SML - Synlait Milk Ltd

[Baaarney]

Leon Clement (CEO of Synlait) presenting tonight over Zoom to NZSA members. While I would be surprised if he comments on an open court case, it still might be interesting how he sells the situation.

If you are not a NZSA member ... there is still an opportunity to join :): http://www.nzshareholders.co.nz/members.cfm

.

I recently joined NZSA and don't recall seeing an email about this and cannot find anything when I login to the website.
Do you know who is the best person to contact?

[BlackPeter]

That's funny. I assume they do have your email?

If you know your local branch, I would contact them (which might help as well to bring you on the mail distribution list for future events).

If you are not sure - try with the NZSA Secretary Chris Curlett: chris@curlett.co.nz.

[sb9]

From today's NBR behind paywall...

Synlait argues 'enough is enough' on Pokeno plant lawsuit - Synlait says prolonged case was having 'genuine commercial impact'...

[alex f]

Any idea on how long the judgement will take?

[sb9]

NZH paywall article...

https://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=12337567

Synlait Milk chief executive Leon Clement said the company is "really comfortable" in its legal position after a two-day Supreme Court hearing wrapped up on Thursday....

[Leftfield]

NZH paywall article...

https://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=12337567

Synlait Milk chief executive Leon Clement said the company is "really comfortable" in its legal position after a two-day Supreme Court hearing wrapped up on Thursday....

Full txt of the article can be seen here. (https://hotcopper.com.au/threads/media-updates.4489996/page-5009?post_id=45090696) Market seems to like it.

[sb9]

Full txt of the article can be seen here. (https://hotcopper.com.au/threads/media-updates.4489996/page-5009?post_id=45090696) Market seems to like it.

Thanks lf, did read that article, sounds promising. But not sure market liking part yet, last Friday a total of 2.6mln shares changed hands at around $7 mark...just trickled up a bit today.

[BlackPeter]

Thanks lf, did read that article, sounds promising. But not sure market liking part yet, last Friday a total of 2.6mln shares changed hands at around $7 mark...just trickled up a bit today.

Well, I have been in the zoom call they are referring to and I did not think that he said anything related to the court case which should increase shareholders confidence. I guess really -


In the event it (the court case) doesn't have a favourable outcome, "we are kind of back to where we are today, which is an opportunity to continue discussions with the neighbour around how we settle, or to take further court action."

He said that if the court decides against the company they have an opportunity to continue discussions with the neighbour which is sort of a non-brainer. However, if the settling would be that easy, than I am wondering what the parties are doing in front of the supreme court?

BTW - NZSA members can watch his presentation on the NZSA website (under NZSA videos) ... and decide for themselves.

[sb9]

Fidelity (FIL) has substantial interest now in SML, looks like they've been accumulating for a while.

[winner69]

Good recognition for Synlait

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/SML/355358/325358.pdf

Pity more companies don’t believe people and planet are just as important as profit (maybe even more)

[peat]

Good recognition for Synlait

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/SML/355358/325358.pdf

Pity more companies don’t believe people and planet are just as important as profit (maybe even more)

Pity more companies don't understand property rights

[Beagle]

Pity more companies don't understand property rights

LOL can I please nominate you for quote of the day :)


A team of more than 30 Synlait staff were engaged to complete the comprehensive B Impact Assessment™. The process took more than a year This is going to look like the most epic waste of resource ever if they lose their Supreme court case. Talk about fiddling while Rome burns !


Synlait’s strategic decision to elevate people and planet to the same level as profit has been recognised. The team is excited to announce Synlait is now a Certified B Corporation™ (B Corp™). Did the directors seek a mandate from the majority of shareholders to completely reinvent the purpose of the company ? Again this looks like head office arrogance and a gross breech of corporate governance on a bewildering scale. I am extremely pleased I am not a shareholder and extremely unlikely to ever be one in the future.

[peat]

cheers Beagle
I noted in the blurb on becoming certified B that Danone commented on Synlait Product. So its good Synlait have a constructive relationship with another large retailer so as to keep A2M honest and add resilience.
I drove past Dunsdanel on my recent trip aroun Sth Is. :)

here is some old news from March about that site

they're acquiring more land around there for water right purposes
https://www.foodbev.com/news/synlait-to-acquire-farmland-in-dunsable-new-zealand-for-16-6m/

and tehy're building a railway to get rid of 16000 truck journeys. to Lyttleton.

[Beagle]

Good recognition for Synlait

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/SML/355358/325358.pdf

Pity more companies don’t believe people and planet are just as important as profit (maybe even more)

If you're going to completely reinvent the very reason and core objective for a companies very existence then the absolute least they could do is seek approval for this change by special resolution, i.e. approval by 75% of shareholders.

Unfortunately we're talking about Synlait here who seem to make up their own rules about the entire relevance of the capitalist system as they go along with barely a single thought or concern for how it might impact shareholders. Someone is long overdue to give this companies board a very big reality check....and I suspect that someone is the supreme court judges. I suppose that still leaves them an appeal to the Green party for a breech of the planets rights :p

[Marilyn Munroe]

What is the status of the Supreme Court case?

Boop boop de do
Marilyn

[Beagle]

Reserved decision. We will get a written decision from the Supreme Court in due course and for anyone who is unhappy with it that's tough, there is no further right to appeal.

[winner69]

Talbot Valley cheese recall ...listeria maybe

https://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=12350844

[Nigel]

Down 4.6% today. I can't help but think it's a reaction to ATM's results which, while still solid, weren't in line with expectations for a company with a PE of 46 and saw it's shareprice drop 5.3%. SML's PE is only 17. I understand they have different business models, but I still think SML should be trading closer to $9.

[Mel]

Announcement from A2 that may have some bearing on Synlait...
https://www.nzx.com/announcements/358400

[sb9]

Announcement from A2 that may have some bearing on Synlait...
https://www.nzx.com/announcements/358400

Unfortunately Synlait's profitability will likely be affected which is already under pressure from their earlier price negotiations with A2.

[Mel]

And a response from Synlait:
https://www.nzx.com/announcements/358411
"Synlait Milk Limited (Synlait) notes The a2 Milk Company’s (NZX: ATM, ASX: A2M) announcement this morning.Synlait and The a2 Milk Company have a long standing, strong and complementary partnership. It is a partnership that continues to strengthen as both companies grow together. Synlait is committed to our relationship with The a2 Milk Company, which is built on an exclusive long-term infant formula supply agreement for China, New Zealand and Australia.
Synlait is well positioned to continue to support and enable The a2 Milk Company’s growth aspirations via its highly integrated infant formula manufacturing capabilities that meet the high standards in China, the world’s largest infant nutrition market.
Synlait intends to release its full year results for the 12 months ending 31 July 2020 before the market opens on Monday 28 September 2020. The company will provide a further update at that time."

[Mel]

which doesn't really say much at all......looking forward to the results announcements on Monday, although I don't expect too much more detail on the implications of the MVM acquisition (apart from a positive spin on it).
Discl: holder of SML

[Beagle]

Synlaits Supreme court case was heard on 3 and 4 June 2020 so our most respected, experienced and intelligent Judges have been deliberating on this for nearly 3 months now.
A decision must be due in the near future I would think. Synlait have risked the last 6 years of profits on the Pokeno expansion, (who takes risks like this?), and continued to build and commission this plant in direct contravention of a lower court ruling.

It will be a cataclysmic failure of the board if they have to shut the operation down and all should resign in complete disgrace.
I hope they have their professional indemnity insurance fully paid up because a class action against them for a gross breech of their fiduciary duties is something I think could have genuine merit.

[winner69]

NBR was mentioning a capital raise by Synlait ..or something like that

[Jiggs]

Synlaits Supreme court case was heard on 3 and 4 June 2020 so our most respected, experienced and intelligent Judges have been deliberating on this for nearly 3 months now.
I was foolhardy enough to buy some SML shares yesterday without knowing about the court case. Having just read Tompkins-Wake's summary of the whole mess, I can see why it is taking the judges so long. The farm-forestry-only covenant was so Winstones could quarry rock from the neighbouring land without disturbing people who might build homes on the land that Synlait eventually bought. But Winstones never established a quarry there, and the district council rezoned the Synlait land as industrial.

If the Supreme Court judges in favour of Sylait, my shares triple in price, and if the Court doesn't, I suddenly have penny stock. Hmmm...
https://www.tompkinswake.co.nz/insights/knowledge/quarry-covenants-affecting-synlaits-new-pokeno-dairy-factory/

[dobby41]

I was foolhardy enough to buy some SML shares yesterday without knowing about the court case. Having just read Tompkins-Wake's summary of the whole mess, I can see why it is taking the judges so long. The farm-forestry-only covenant was so Winstones could quarry rock from the neighbouring land without disturbing people who might build homes on the land that Synlait eventually bought. But Winstones never established a quarry there, and the district council rezoned the Synlait land as industrial.

If the Supreme Court judges in favour of Sylait, my shares triple in price, and if the Court doesn't, I suddenly have penny stock. Hmmm...
https://www.tompkinswake.co.nz/insights/knowledge/quarry-covenants-affecting-synlaits-new-pokeno-dairy-factory/

Not necessarily penny stock - this isn't the only factory that they have and a lot of the risk has been priced in (they were a $10 stock just over a year ago).

[Beagle]

I was foolhardy enough to buy some SML shares yesterday without knowing about the court case. Having just read Tompkins-Wake's summary of the whole mess, I can see why it is taking the judges so long. The farm-forestry-only covenant was so Winstones could quarry rock from the neighbouring land without disturbing people who might build homes on the land that Synlait eventually bought. But Winstones never established a quarry there, and the district council rezoned the Synlait land as industrial.

If the Supreme Court judges in favour of Sylait, my shares triple in price, and if the Court doesn't, I suddenly have penny stock. Hmmm...
https://www.tompkinswake.co.nz/insights/knowledge/quarry-covenants-affecting-synlaits-new-pokeno-dairy-factory/

I estimate about a $2 hit to the share price with a negative result. Whether some of that has already been priced in is the question.
A positive result might see a rebound of a similar amount but I think your chances of this tripling anytime soon are extremely slim.

[Jiggs]

Phew, thanks Dobbie and Beagle, I thought I had just shot myself in the foot with what I expected to be a trouble-free purchase. I had only checked the stock market advisors -Share Clarity, Yahoo, Simply Wall St - and I saw nothing about a court case. I can cope with SML halving in price, and I'll be delighted if it rises even 5% should a favourable judgement be handed down.

