait, Westland has been restructured and focus on increasing supply of products in strong demand.

Synlait embarked on an ambitious debt funded expansion into manufacturing products without ascertaining proper demand - eg. $70m into Plant based nutritional products. Guess they thought they could come up with another A2 winner?

This plant based nutritional has still to play out, the next 6-12 months will be telling on the demand the new customer has. It will prove some diversification to the customer base something Synlait is struggling with. I agree that Synlait does have quite the appetite for risk without the luxury of the working capital to support this.

Strategic acquiring of Dairyworks to diversify market reach and product portfolio only attempt to sell-off a couple years later is just an example of the mismanagement of this business not to mention the investment into liquid products 5 years ago which hasn't delivered anything in terms of meaningful volume (a couple tonnes of UHT cream but not enough scale to be profitable).

The three big clouds: customer diversification, debit levels and inventory management.

[Jaa]

Things very different in today's environment- the China domestic industry has grown up, has become very capable and much safer. CCP driving a nationalistic buy local campaign. Chinese companies were paying over the odds to buy expertise and process for reasons of food security. That ship has largely sailed with almost no stainless steel investment in NZ anymore, and places like Happy Valley, Bodco, DNL etc all facing huge capacity and no demand issues. What was true for Westland, and to an extent Synlait when Mitsui wanted out- that was good for Bright. Is more investment in NZ good for Bright? time will tell. Maybe not.

The other market change is through incompetence the CCP has made it so unattractive to have children in China that the birth rate has collapsed so there has been a big drop in demand from China for NZ milk powder.

[hesiod]

From what I can tell of the footprint OC are building another dryer at Horotiu. They have a shiny new (substantial) warehouse right across the road in the PoA inland port.

[billkiapi]

Pretty sure that I saw Fonterra reducing stainless in the Waikato… some examples of investment but more examples of retrenchment I think

[kiora]

"Fonterra confirms Waikato plant closures, hopes to redeploy staff
Benn Bathgate
Benn Bathgate

April 12, 2024
Share
FC6C067251754256B75935EB32578EBA
The Fonterra Dairy Factory in Waitoa, which is set to see 41 roles ‘impacted’ due to changes revealed by the dairy giant.
CHRISTEL YARDLEY / WAIKATO TIMES

Dairy giant Fonterra has confirmed plans to close a number of plants at two of its Waikato sites, a move the company said would see 41 jobs “impacted”.

Fonterra’s director of NZ manufacturing, Alan Van Der Nagel, told the Waikato Times that like all good businesses, they are “always looking to optimise our operations”.

“Waitoa PDC (specialty powders) and the site’s coal centre, along with dryer one and two at Te Rapa, have served us well,” he said.

“But they are ageing assets and are no longer efficient to operate. For these reasons, we have let our teams know of plans to close these plants. Our Waitoa and Te Rapa manufacturing sites will continue to operate."

https://www.waikatotimes.co.nz/nz-ne...redeploy-staff

"OCD’s new Horotiu plant is next to Affco’s meat processing plant and headquarters."

https://www.ruralnewsgroup.co.nz/dai...-big-milestone

More competition

"Olam Food Ingredients (ofi), the company behind a multi-million dollar milk processing plant in Tokoroa, has moved into its second phase of investment and is looking for farmers to supply milk for “specialised and sustainable protein” ingredients."

https://www.stuff.co.nz/business/300...-local-farmers

[Balance]

"Fonterra confirms Waikato plant closures, hopes to redeploy staff
Benn Bathgate
Benn Bathgate

April 12, 2024
Share
FC6C067251754256B75935EB32578EBA
The Fonterra Dairy Factory in Waitoa, which is set to see 41 roles ‘impacted’ due to changes revealed by the dairy giant.
CHRISTEL YARDLEY / WAIKATO TIMES

Dairy giant Fonterra has confirmed plans to close a number of plants at two of its Waikato sites, a move the company said would see 41 jobs “impacted”.

Fonterra’s director of NZ manufacturing, Alan Van Der Nagel, told the Waikato Times that like all good businesses, they are “always looking to optimise our operations”.

“Waitoa PDC (specialty powders) and the site’s coal centre, along with dryer one and two at Te Rapa, have served us well,” he said.

“But they are ageing assets and are no longer efficient to operate. For these reasons, we have let our teams know of plans to close these plants. Our Waitoa and Te Rapa manufacturing sites will continue to operate."

https://www.waikatotimes.co.nz/nz-ne...redeploy-staff

"OCD’s new Horotiu plant is next to Affco’s meat processing plant and headquarters."

https://www.ruralnewsgroup.co.nz/dai...-big-milestone

More competition

"Olam Food Ingredients (ofi), the company behind a multi-million dollar milk processing plant in Tokoroa, has moved into its second phase of investment and is looking for farmers to supply milk for “specialised and sustainable protein” ingredients."

https://www.stuff.co.nz/business/300...-local-farmers

Got to move with the times and the above are indicative of aged inefficient plants being put to ‘pasture’ and new efficient plants being brought onstream.

Interesting thing is that it has taken overseas interests to provide real competition to Fonterra (being OCD, Olam, Westland and Synlait). Otherwise, NZ farmers would still be at the complete mercy of the incompetent dated management of Fonterra of old.

So do farmers want to continue to support new entrants or risk being held hostage to Fonterra as they were in the last?