[BlackPeter]

Phew, thanks Dobbie and Beagle, I thought I had just shot myself in the foot with what I expected to be a trouble-free purchase. I had only checked the stock market advisors -Share Clarity, Yahoo, Simply Wall St - and I saw nothing about a court case. I can cope with SML halving in price, and I'll be delighted if it rises even 5% should a favourable judgement be handed down.

Hmm - I guess not my business, but while I use data from both ShareClarity as well as Yahoo Finance as input into my investment decisions ... I never ever would make any investment decision based on just these two sources (or any other single data points ...).

Simply Wall Street however provides in my view not even sensible data points worthwhile considering - what I have seen from them so far is just plain rubbish generated by brainless algorithms ... waste of time to read. Buy yourself a horoscope instead, this would be a better investment and more fun to read.

If we are talking investments and real money I would as a minimum read the latest annual reports of the relevant company (which in Synlaits case contains info about the court case), the latest price relevant announcements from the company (dito) and - browsing the relevant thread in sharetrader is typically very useful as well (and would have pointed you as well to the court case).

Obviously (re share trader) - never ever make an investment decision based on the view of any poster, however - you will find it typically contains plenty of data worthwhile researching to help you form your own opinion.

Just trying to help - and no offence intended ... my two cents.

Happy investing ...

[dreamcatcher]

Big trade of 500,000 this morning @ $6.16

[ratkin]

Phew, thanks Dobbie and Beagle, I thought I had just shot myself in the foot with what I expected to be a trouble-free purchase. I had only checked the stock market advisors -Share Clarity, Yahoo, Simply Wall St - and I saw nothing about a court case. I can cope with SML halving in price, and I'll be delighted if it rises even 5% should a favourable judgement be handed down.

Before buying any share I always read through the approprate thread on this forum, from start to finish. If there is potential problems it will nearly always be flagged in some messages.

[ratkin]

Looks like it will be testing the March lows before too long

[Beagle]

Bring up the 3 month chart since the Supreme court hearing. I think its fair to say the market is not confident they will win.
Must be some very complex issues our top Judges are considering. More than 3 months now since the hearing. That's quite a long time to be deliberating over the issues.

[ratkin]

Bring up the 3 month chart since the Supreme court hearing. I think its fair to say the market is not confident they will win.
Must be some very complex issues our top Judges are considering. More than 3 months now since the hearing. That's quite a long time to be deliberating over the issues.

Maybe they do not have much else to do, and are conveniently dragging it out.

[Beagle]

Maybe they do not have much else to do, and are conveniently dragging it out.

Not sure they get overtime hourly rates or need them http://www.legislation.govt.nz/regulation/public/2018/0279/latest/whole.html
$518,400 per annum not too shabby is it !

[Beagle]

Market seems to be expecting a very ordinary result on 28 Sept. Big capital raise coming up to steady the ship ?

https://www.nzx.com/announcements/355358 Took a team of 30 employees more than a year to get this "wonderful" accreditation that a certain regular poster on here keeps extoling as the holy grail of ESG accomplishments.
So how is their absolute mind boggling multi year obsession with all things ESG working out for shareholders ?
It turns out not too well at all :eek2: Synlait were $12.50 in Sept 2018 and have lost a staggering 53% of their value in the last 2 years when the market is up 25%. What an incredible destruction of shareholder value. I guess that's what happens when people are the planet are equally as important as shareholders ?
Did shareholders approve this dramatic elevation of other considerations at any point and if not how are the directors and management allowed to get away with breeching their fiduciary obligations to act in shareholders best interests ?

But wait there is more....contemporaneously to investing a staggering amount of management's time and resources into their apparent obsession that all things inclusiveness, environmental awareness and the planets rights are equal with shareholders and all other things ESG they have risked the grand sum of the last 6 years of profits gambling that they will get a favorable outcome with the Supreme court hearing.

Even if they win this and everything is okay at Pokeno, managements complete and utter obsession with all things environmental and social and their staggering appetitive for risk with the Pokeno situation means for me this company can never be an investable proposition in the future so today I have removed this company from my watch list. I have no confidence whatsoever that the directors or senior management are working in the best interests of shareholders in fact I would say they have behaved in such a manner as to act directly against shareholders best interests and are highly likely to do so going forward.

Finally, all this has gone on while debt level's have risen to dangerously high level's.

Un-investable at any price in my opinion. A slow motion train wreck...

[chrisw]

Hello Beagle,

I don’t think you are looking at this the right way. While you personally might dislike the ESG concept entirely, what matters for the company’s continued revenue is what it’s customers want (i.e the part that gives shareholders a RoE). For commodity powders it doesn’t really matter as it is all least cost, but for the higher margin specialist powders, multinational companies can source from anywhere. And this latter market is the business the company is in and that it has invested in assets for.

It doesn’t take much industry knowledge to know that in the last 20 years the reputation of dairy has taken a hit. Just look at the statistics for dairy consumption by age group for instance. In NZ the environmental impact is a big issue, but overseas other animal welfare issues come into play as well (let’s not talk too much about bobby calves eh?). In recognition of this certain large companies have pledged publicly to take actions to improve their reputations and have been reporting publicly against this. It is not too much of a stretch of the imagination to think that these same companies are looking for suppliers to help them achieve their goals.

From an investor standpoint there are also other reasons to invest in this area, including staff/supplier retention and growing a consumer brand, but per the shareholders meeting presentations a long term plan to meet the needs of customers is the most logical. If you disagree with this strategy then probably this isn’t a good investment for you.

Long story short: As an investor you don’t have to like ESG to like the margin that an investment like this brings in, in the longer term.



https://www.nzx.com/announcements/355358 Took a team of 30 employees more than a year to get this "wonderful" accreditation that a certain regular poster on here keeps extoling as the holy grail of ESG accomplishments.
So how is their absolute mind boggling multi year obsession with all things ESG working out for shareholders ?
It turns out not too well at all :eek2: Synlait were $12.50 in Sept 2018 and have lost a staggering 53% of their value in the last 2 years when the market is up 25%. What an incredible destruction of shareholder value. I guess that's what happens when people are the planet are equally as important as shareholders ?
Did shareholders approve this dramatic elevation of other considerations at any point and if not how are the directors and management allowed to get away with breeching their fiduciary obligations to act in shareholders best interests ?

But wait there is more....contemporaneously to investing a staggering amount of management's time and resources into their apparent obsession that all things inclusiveness, environmental awareness and the planets rights are equal with shareholders and all other things ESG they have risked the grand sum of the last 6 years of profits gambling that they will get a favorable outcome with the Supreme court hearing.

...

[Beagle]

Thank you Chris for sharing your point of view.
Welcome to the forum :)

[winner69]

Aswath Damodaran is well respected finance guy and his work always worth a read.

He seems rather skeptical on this ESG stuff

'Sounding good or doing good' a good title

http://aswathdamodaran.blogspot.com/2020/09/sounding-good-or-doing-good-skeptical.html

Bit of a long read - might print it off and read properly and give it thought when having the oysters and chips down on the beach ....not today in the wind and rain (destructive storms according to the media - brought on by the irresponsible behaviour of corporates over the years)

[winner69]

beagle -- no doubt you are appalled that the Govt is bringing in the requirement for the big boys to do heaps of work around reporting / disclosing climate change risks etc etc.

More work for the many - including the FMA

[winner69]

Chart shows a steady down trend from March last year .....was that panic dip to 4 something in feb/March but even so SML price only retraced back to that trend line and has continued down since ...with no sign of stopping.

Doesn’t inspire much confidence.

[Beagle]

I'm sorry mate but the market is telling you that its unimpressed with your ideal and Synlait's of putting people and the planet on exactly the same level as shareholders. Ever since their obsession with this process began the share price has been going steadily downhill. Plenty more pain to come for hapless shareholders in my opinion, still I am sure the planet and staff will be happy so two out of three isn't too bad is it and if shareholders have to swallow a few dead rats for the team that's okay isn't it and as long as I'm not one of those "lucky" shareholders that's fine with me too ;)

[Nigel]

I think the uncertainty of Pokeno is keeping on the sidelines. I'm happy to hold (foolishly bought more at 5.88 this week) as long term I think this will surpass its previous highs. I like the Dairyworks acquisition - will be interesting to see how that has impacted financial performance next week.

[winner69]

Hey. Beagle me old mate ..feeling a bit less grumpy about Synlait today?

Whatever that was a cool comment you added to Damodaran’s piece on ESG titled ‘Sounding good or Doing good? A Skeptical Look at ESG’

Virtue signaling is now ubiquitous. Good to see a data-driven debunking of the drivel.

[Beagle]

Aswath Damodaran is well respected finance guy and his work always worth a read.

He seems rather skeptical on this ESG stuff

'Sounding good or doing good' a good title

http://aswathdamodaran.blogspot.com/2020/09/sounding-good-or-doing-good-skeptical.html

Bit of a long read - might print it off and read properly and give it thought when having the oysters and chips down on the beach ....not today in the wind and rain (destructive storms according to the media - brought on by the irresponsible behaviour of corporates over the years)

Thanks for the link mate. I need to carve out some time to read that and mull over this at quite some length. Back in the 1980's when I was at Uni studying investment analysis Milton Friedman's pure capitalist view was front and central and certainly shaped my thinking at the time. His view if I remember correctly was that maximization of profit was the sole responsibility of a company and provided whatever they did to achieve that was within the rules that was okay.

Many brighter minds than mine have pontificated at some length over the decades about environment, social and governance responsibilities. To me it seems embracing social responsibility so that nobody feels discriminated against, equal opportunities for all races regardless of gender and being as kind as possible to the environment seem like worthwhile ideals.

Less clear is whether paying a living wage of over $21 an hour to a new 16 year old recruit at say MacDonald's is fair and reasonable to business and its customers.

My beef (should that be synthetic meat made with carbon free processes now ;) ) with Synlait on the ESG front is they have elevated the planet and people to exactly the same level as shareholders which is what you've been alluding too on here as a great goal. That's fine if they set that goal up as the clear objective when the company is formed or seek a mandate from shareholders to change to that fairly extreme ESG view.
What mandate did they seek from shareholders to fundamentally upend the purpose of the company ? Surely if shareholders rights are going to be so substantially subverted and undermined a special resolution should have been sought such that a 75% approval process was sought from shareholders ?

It seems to me that Synlait directors play fast and loose with shareholders money and are shirking their responsibility to mitigate risk. Might be worth the directors time to read this https://corpgov.law.harvard.edu/2018/03/20/risk-management-and-the-board-of-directors-5/

I think Synlait have taken ESG to the extreme and risk taking with Pokeno as well. No doubt shareholders can "look forward" to Synlait endlessly pontificating in their annual report and shareholder presentation about how they're meeting the most stringent carbon neutral processes, implementing widespread inclusiveness policies within the company, paying a living wage and they will wax lyrical about all the ways they are benefiting the planet and people because remember, these are just as important as shareholders...but all that time they fiddle while Rome burns and the risks they have taken with Pokeno are extreme to say the least and their debt level's keep on rising.

ESG is all about environment social and Governance. Shareholders could be easily forgiven for thinking the directors have almost completely overlooked governance.
Maybe there is wisdom in their methodologies but I struggle to see it and the market seems to agree with me.
The trend is not shareholders friend and it would seem that neither are management or the directors which begs the question seeing as capital is mobile with many other choices for a better home, why bother ?

I'm calling it. Leon Clement's appointment has been a complete failure for shareholders. He has presided over a massive destruction in shareholder value and his obsession with all things ESG has been massively harmful to shareholders. He needs to go ! (Very early on I called it that Herdlicka was a very bad fit for ATM and that call was bang on the money).

[winner69]

Friedman is old hat beagle

Recall what I put on the Oceania thread once -

The world in a sorry state today because guru economist Milton Friedman said “the only responsibility of business is to maximize shortterm profits, regardless of the social and environmental costs.”


We’ve got to change that “Maximize short-term profits, regardless of the social and environmental costs” attitude to “maximize long-term benefits for all people and nature.”

I don’t give a stuff what Oceania’s (or any company) short term profits are as long as they work towards creating a better life for all of us in the future.

[Beagle]

Oceania did very well looking after its residents physical and mental health during the Covid lockdown and probably made no money in the final quarter of the year just gone. I am proud of how they looked after their staff and residents. (See I have got a bit softer over the years)...might have gone soft in the head too lol

[RTM]

I think it’s primarily the Supreme Court decision that is weighing on Synlait. That and their relationship with ATM to a lesser extent. Clearly it’s not cut and dried, there is something to consider, because the deliberations have been going on for a while now. Once that’s behind them, as long as it’s in their favour, the SP should be related.

[BigBob]

I think it’s primarily the Supreme Court decision that is weighing on Synlait. That and their relationship with ATM to a lesser extent. Clearly it’s not cut and dried, there is something to consider, because the deliberations have been going on for a while now. Once that’s behind them, as long as it’s in their favour, the SP should be related.

I don't think you can infer too much from the time it is taking the judges to deliberate. It appears to me that 6 - 12 months is the norm - and it's only about 4 months since they were in court.

[RTM]

I don't think you can infer too much from the time it is taking the judges to deliberate. It appears to me that 6 - 12 months is the norm - and it's only about 4 months since they were in court.

Good to know....thx. So people are just nervous about the outcome.
Personally I think it will go in favour of Synlait.

[chrisw]

Hello Beagle!

Your timing is good - Sep 2020 marks the 50th anniversary of the publication of Milton Friedman's seminal article in the New York Times entitled "A Friedman doctrine‐- The Social Responsibility Of Business Is to Increase Its Profits (https://www.nytimes.com/1970/09/13/archives/a-friedman-doctrine-the-social-responsibility-of-business-is-to.html)". It is well worth reading for any investor and being the anniversary there have been a lot of interesting articles published on the topic of shareholder versus stakeholder capitalism, and whether or not that is a false dichotomy.

Before I get into what may apply for Synlait, I just want to make the expand on a point I made in my previous post: the company has invested significantly in assets to make high specification milk powders, liquid products, and now has an interest in cheese production. While the court case is weighing somewhat on the minds of retail investors, the bigger issue for investors is the utilization of those assets with what products. If these assets are being filled with commodity products then the company will be at a cost disadvantage to Fonterra. When combined with the way the milk price is set, a high amount of commodities makes it very difficult for the company to make a reasonable return.

Thinking back to the profit warning earlier in the year, one of the items that stood out for me in the conference call after was the announcement that the company was pulling back on pursing additional infant formula business. If I understood it correctly, this also signalled a lack of confidence that regulatory approval could be gained to enable the fulfilment of the multi-year supply deals announced with New Hope in 2017 and Bright Dairy in 2018. It is not that I think they won't still be trying, but they just don't want analysts to include these sales in their forecasts.

When combined with the continuing effort of a2 to diversify its supply (while cunningly locking up all a2 milk in the country), is more than enough reason to explain the decline in the share price. Simply put: investors believe they see under-utilised expensive assets combined with a growth in operating costs that have been required to fund development activities and a high debt load for these plants. Longer term, as these assets are utilized I think that the company will do well, but right now the company has taken on risk by effectively building ahead of the demand curve. It's the entrepreneurial approach that can generate outsized returns, but in a market where all dairy companies are under pressure the company doesn't have a lot of room to maneuver unless its business development activities start generating quality margins. I am still a long-term investor though.

So, turning to the ECG stuff. Friedman's main point is that a single focus on profit maximisation is the only focus a company should have. A number of people at this time, took this as a justification to focus on short-term profits at the expense of stakeholders such as customers. This I think was a misinterpretation of his view, but unfortunately it held sway in the 1980s in particular where the movie Wall Street neatly encapsulated it in the Gordon Gecko's immortal line of "Greed, for lack of a better word, is good". Essentially this is a purely transactional view of the world that relies on perfect markets and a company's reputational value having little earning capacity for shareholders.

It also essentially ignores the importance of stakeholders in tightly regulated sensitive markets such as infant formula. The Chinese government has for many years now been trying its absolute hardest to grow its domestic manufacturing of infant formula, and indeed there are many domestic products on the market even after a series of scandals that essentially broke the business. But for an important (and somewhat price insensitive) segment of the market, they consider the reputation of Chinese businesses, and think about the ability of the Chinese government to actually temper their short-term profit focussed behaviour and buy overseas brands instead. Currently the top 4 brands in China account for 40% of the market.

Look to New Zealand examples as well. While generally well handled, the Botulism incident impacted the reputation of the entire NZ diary sector and it was months before high-value exports returned to normal. In the meantime our competitors in Europe and the USA had zero hesitation in using the doubt that this incident created to increase their marketshare. When combined with the growing concern over the environmental impact of dairy farming in NZ, the political and regulatory environment for NZ dairy companies has never been tougher.

In addition to the regular inspections required by MPI, customers that are buying high value milk products from NZ companies regularly conduct highly detailed invasive inspections of processes and rigorously test every single batch of product purchased. The problem for these customers is that they always have the risk that a supplier will take shortcuts without them knowing and somehow end up causing them a problem. For an infant formula customer, a problem that leads to a recall is not only a breach of trust but essentially a problem that leads to a brand death. So for them, a supplier that invests in ECG activities not only supports their brand's reputation but also strongly signals that it understands its role in preserving the value chain.

For smaller competitors like Synlait then, which may also be looking to develop a consumer brand, my conclusion is that the embrace of a focus on ECG activities is not at odds with profit maximisation, but a strategy to ensure long term profits through being able to sell high margin products to customers. The success of these activities is therefore not about boosting short-term profits but about ensuring the long term success of the business and the consequent return to shareholders.

So, overall I think that you are right to raise concerns about how equity and debt funding is being invested in assets, but I think that you are overlooking the fact that the investment in ECG activities is in itself a risk mitigation and growth strategy that has the goal of ensuring long-term profitability at its heart. I get that you don't see ECG activities as a risk management activity, but that is the logic!

As a coda to these thoughts, I think that it is too early to call Leon Clements reign as CEO a failure. The reason for this is that the three elements you have been focussed on, Pokeno, ESG activities and corporate rebranding, were all initiated sometime prior to his joining the company by prior leadership and the board. Execution of the brand building ESG activities was probably one of the main reasons he was employed. I can give him a pass for the most part for the first 12-months as the company's direction was fairly set, but what I am looking for now is evidence that the company is growing high-value customers beyond a2.

Cheers, Chris W.


...Milton Friedman's pure capitalist view was front and central and certainly shaped my thinking at the time. His view if I remember correctly was that maximization of profit was the sole responsibility of a company and provided whatever they did to achieve that was within the rules that was okay.
...

It seems to me that Synlait directors play fast and loose with shareholders money and are shirking their responsibility to mitigate risk. Might be worth the directors time to read this https://corpgov.law.harvard.edu/2018/03/20/risk-management-and-the-board-of-directors-5/

I think Synlait have taken ESG to the extreme and risk taking with Pokeno as well. No doubt shareholders can "look forward" to Synlait endlessly pontificating in their annual report and shareholder presentation about how they're meeting the most stringent carbon neutral processes, implementing widespread inclusiveness policies within the company, paying a living wage and they will wax lyrical about all the ways they are benefiting the planet and people because remember, these are just as important as shareholders...but all that time they fiddle while Rome burns and the risks they have taken with Pokeno are extreme to say the least and their debt level's keep on rising.

ESG is all about environment social and Governance. Shareholders could be easily forgiven for thinking the directors have almost completely overlooked governance.
Maybe there is wisdom in their methodologies but I struggle to see it and the market seems to agree with me.
The trend is not shareholders friend and it would seem that neither are management or the directors which begs the question seeing as capital is mobile with many other choices for a better home, why bother ?

I'm calling it. Leon Clement's appointment has been a complete failure for shareholders. He has presided over a massive destruction in shareholder value and his obsession with all things ESG has been massively harmful to shareholders. He needs to go ! (Very early on I called it that Herdlicka was a very bad fit for ATM and that call was bang on the money).

[dreamcatcher]

but what I am looking for now is evidence that the company is growing high-value customers beyond a2.

imo.. can only happen once Pokeno decision is clear

[Leftfield]

Blimmin good post Chrisw. Good to hear a different perspective on some rather grumpy dogged rants.

[winner69]

Good post there Chris ....couldn't have said it better myself ;)

This paragraph is worth reposting .....in a funny (or maybe sad) sort of way it’s essentially the same point that beagle was making on the Oceania thread.


Chris said:
For smaller competitors like Synlait then, which may also be looking to develop a consumer brand, my conclusion is that the embrace of a focus on ECG activities is not at odds with profit maximisation, but a strategy to ensure long term profits through being able to sell high margin products to customers. The success of these activities is therefore not about boosting short-term profits but about ensuring the long term success of the business and the consequent return to shareholders.

[Beagle]

Hello Chris,

Thank you for your interesting and well articulated post.

No question John Penno gave Leon Clements something of a hospital pass with Pokeno but hasn't it been his responsibility to do everything in his power to mitigate the risk of this considering their growing debt burden ?

Are you satisfied the he has done that ? Do you feel comfortable with the possible consequences of an unfavorable Supreme court decision that could see Synlait having to rebuild their plant somewhere else ?

I agree with your contention that taking a "bold" position on all things ESG and long term profit maximization are not mutually exclusive activities but isn't elevating people and the planet to exactly the same level as shareholders a bridge too far ? Aren't the directors and senior management working for shareholders best interests and if so who gave the mandate to expend vast resources on this extreme accreditation process that took 30 senior people more than a year to achieve ?

Are shareholders simply being asked to have blind faith that the directors and senior management know what they're doing and if so what evidence are we seeing that would support the contention there are solid grounds for that confidence ?

To me the only things that have been growing strongly are legal risk and debt, hardly compelling encouragement for investment so when they go to the market for more capital and say trust us we know what we're doing, how will the market respond ?

Ultimately a company cannot survive without considering other stakeholders needs, especially in this day and age and greenwashing of a brand can be a very effective marketing tool so embracing inclusiveness in the workforce, carbon neutrality and all the other ESG factors is not inconsistent with the notion of profit maximization in the long term, in fact in this field of trying to create a premium image for their products it may be directly aligned with the long term maximization of profits...so we are in perfect agreement there but where is the emerging evidence that this approach is successful ? What brands have they received accreditation for in the last three years ? Have they simply been too busy on ESG initiatives to direct their management skills to brand accreditation ?

One has to wonder how much of a drain on management resources this accreditation to elevate people and the planet to the same level as shareholders really was, (30 senior people for more than a year is a major project without question) and wonder whether some of that time and effort might have been better directed at trying to effect a settlement in relation to the Pokeno dispute ?

I for one am not convinced they made the very most strenuous efforts to effect a settlement and continue to believe that risking the last 6 years of profits on the outcome of a supreme court case is one of the most blatant examples of gross recklessness I can recall in nearly 40 years of investing. Right from the outset from feedback I have received from one who attended SML's annual meetings Clement appears to have had an extremely strong focus on ESG matters and I don't think its really drawing a long bow to argue his focus should have been better directed elsewhere.

Ultimately as a numbers man I am always going to interpret results by the numbers, (its my life's work), so that will define how I characterize the success of a company.
I am deeply cynical that a lot of this greenwashing is anything other than a politically correct smokescreen to maximize profits and if it isn't and the company really has elevated itself to really putting people and the planet on exactly the same level as shareholders, (in effect becoming a social and environmental welfare distributor) I would argue that's a fundamental breech of the companies act to subvert the best interests of shareholders UNLESS the company got a special resolution mandate from shareholders to that effect, which of course they haven't.

Getting back to the numbers, no matter which angle one looks at this situation, the company is deeply indebted and dependent on a favorable outcome with the Supreme court ruling. An attempted capital raise in the very near future would not surprise me in the slightest. Whether the market has the appetite for it is another thing...thankfully the market is awash with liquidity so they will probably get away with it.

We'll see how they're getting on with other product accreditation very shortly. I will be surprised in the current geopolitical environment if they have made any meaningful progress. The Chinese appear to be stoking nationalistic fervor with unprecedented vigor and the geopolitical environment has frankly never looked worse.

Ultimately the market is a voting machine and its giving Clements the big thumbs down. As a former shareholder I am disappointed with the degree of risk the directors and senior management have exposed shareholders too and their extreme ESG approach adds insult to injury in my view so I cannot allow myself to be a shareholder again at any price.

Good luck with it Chris. I sold at an average price of about $10 some time back and have very profitably reallocated that capital elsewhere.
Ay one point ATM and SML were level pegging on share price. Now its more than 3:1. I think its pretty obvious which company has got the better end of the stick with the deal and it would appear to be so much in ATM's favor its hard to make the case that ATM won't outperform SML going into the future.

Finally on the technical analysis front I very seldom invest in a company in a confirmed downtrend unless there is an extremely compelling fundamental reason to do so, (which clearly there isn't with SML). I have learned that swimming against an outgoing tide is very rarely a profitable endeavor and more often than not you get into trouble to one varying degree or another.

Anyway I will leave it there. I have enjoyed the robust debate :)
Cheers
Beagle

[Beagle]

https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=12368065 Hardly a glowing endorsement. Average forecast by analysts is $78m down 5%

[winner69]

https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=12368065 Hardly a glowing endorsement. Average forecast by analysts is $78m down 5%

SMLshare price was $13 once

Nigelsays it will surpass previous highs -- that would be good return for him

[Baa_Baa]

SMLshare price was $13 once

Nigelsays it will surpass previous highs -- that would be good return for him

SML weekly chart log scale (https://invst.ly/s9nm7), brand colour way, sensitively diversified rainbow MA's tell the sad story. :D

[winner69]

SML weekly chart log scale (https://invst.ly/s9nm7), brand colour way, sensitively diversified rainbow MA's tell the sad story. :D

I love rainbow moving averages on a chart ...esp when heading up

[RupertBear]

SML weekly chart log scale (https://invst.ly/s9nm7), brand colour way, sensitively diversified rainbow MA's tell the sad story. :D

Awww rainbows are soo cool and your chart is too Baa Baa, even if the story is sad :)

[Beagle]

SML weekly chart log scale (https://invst.ly/s9nm7), brand colour way, sensitively diversified rainbow MA's tell the sad story. :D

That's shocking pink if ever I saw it :eek2: It's going to take a belter of a result and outlook tomorrow to turn that around.

[Sideshow Bob]

https://www.nzx.com/announcements/360480

ynlait FY20 result published

28/9/2020, 8:31 amFLLYRSynlait Full Year 2020 Result Published
Synlait Milk Limited (Synlait) today published its financial result for the 12 months ended 31 July 2020.
Please find the following materials attached:
• Synlait FY20 Financial Statements
• Synlait FY20 Investor Presentation
• Synlait FY20 Media Release
• Synlait Shareholder Letter
• NZX Results Template

Financial highlights:

• Revenue up 27% to $1.3 billion
• Earnings before interest, taxes, depreciation, and amortization (EBITDA) up 13% to $171.4 million
• Net Profit After Tax (NPAT) down 9.0% to $75.2 million
• Consumer-packaged infant formula sales up 15% to 49,180 MT
• Lactoferrin sales up 46% to 30 MT
FY21 guidance statement:
• There continues to be significant global uncertainty regarding COVID-19.
• While Synlait has proven its ability to maintain operational continuity over recent months, in terms of demand for the products it manufactures, it expects:
• Consumer-packaged infant formula volumes to be similar year-on-year, with lower demand in the first half of FY21 due to higher than normal stock levels in the supply chain. Synlait expects a return to growth in the second half of FY21 once stocks have cleared.
• Strong underlying EBITDA and operating cash flows to continue, with growth delivered from a full year of Dairyworks earnings and the integration of Talbot Forest Cheese.
• No disruption to manufacturing or demand for its ingredient and lactoferrin business.
• This guidance is subject to the unpredictable effects of COVID-19, with consumer behaviour, channel dynamics and supply chain disruptions all subject to change.
• This is offset by the carrying costs of investing in Synlait Pokeno and Synlait Dunsandel’s Advanced Dairy Liquid Packaging facility. Earnings from these investments are expected to be delivered in FY22 and beyond.
• As disclosed today, Synlait is in the process of finalising a long-term supply agreement with a new, multinational customer for packaged products which is expected to have a positive impact on earnings from FY23.
• Against this, we are targeting a similar, or slight improvement on, our FY20 NPAT result.
• A further update will be provided at Synlait’s half year result in March 2021.

Conference call details:

Synlait CEO Leon Clement and CFO Angela Dixon will hold a briefing on the results at 11.00am NZST / 8.00am AEST time.
Participants can register for the briefing at: https://s1.c-conf.com/diamondpass/10007351-invite.html
Please note that registered participants will receive a personalised dial in number upon registration. Participants are encouraged to register ahead of time for easy access. A transcript and recording of the briefing will be available on Synlait’s website shortly afterwards.
For further information please contact:

Media
Linda Chalmers
Senior Communications Advisor – External
P: +64 21 951 347
E: linda.chalmers@synlait.com
Investors
Hannah Lynch
Corporate Affairs Manager
P: +64 21 252 8990
E: hannah.lynch@synlait.com

[winner69]

EBITDA up 13%

That’s pretty impressive

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/SML/360480/331664.pdf

[BlackPeter]

Hmm - I just wish they would pick a bit more contrast in their financial statements. Light grey (and tiny) font on a sort of dirty whitish background is ridiculous. I assume this is supposed to make the odd pink colour to better stand out of the light grey ... but it clearly does nothing to increase readability ...

Looking at the numbers I could decipher so far ... revenues up (even slightly above consensus forecast), however earnings down (even more than forecast). Looks like they do have a margin problem. Not good to have a growth company when it is only the revenues which are growing while the earnings shrink.

Liabilities to assets are rising again (one of the things you don't really want to see growing in times of a crisis) - and pretty much at the upper limit (60%) I would still consider as acceptable for a manufacturer. Better nothing goes wrong for them this year ... but oops - what about the Pokeno risk? Shareholders better put some money for the next CR aside.

RoE dropped from 16.7% down to 12.4%. Not terrible, but nothing spectacular either, and again - the trend somehow looks wrong.

First return of various big investments expected in 2022 and 2023. Hmm ... and this in combination with quite high uncertainties about the price of some of their star earners. Lactoferrin just not the consistent outperformer they thought it would be when they invested into the plant.

... and the good old Damocles sword (Pokeno) keeps dangling over them ... how do they say: "On the high seas and in court, we are in God's hands" ... which turns any investment decision with them into a question of hope or faith.

Not an investment strategy I would prefer ...

[Beagle]

Hmm - I just wish they would pick a bit more contrast in their financial statements. Light grey (and tiny) font on a sort of dirty whitish background is ridiculous. I assume this is supposed to make the odd pink colour to better stand out of the light grey ... but it clearly does nothing to increase readability ...

Looking at the numbers I could decipher so far ... revenues up (even slightly above consensus forecast), however earnings down (even more than forecast). Looks like they do have a margin problem. Not good to have a growth company when it is only the revenues which are growing while the earnings shrink.

Liabilities to assets are rising again (one of the things you don't really want to see growing in times of a crisis) - and pretty much at the upper limit (60%) I would still consider as acceptable for a manufacturer. Better nothing goes wrong for them this year ... but oops - what about the Pokeno risk? Shareholders better put some money for the next CR aside.

RoE dropped from 16.7% down to 12.4%. Not terrible, but nothing spectacular either, and again - the trend somehow looks wrong.

First return of various big investments expected in 2022 and 2023. Hmm ... and this in combination with quite high uncertainties about the price of some of their star earners. Lactoferrin just not the consistent outperformer they thought it would be when they invested into the plant.

... and the good old Damocles sword (Pokeno) keeps dangling over them ... how do they say: "On the high seas and in court, we are in God's hands" ... which turns any investment decision with them into a question of hope or faith.

Not an investment strategy I would prefer ...

Well summed up BP. I couldn't agree more or have said it better. Trust us, we know what we're doing and everything will come right in FY23. Sorry Leon...I don't trust you and your total obsession with all things pink.

[BlackPeter]

... just noticed the minor irritation ATM reported on this morning:

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/ATM/360483/331673.pdf


In September we have started to observe emerging additional disruption to the corporate daigou /
reseller channel, particularly due to the Stage 4 lockdown in Victoria.
As a result of all these issues, we are now witnessing a contraction in the daigou channel beyond our
previous expectations and without the replenishment orders that would typically be anticipated at this
point.
This disruption in the daigou channel is impacting our September sales and it is currently anticipated
that this will continue for the remainder of the first half of FY21. Sales in the daigou channel represent
a significant proportion of infant formula sales in our Australia & New Zealand (ANZ) business and, as
such, we now expect ANZ revenue to be materially below plan for the first half.

Given that all this IF is supplied by SML does this leave me wondering, whether this trend might have any impact on the supplier of this product?

[Beagle]

Agreed again BP. ATM sales are forecast to "decline", (can you believe it !!) in the first half and to me the second half forecast looks "hopeful"

Synlait is a very interesting case study for those that should be incorporating technical analysis with their investment approach.

Going forward I can foresee this testing new multi year lows and then with their very high debt level if they lose their Supreme court case the share price could get really ugly with a deeply discounted capital raise.

I am tempted to think there could be some value here at some point in the future but with the current culture of the company...why would anyone bother ?

[Beagle]

"Good leaders know when to step up and deliver. Great leaders know when to step down and let others deliver". SML has neither... Moosie

[Beagle]

https://www.goodreturns.co.nz/article/976517561/shares-flat-as-utilities-soar-while-a2-plunges.html?utm_source=GR&utm_medium=email&utm_campaign=GoodReturns+Market+Report+for+28+Sep+ 2020

Not a great day for our new German friend. Heading down to test the multi year March 2020 low of $4.36 ?

[flyinglizard]

A2 has many cards to play, but SML may be in trouble.

If A2 uses cost saving strategy to purchase Mataura Valley Milk Factory, to product the A2 products alone, how about SML in the long term?

https://www.stuff.co.nz/business/farming/122520621/a2-in-discussions-to-buy-75-of-mataura-valley-milk-for-270-million

[Beagle]

"Synlait Milk fell 45c or 7.44 per cent to $5.60 after reporting a 27 per cent increase in revenue from $1.02b to $1.3b for the year ending July and a 9 per cent decline in net profit to $75.2m".

Numbers like that don't normally go together...hardly ever see such a strong growth in revenue result in profit being well down at the same time. Its all going to pay off handsomely in FY23 though...trust us we know what we're doing. Hmmm

[dreamcatcher]

"Synlait Milk fell 45c or 7.44 per cent to $5.60 after reporting a 27 per cent increase in revenue from $1.02b to $1.3b for the year ending July and a 9 per cent decline in net profit to $75.2m".

Numbers like that don't normally go together...hardly ever see such a strong growth in revenue result in profit being well down at the same time. Its all going to pay off handsomely in FY23 though...trust us we know what we're doing. Hmmm

A dog constantly kicking a dog probably has to be considered cruel.........:t_down:

[bull....]

Synlait and a2 Milk - When breaking up is hard to dohttps://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=12369606

guess it will eventually as a2 builds there own manufacturing

[mcdongle]

Lots going on at Synlait.
Projects cancelled
Restructuring
jobs being cut..

[winner69]

Lots going on at Synlait.
Projects cancelled
Restructuring
jobs being cut..

Heck - sounds bad

Tell us more

[mcdongle]

Thats it so far from a friday night chat with a neighbour

[Beagle]

They need to expend further VAST resources on elevating people and the planet ABOVE shareholders and further vast resources on really dramatic new programs of diversity.
Got to kick Heartland off their perch as the leading Maori employer of choice. The Supreme court judges will take note and that's bound to sway their decision in Synlait's favor.
These actions will fix everything, including ATM's propensity to look to make their own arrangements for milk processing then its all good...no worries ;)

[winner69]

From what I've read and everywhere else I got the impression Synlait Dunsandel was one huge plant

Drove past it today ...I was underwhelmed big time.

[JimmyTrade]

Lots going on at Synlait.
Projects cancelled
Restructuring
jobs being cut..

I don’t think projects will be getting cancelled. They will be hoping for them to get some diversification

[JimmyTrade]

Smaller than a lot of Fonterra sites however all Synlaits products are much more geared towards value added products. There is only so much milk out there to collect. Manufacturing facilities are leading edge in the sector.

[Sideshow Bob]

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/SML/362034/333598.pdf (http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/SML/362034/333598.pdf)

Plenty of pink in the AR to keep Beagle happy...... :laugh:

[BlackPeter]

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/SML/362034/333598.pdf (http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/SML/362034/333598.pdf)

Plenty of pink in the AR to keep Beagle happy...... :laugh:

Interesting. Chair offers the following statement:


We consider it unlikely that an adverse decision at the Supreme Court or subsequent proceedings would result in a materially negative impact on our ability to continue to operate Synlait Pokeno

Just wondering how he would have formulated this sentence if he would know that chances for a unfavorable outcome might be 50/50 or likely?

It well might be just one of these "he would say that, wouldn't he" - i.e. no matter what the chances, this is the only statement he can make without losing his job, but then I am wondering why he is offering this comment anyway without being asked.

Is he waving a red flag?

[Beagle]

Weasel words. I wouldn't trust him to run a chook raffle even if it was for the LGBTQ community. He presupposes to have some understanding of how the Supreme Court justices will rule. That's goes well beyond "arrogant" in my opinion.

[Mel]

Interesting. Chair offers the following statement:



Just wondering how he would have formulated this sentence if he would know that chances for a unfavorable outcome might be 50/50 or likely?

It well might be just one of these "he would say that, wouldn't he" - i.e. no matter what the chances, this is the only statement he can make without losing his job, but then I am wondering why he is offering this comment anyway without being asked.

Is he waving a red flag?
The longer it takes for the Supreme Court to make a decision, the more concerned I get! It does make you wonder what the basis for the Chair's comments are - bizarre statement to make in the AR, without any qualifying comments.

[Leftfield]

..... He presupposes to have some understanding of how the Supreme Court justices will rule. That's goes well beyond "arrogant" in my opinion.

Ssssoooo OK for the Beagle to voice a strong opinion of the Court's likely outcome, but not OK for the Chair???

Surely Shareholders would be expecting an update on the process and the Chair is entitled to offer his opinion.

Best to wait the ruling.

[Beagle]

Ssssoooo OK for the Beagle to voice a strong opinion of the Court's likely outcome, but not OK for the Chair???

Surely Shareholders would be expecting an update on the process and the Chair is entitled to offer his opinion.

Best to wait the ruling.

I see where you are coming from BUT I don't have a vested interest one way or the other and yes the directors do have strong fiduciary obligations to shareholders, (obviously I don't), so unless there is a legal basis that supports his opinion he's actually exceeding his authority offering it. Is he a QC ? I'm not either, (quite obviously), but I don't have fiduciary obligations to act in shareholders best interests at all times and I continue to struggle to understand how building and commissioning the Pokeno plant in direct contravention of an existing court decision is consistent with the board honoring its fiduciary obligations to shareholders ? For all intents and purposes it looks like a massive 50/50 gamble the size of which amounts to the last 6 years total annual profits, (before they announced the FY20 profit)

Its one thing to go to (for example) Sky City and put a few bucks on black or red on the roulette wheel, have a few drinks and have some fun but quite another to place the last 6 years of your income on the outcome of one spin, surely you would agree ?

I genuinely believe if they lose and the consequences to the company are severe the whole board should resign. I do have a morbid fascination with slow motion train wrecks, can't help myself (because there's so many business lessons to be learned for free), and this one is potentially a massive derailment.

Enough already been said on them promoting the planet and people to the same level as shareholders...all without getting consent by way of a special resolution from shareholders but I still really struggle to see how the directors are acting consistent with shareholders best interests.

My sole interest here is to warn others as to the extremely unusual behavior of the directors and to ask if that's really consistent with them minimizing risks to the company and looking after shareholders best interests ? I've done that. If this train wreck badly derails and the directors don't resign then some shareholder activism will be warranted and I am happy in due course if it is appropriate to have a fulsome discussion with our resident super cat at the shareholders association about where to from there.

[Marilyn Munroe]

A question that has puzzled me for a long time. Why are agricultural processing companies in New Zealand so poorly governed?

Recent examples are Fonterra Westland Dairy SYN and Siiver Fern Farms(then PPCS). There are also historical failures which fit this profile.

A vital part of what the participants call the back-bone of the country seem unable to get it right . I would be interested in others views on this.

Boop boop de do
Marilyn

[Sideshow Bob]

A question that has puzzled me for a long time. Why are agricultural processing companies in New Zealand so poorly governed?

Recent examples are Fonterra Westland Dairy SYN and Siiver Fern Farms(then PPCS). There are also historical failures which fit this profile.

A vital part of what the participants call the back-bone of the country seem unable to get it right . I would be interested in others views on this.

Boop boop de do
Marilyn

The 3 examples you cite (apart from Synlait) are all Co-Ops. Or in the case of Westland and SFF, were co-ops but now part or fully owned by Chinese.

As is Synlait already.

[macduffy]

Perhaps it's because producer co-ops focus on payment for production, not on product marketing. Boards have also tended to be predominantly producers, ie farmers.

[whome]

You got it in one macduffy. Dairy farmers know lots about feeding cows and pulling tits. Anything else beyond the boundary fence - forget it. Kerry Dairy in Ireland provides a case study of how the co-op structure hindered company growth until they split production from marketing. Fonterra tried to set up similar here, but took 6 mths just to organise farmer meetings, then got voted down so they gave up. Thank god ATM is not a co-op, or a milk company, but is the NZ version of Coca-cola the worlds greatest marketer.

[Beagle]

A question that has puzzled me for a long time. Why are agricultural processing companies in New Zealand so poorly governed?

Recent examples are Fonterra Westland Dairy SYN and Siiver Fern Farms(then PPCS). There are also historical failures which fit this profile.

A vital part of what the participants call the back-bone of the country seem unable to get it right . I would be interested in others views on this.

Boop boop de do
Marilyn

Very good point about the very poor standard of governance right across this sector. For example its not called Fonterror by some people without good reasons !!
If all people understand is milking udders in the cowshed, that's where they should be, not the boardroom !

[Filthy]

https://www.nzx.com/announcements/362735

good update... (i think?) - hard to tell really; it'll cost $70M in CAPEX, but zero indication if it will improve guidance at all.... we all just have to guess...

[Beagle]

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/SML/362735/334449.pdf

Very small pink headline...much more subdued than their usual pink colored headlines in capitals and HUGE PINK FONT

Are we to interpret this that the net effect on eps will be minimal ?
How do they meet the terms of this agreement if Pokeno is rendered inoperable by the Supreme Court ?

[Nigel]

Positive impact on earnings from FY23. Meanwhile $70m needs to be spent on customisation over two years. Let's hope the customer is locked in for some time! Good long term move, but that's a significant investment to get them on board, which wont help the financials for the next few reporting periods.
Interesting too that the shareprice was up this morning about 5% (leaky ship?) but is easing now that the details are out.

[Sideshow Bob]

Total liabilities of $885m, what's another $70m of spending going to matter....

[sb9]

At last, they can move on with their plans now...

https://www.nzx.com/announcements/362766

Synlait settles Pokeno land covenant legal dispute
Disc: Not a holder anymore..

[winner69]

Pokeno settled - not material

I guess two and sixpence

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/SML/362766/334488.pdf

[winner69]

Interesting too that the shareprice was up this morning about 5% (leaky ship?) but is easing now that the details are out.

Maybe Pokeno news became 'public'

[Leftfield]

How do they meet the terms of this agreement if Pokeno is rendered inoperable by the Supreme Court ?


Pokeno settled - not material

I guess two and sixpence

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/SML/362766/334488.pdf

Well, well, Beagle will be disappointed. Fancy that. ;)

(Disc - don't hold)

[BigBob]

How do they meet the terms of this agreement if Pokeno is rendered inoperable by the Supreme Court ?

Maybe they knew something that you didn't....??

[Beagle]

For those interested...back in my auditing days, (from memory and its been a LONG time) the doctrine of materiality was that anything under 5% of net assets was not considered to be "material". Could be up to $30m. Much better than the worst case scenario though.

Now people have to decide if they want to invest in a company that puts the planet and people on the same level as shareholders and made this change without a special resolution for shareholders.

[winner69]

Leon will be up for a big bonus this year

New contracts and Pokeno settled and all that.

[steveb]

If the amount was not material,one has to ask why it was not settled sooner?

[Filthy]

If the amount was not material,one has to ask why it was not settled sooner?

it takes two to tango...

[steveb]

it takes two to tango...
Yes agree,but if it's not material,you just keep chucking money at it until it's settled or it becomes material.

[Leftfield]

If the amount was not material,one has to ask why it was not settled sooner?

Likely the Supreme Court proceedings and likely outcome prompted the need for agreement. JMHO.

[winner69]

If the amount was not material,one has to ask why it was not settled sooner?

Pride and egos I guess - big corporate guys don't like giving in

In Synlait's case this seems to go against their much touted values

[Marilyn Munroe]

Likely the Supreme Court proceedings and likely outcome prompted the need for agreement. JMHO.

I don't know about judicial ethics but is it righteous for the Court to drop the hunt to SYN's lawyer that they should sort it out before judgement is issued as a situation may arise that is not necessarily to their advantage?

In other news, ground works have begun preparing for a rail siding at SYN.s Dunsandel plant. My informant tells me it is supposed to be up and running by February. He views this target date as optimistically aspirational.

Boop boop de do
Marilyn

[Nigel]

Well at least that removes a chunk of uncertainty. While I always assumed the issue would be resolved, there was always that doubt of 'what if it isn't?'. I Imagine other investors (or potential investors) would have held a similar view. Good to have this sorted, so that we can move on.

[JohnnyTheHorse]

Around 720,000 shares (0.4%) are short on the ASX. Will we see bit of a squeeze as these try to cover?

[BlackPeter]

Well at least that removes a chunk of uncertainty. While I always assumed the issue would be resolved, there was always that doubt of 'what if it isn't?'. I Imagine other investors (or potential investors) would have held a similar view. Good to have this sorted, so that we can move on.

I do agree.

And - while I am still not sure I like the current flavour of management, I did buy this morning a small parcel for my agricultural portfolio (and as well as entry ticket for the oncoming AGM). At purchase price they should be reasonable value, even if the promised growth does not materialize.

At a $5.50 SP they are in my books with a forward PE of 11.1 and (based on analyst forecasts) a forward earnings CAGR of 14.3%.
Hey - this makes a PEG of 0.78! Not too bad ;):

[Beagle]

I do agree.

And - while I am still not sure I like the current flavour of management, I did buy this morning a small parcel for my agricultural portfolio (and as well as entry ticket for the oncoming AGM). At purchase price they should be reasonable value, even if the promised growth does not materialize.

At a $5.50 SP they are in my books with a forward PE of 11.1 and (based on analyst forecasts) a forward earnings CAGR of 14.3%.
Hey - this makes a PEG of 0.78! Not too bad ;):

Better brush up on your Te Reo and wear pink to the annual meeting ;) Me, I don't invest in companies run by Muppets at any price.

[kiora]

At last, they can move on with their plans now...

https://www.nzx.com/announcements/362766

Synlait settles Pokeno land covenant legal dispute
Disc: Not a holder anymore..

Why would this be confidential?
Why isn't it out in the open?
Who benefits from confidentiality clause?
My preference is not to invest in companies that do not have full disclosure

[peat]

the mere fact that such a risk could be allowed to happen is indicative of something I dont want to be part of. Sure , we might not know all the facts , but if they dont want us to think like this they need to explain themselves. With money , being prudent comes first

[Beagle]

the mere fact that such a risk could be allowed to happen is indicative of something I dont want to be part of. Sure , we might not know all the facts , but if they dont want us to think like this they need to explain themselves. With money , being prudent comes first

I put it to you and others that the culture on concealment in Synlait runs deep. Small shareholders are treated as just a necessary evil and a nuisance.

[winner69]

The plot thickens

TRADING HALT

Share price up close to 20% since mid last week ...all Pokeno related?

[BigBob]

The plot thickens

TRADING HALT

It's probably just a change in the colour of the corporate font... 😀

[sb9]

The plot thickens

TRADING HALT

Most likely cap raise imo, but things are surely moving fast in Synlait's world over past few days..

[JohnnyTheHorse]

The plot thickens

TRADING HALT

Could be a takeover offer given the risks around covenants is sorted?

Or could be a major product recall... or a capital raising as the settlement actually was material?

Place your bets...

[couta1]

Could be a takeover offer given the risks around covenants is sorted?

Or could be a major product recall... or a capital raising as the settlement actually was material?

Place your bets... Scary bet.:eek2:

[Nigel]

not a product recall

[alex f]

Capital raise to pay the other land party the settlement sum?

[Gregnz]

Capital raise to pay the other land party the settlement sum?

The settlement sum was so low they said it had no material impact

[JohnnyTheHorse]

The settlement sum was so low they said it had no material impact

Would be unusual to place a halt during trading for a capital raise.

Takeover offer from A2 really wouldn't surprise me at all.

[sb9]

Would be unusual to place a halt during trading for a capital raise.

Takeover offer from A2 really wouldn't surprise me at all.

I doubt it, as A2 just took interest in Mataura Valley Milk. They wouldn't want to put too much investment into manufacturing.

[winner69]

If a big deal between SML and A2 wouldn't A2 be in a halt as well

[Gregnz]

If a big deal between SML and A2 wouldn't A2 be in a halt as well

It would have to be, hence its not a A2 takeover of SML

[Southern Lad]

If a big deal between SML and A2 wouldn't A2 be in a halt as well

ASX Trading Halt request timed at 4:05 pm states that the reason is "an announcement relating to a proposed capital raising".

[Gregnz]

ASX Trading Halt request timed at 4:05 pm states that the reason is "an announcement relating to a proposed capital raising".

Good spotting. Interesting that NZX hasn't even included that detail.

ASX Announcement here:

https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02306369-2A1262393?access_token=83ff96335c2d45a094df02a206a 39ff4

[freddagg]

ASX Trading Halt request timed at 4:05 pm states that the reason is "an announcement relating to a proposed capital raising".

Well spotted

[sb9]

Good spotting. Interesting that NZX hasn't even included that detail.

ASX Announcement here:

https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02306369-2A1262393?access_token=83ff96335c2d45a094df02a206a 39ff4

ASX rules are pretty comprehensive compared to that of NZX.

[jimdog31]

ASX Trading Halt request timed at 4:05 pm states that the reason is "an announcement relating to a proposed capital raising".

Love the PR aye, 2 x positive announcements paving the way for CR.

[winner69]

Love the PR aye, 2 x positive announcements paving the way for CR.

Suckers will love it ....and the higher price last couple of days helps

[Gregnz]

ASX rules are pretty comprehensive compared to that of NZX.

Although based on this years NZX performance, it wouldn't surprise me if they just forgot to include the detail.

[jimdog31]

Suckers will love it ....and the higher price last couple of days helps

WOnder how much they need? will A2 let their shareholding dilute?

[Scrunch]

ASX Trading Halt request timed at 4:05 pm states that the reason is "an announcement relating to a proposed capital raising".

And further in the Bell Gully letter below:
"SML Expects that it will be in a position to make an announcement in relation to the capital raising by 1.00p.m. (NZT), on Wednesday, 11 November 2020. The trading halt is required in order to permit an orderly and transparent market while the capital raising is undertaken."

If it was a simple pro-rata rights issue, full details should have been able to be released now. This therefore tends to indicate there's an institutional book build that has been, or is about to be undertaken.

Slightly odd that the different exchanges have a different planned reopening (NZX till market open, ASX is till 1pm on Wednesday).

[sb9]

WOnder how much they need? will A2 let their shareholding dilute?

At least in 3 digits in millions, do it once and do it big.

[whatsup]

Now that the bad news is out of the way what do you expect from the company that just avoided a massive scare ?

[Gregnz]

Now that the bad news is out of the way what do you expect from the company that just avoided a massive scare ?

Up up up and up some more. They haven't committed $70 million to expanding production for this new supply agreement with an unknown customer without a significant return on investment. I'm curious to know who this 'global category leader' is?

[Beagle]

Suckers will love it ....and the higher price last couple of days helps

The way management and directors have run this company and the risks they have exposed shareholders too and the way they have "executed" their fiduciary obligations to shareholders. makes me wonder why anyone would bother ? The latest lack of disclosure regarding the settlement amount at Pokeno and lack of reason disclosed for the trading halt to the NZX just two further chapters in a long litany of fiasco's and minimalist disclosure to shareholders. A good look at the balance sheet the other day lead me to the conclusion a near term large capital raise was inevitable.

I don't invest with companies being run and governed by Muppets at any price.

[winner69]

The way management and directors have run this company and the risks they have exposed shareholders too and the way they have "executed" their fiduciary obligations to shareholders. makes me wonder why anyone would bother ? The latest lack of disclosure regarding the settlement amount at Pokeno and lack of reason disclosed for the trading halt to the NZX just two further chapters in a long litany of fiasco's and minimalist disclosure to shareholders. A good look at the balance sheet the other day lead me to the conclusion a near term large capital raise was inevitable.

I don't invest with companies being run and governed by Muppets at any price.

Producers using shiny stainless steel are very capital intensive, no matter how efficient they become

This won’t be the last time they need to go to shareholders asking for more.

[BlackPeter]

Producers using shiny stainless steel are very capital intensive, no matter how efficient they become

This won’t be the last time they need to go to shareholders asking for more.

Possible. However, to be fair ... the last SML capital rise I remember (and participated in) was around $3 per share ... and something like 18 months later these same shares traded around $12.

Obviously - no guarantees the same thing happens again, but still - it can be profitable to park some money into their CR's ...

Need to see the conditions first, but would not exclude at this stage going for another ride ...

[Beagle]

Producers using shiny stainless steel are very capital intensive, no matter how efficient they become

This won’t be the last time they need to go to shareholders asking for more.

What will be fascinating is if they have the nerve to ask shareholders for more capital without disclosing the cost to settle Pokeno ?
I for one would never take the statement not a material amount at face value with these guys. A capital raise so soon after a settlement is announced must surely beg the question of if the amount is not material why is a capital raise required ?

I would never give them money without full disclosure even if I thought they were doing a good job of managing the company in shareholders best interests...but trust us we know what we're doing, without full disclosure in my opinion definitely doesn't cut it after what they have put shareholders through.

[Scrunch]

What will be fascinating is if they have the nerve to ask shareholders for more capital without disclosing the cost to settle Pokeno ?
I for one would never take the statement not a material amount at face value with these guys. A capital raise so soon after a settlement is announced must surely beg the question of if the amount is not material why is a capital raise required ?

I would never give them money without full disclosure even if I thought they were doing a good job of managing the company in shareholders best interests...but trust us we know what we're doing, without full disclosure in my opinion definitely doesn't cut it after what they have put shareholders through.

Well the Why is pretty simple - debt levels were already high at $533m (note 11). One possibility is they went to the bank to confirm facilities for the new capital profile that included the $70m of capital for the new customer and found out they were near or at the banks debt ceiling. At 30 June 2020, net debt / EBITDA was at 3.1. Debt / Debt + equity (excluding derivatives) was 47.1% (page 44 of the 2020 annual report).

[Beagle]

Well the Why is pretty simple - debt levels were already high at $533m (note 11). One possibility is they went to the bank to confirm facilities for the new capital profile that included the $70m of capital for the new customer and found out they were near or at the banks debt ceiling. At 30 June 2020, net debt / EBITDA was at 3.1. Debt / Debt + equity (excluding derivatives) was 47.1% (page 44 of the 2020 annual report).
Agreed, see except from post earlier today below but...non disclosure of the settlement amount even if they claim its not technically "material" to Synlait is concealment of a very relevant fact of the quantum of money to settle that long running fiasco. I think shareholders deserve to know but the directors are too embarrassed to say so will bury it with this capital raise and use the current debt level and planned new capex as a convenient whitewashing exercise and talk up future growth.

A good look at the balance sheet the other day lead me to the conclusion a near term large capital raise was inevitable Beagle.

[SCOTTY]

A capital raising would push the SP down not up.

[couta1]

A capital raising would push the SP down not up. Yep, will be at a discount to current market price so expect short-term sp weakness.

[JSwan]

Not if the company has good prospects, ie. IKE, ERD, SKO

SML to become a tech company soon? 😂

[Gregnz]

Often a share price moves in a way to closely match the capital raise price. This is short term only.

Long term with a new customer and new supply agreement for a global category leader, I’d expect the share price to increase substantially if it’s adding significant revenue / profit , which I’m sure it will do if SML are willing to invest $70 million in changes to production.

[Baa_Baa]

A capital raising would push the SP down not up.

It should if only due to dilution. Despite some other’s misgivings, I think this company is very aggressively growing and prepared to push the envelope in a booming market. Why not with debt servicing at historic lows! Who dares wins.

I don’t have to defend a litany of sustained abuse, and I’m not swayed either way by their attention to the environment and diversity, it’s all about the numbers and I think Synlait are very progressive and well positioned to advance from here to a bright future.

The share prices lows, in current recent circumstances, might be rapidly behind us, question is whether we are prepared to make a move, buy in, accumulate, or reject it and fold.

[Beagle]

ATM bound to utilize their own facility to the maximum at Matura if they proceed with that acquisition.
Quite apart from all my other misgivings I am not seeing the strong growth others are here. Do I trust management that they've "got this" with their supposed eps accretive new processing arrangement with a major new customer from FY23 ? NO !! In my book Trust is earned not given and management have done northing but undermine trust in recent times. They closed today at a historic PE of 14.1 Not expensive but for my capital there's companies with far more credibility and at least as good growth prospects on even more attractive metrics.

[dreamcatcher]

From 30 odd holdings for me SML is 1 of only 4 in red. Recently announced Pokeno land dispute settlement and multinational client agreement this company can now move forward. Maybe even two outstanding SAMR registrations waiting on Chinese approval may arrive. Personally couldn't care less about the pink lettering or non-holders negative comments. It's all about whether I can see a buck here in the future so if CR terms acceptable? will probably partake.

snippet UBS report.........

"In the model portfolio, we hold a2 Milk Company, BHP, Synlait Milk, Fortescue
Metals, IDP education and Sims as a positive weight."

[Sideshow Bob]

$200m :scared: Go big or go home....

Cleansing Notice

10/11/2020, 8:31 amOFFER10 November 2020
Client Market Services
NZX Limited
Level 1, NZX Centre
11 Cable Street
WELLINGTON
Copy to:
ASX Market Announcements
Australian Stock Exchange
Exchange Centre
Level 6
20 Bridge Street
Sydney NSW 2000
AUSTRALIA
RE: SYNLAIT MILK LIMITED (SML / SM1)

Notice Pursuant to Clause 20(1)(a) of Schedule 8 to the Financial Markets Conduct Regulations 2014

1. Synlait Milk Limited (Synlait) announced on 10 November 2020 that it intends to undertake an offer of new ordinary shares in Synlait by way of:
(a) a placement to eligible institutional and other selected investors to raise approximately $180 million (Placement); and
(b) a share purchase plan to eligible shareholders with addresses in New Zealand and Australia to raise $20 million (SPP), (together, the Offer).

2. The Offer is being made to investors in New Zealand in reliance upon the exclusion in clause 19 of Schedule 1 to the Financial Markets Conduct Act 2013 (the FMCA). Synlait will issue the relevant shares under the Offer to investors in Australia without disclosure under Part 6D.2 of the Corporations Act 2001 (Cth) (Corporations Act).

3. This notice is provided under:
(a) subclause 20(1)(a) of Schedule 8 to the Financial Markets Conduct Regulations 2014 (the Regulations);
(b) paragraph 708(12J) of the Corporations Act as notionally inserted by ASIC Instrument 20-1052; and
(c) ASIC Corporations (Share and Interest Purchase Plans) Instrument 2019/547 as amended by ASIC Instrument 20-1052.

4. As at the date of this notice:
(a) Synlait is in compliance with the continuous disclosure obligations that apply to it in relation to the ordinary shares in Synlait;
(b) Synlait is in compliance with its financial reporting obligations (as defined in subclause 20(5) of Schedule 8 to the Regulations);
(c) Synlait has complied with its obligations under rule 1.15.2 of the ASX Listing Rules; and
(d) there is no information that is “excluded information” (as defined in subclause 20(5) of Schedule 8 to the Regulations) in respect of Synlait.

5. The Offer is not expected to have any material effect or consequence on the "control" (as defined in clause 48 of schedule 1 to the FMCA) of Synlait.
Ends

[winner69]

I would have thought they would have gone for more than $200m

[Gregnz]

I’m surprised they are able to proceed with an equity raise without yet disclosing who this new customer / global category leader is, and without disclosing the financial impact from the recent Pokeno settlement

[DownTownJr]

I’m surprised they are able to proceed with an equity raise without yet disclosing who this new customer / global category leader is, and without disclosing the financial impact from the recent Pokeno settlement

Yes. I only have a small holding, but a lot of information missing. What to do hmmm.

[winner69]

So we now expect to be at or slightly below the FY20 NPAT result for FY21

So NPAT back below 2018 levels (profit trend 75m (F18) 82m (F19) 75m (F20 and <75m (F21)

Using double the amount of invested capital to achieve these great results

Hardly a growth company is it

But the future is looking really really bright - that's the main thing

[Beagle]

So we now expect to be at or slightly below the FY20 NPAT result for FY21

So NPAT back below 2018 levels (profit trend 75m (F18) 82m (F19) 75m (F20 and <75m (F21)

Using double the amount of invested capital to achieve these great results

Hardly a growth company is it

But the future is looking really really bright - that's the main thing

Did you really expect anything different when they expend vast management resources over a protracted period of time to achieve accreditation (without special resolution authority from shareholders) to elevate people and the planet to the same level as shareholders ?
Is this a growth company ? NO. Is the future looking really bright ? NO. Has their disclosure around recent events been acceptable ? NO Was their risk taking with Pokeno appropriate ? NO.
Have they met their fiduciary obligations to put shareholders interests first and foremost at all times ? NO. Have they met their fiduciary obligations to mitigate risk to an acceptable level to the company at all times ? NO. Do they deserve further support from shareholders ? NO. Would I ever be interested in investing in this company again ? NO
Is this sour grapes because I have lost money on Synlait shares in the past ? NO...I've actually made a useful amount of money from this dog in better times.

[winner69]

Did you really expect anything different when they expend vast management resources over a protracted period of time to achieve accreditation (without special resolution authority from shareholders) to elevate people and the planet to the same level as shareholders ?
Is this a growth company ? NO. Is the future looking really bright ? NO. Has their disclosure around recent events been acceptable ? NO Was their risk taking with Pokeno appropriate ? NO.
Have they met their fiduciary obligations to put shareholders interests first and foremost at all times ? NO. Have they met their fiduciary obligations to mitigate risk to an acceptable level to the company at all times ? NO. Do they deserve further support from shareholders ? NO. Would I ever be interested in investing in this company again ? NO
Is this sour grapes because I have lost money on Synlait shares in the past ? NO...I've actually made a useful amount of money from this dog in better times.

Jeez ...and I thought 4 pages of Disclaimers (in small letters) was a lot in their Presentation today

I take it you only look on with morbid fascination.

The Pokeno settlement never be known ....probably will be hidden away as a capitalised cost relating to new plant.

[winner69]

Pretty cool forklift

[Beagle]

Jeez ...and I thought 4 pages of Disclaimers (in small letters) was a lot in their Presentation today

I take it you only look on with morbid fascination.

The Pokeno settlement never be known ....probably will be hidden away as a capitalised cost relating to new plant.

Just trying to warn people of the risks and point out the massive holes in governance standards. My job is basically done, I feel.

[mike2020]

Pretty cool forklift

Imagine if it had angels wings or maybe a nice dolphin on the side.

[Getty]

Dilution is the solution.

Or is it?

20% more shares, but no 20% increase in NPAT?

[Joshuatree]

Reminds me of a Grace Jones song"From the nipple to the bottle never satisfied"

[peat]

Reminds me of a Grace Jones song"From the nipple to the bottle never satisfied"

you do know the lyric continues... From the nipple to the bottle now the cow must die

[Snow Leopard]

I bought into SML on Friday and hope that the paper-work went through quick enough for me to be in on the cap raise.
Only wanted in for the 'Pokeno bounce' but luckily Leopards are agile and can react to rapidly changing circumstances.
A quick recalc of value says I should be OK in the short term and reasonable over five years.

[DownTownJr]

https://i.stuff.co.nz/business/123357594/synlait-says-big-spending-days-are-behind-it-as-it-focuses-on-making-money

[peat]

https://i.stuff.co.nz/business/123357594/synlait-says-big-spending-days-are-behind-it-as-it-focuses-on-making-money


thats a bit rich innit?

[JohnnyTheHorse]

Placement went through at the underwritten price of $5.10, so doesn't show great support for them. I closed out my swing trade position just as it opened again for $5.90 and am very happy with that. I'll be there for the SPP for sure though. Is that having my cake and eating it?

https://www.nzx.com/announcements/363072

[Snow Leopard]

Placement went through at the underwritten price of $5.10, so doesn't show great support for them. I closed out my swing trade position just as it opened again for $5.90 and am very happy with that. I'll be there for the SPP for sure though. Is that having my cake and eating it?

https://www.nzx.com/announcements/363072

:confused: The placement price was fixed at $5.10 in the original announcement, so of course they all went at $5.10.

The good thing is that they all went. :mellow:

https://thediplomat.com/wp-content/uploads/2016/02/sizes/medium/thediplomat_2016-02-22_12-29-03.jpg

[JohnnyTheHorse]

:confused: The placement price was fixed at $5.10 in the original announcement, so of course they all went at $5.10.

The good thing is that they all went. :mellow:

https://thediplomat.com/wp-content/uploads/2016/02/sizes/medium/thediplomat_2016-02-22_12-29-03.jpg

Ah yes right you are. I had assumed it'd be a bookbuild/bidding process with an underwritten minimum price.

[JohnnyTheHorse]

Got back on this horse at $5.40 for another crack. Goldmans have upgraded to Buy with a $7.02 target price.

[Nigel]

Why wouldn't you wait for the SPP at $5.10?

[JohnnyTheHorse]

Why wouldn't you wait for the SPP at $5.10?

Very unlikely to get a full allocation. The capital raise was ~20% of market cap, so assuming everyone takes up their allocation you'd only get ~20% of your original shares.

[Snow Leopard]

Why wouldn't you wait for the SPP at $5.10?


Very unlikely to get a full allocation. The capital raise was ~20% of market cap, so assuming everyone takes up their allocation you'd only get ~20% of your original shares.

Whilst I can see the logic in that I don't see the logic in that! :confused:

Apply for what you are guaranteed to get + plus a few more, and buy the remainder on market.
That is my plan.

[Nigel]

Watched the AGM online today. All very positive, and (much to the disappointment of some on here) only a little bit of talk about the environment. Most of the chat was about how they have reduced risk by diversifying the business (by site, customer, category and market), about the opportunity presented by the new multinational customer, and the fact that focus now shifts from investing in building the business to actually making money. They acknowledged that the share price had drifted down from $10 to the current price in the $5s, and I took from the comments that they expect to shift it north again now that the investment phase has finished. Lots of opportunity for future growth.

I left the meeting quite excited about where the company is heading and hoping I get a decent tranche of the shares I applied for in the SPP.

Did anyone else attend?

[limmy]

It's not clear watching the AGM online who the new multinational customer it. Have I missed something ?

[Nigel]

They said that they wouldn't name the client for the client's own privacy. Having worked in the industry, that isn't too uncommon, especially when there's some new innovative products in development. They are working with the new customer on some new products (plant-based products) and I think it's all a bit hush-hush. They name-dropped a number of other existing customers including Nestle and FreislandCampina, so it isn't them. From memory they said it was an Asian customer (certainly that it would open up more opportunities in Asian markets) - could be one of the big Japanese players?

[dreamcatcher]

Watched the AGM online today. All very positive, and (much to the disappointment of some on here) only a little bit of talk about the environment. Most of the chat was about how they have reduced risk by diversifying the business (by site, customer, category and market), about the opportunity presented by the new multinational customer, and the fact that focus now shifts from investing in building the business to actually making money. They acknowledged that the share price had drifted down from $10 to the current price in the $5s, and I took from the comments that they expect to shift it north again now that the investment phase has finished. Lots of opportunity for future growth.

I left the meeting quite excited about where the company is heading and hoping I get a decent tranche of the shares I applied for in the SPP.

Did anyone else attend?


Thanks for the summary which sounds great for the future and wait for new customer update. Also applied for good slice of SPP

[dreamcatcher]

Oversubscribed, appears my good slice of SPP will be slashed......

https://www.nzx.com/announcements/364145

[TDLNZ]

Synlait NZ$20 Million Share Purchase Plan Oversubscribed.this is a good news, right?

[Nigel]

Yeah, I was a tad disappointed. Shares are allocated tomorrow so I guess we'll find out how many we got then. We may well see some people buying more on market to make up for (some of) what they missed out on in the SPP.

[Beagle]

Successful conclusion to the shareholder milking. Wonder if they will be led into the cowshed for another milking next year ? Debt level's still very high and a long time between drinks before that new customer can be milked. Hmmm

[Nigel]

The cap raise has reduced debt to a more comfortable level. The debt allowed considerable investment and diversification, so I'm okay with it. Short term risk, long term reward.

[Nigel]

New shares showing in Computershare. I only got about 1/6 of what I asked for. Now I need to wait for the refund so I can buy on market!

[Nigelk]

Some interesting speculation in Chris Lee's newsletter yesterday about new customer being Danone.

So if they're raising $200m to prop up the balance sheet, then maybe get a similar amount more via bank debt and/or a bond issue to fund expansion for the deal, what would that make the deal need to be worth?

[winner69]

Sustainability Report out

A good read - more people should read

Likes of Synlait will never be great companies unless they do a lot of this stuff - it does make a difference ....even to the bottom line

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/SML/364307/336583.pdf

[limmy]

SPP applications have been scaled down to only 1/3. Disappointing !
They probably expect people to buy the shortfall at a higher price on the open market ? Did the big shareholders get their full allocation ? If so, isn't it unfair to the small shareholders ?

[Sideshow Bob]

SPP applications have been scaled down to only 1/3. Disappointing !
They probably expect people to buy the shortfall at a higher price on the open market ? Did the big shareholders get their full allocation ? If so, isn't it unfair to the small shareholders ?

Guess all holders would be scaled (as would be patently unfair if not). Also, otherwise it might have taken A2 over 20% holding, which would cause them all sorts of complications.

[petty]

Im with you winner. The ability to onboard new customers (maybe Danone?) will be challenging for business's who do not have credentials in this space. Why? Because Synlaints customers customers are wanting it. My preference is to invest in companies who are in touch with their customers, and their customers customers purchasing decisions. The days of of pumping high volume commodity at the cost to the environment is numbered. It not a moral issue (although it may be for some) but a profitability issue. Synlait know they need to address this area. Thankfully Synlaint are aware and are responding to this.

[Gerald]

" We have been able to leverage our sustainability performance to access an ESG-linked loan from ANZ Bank. The $50 million Environmental, Social and Governance (ESG) linked loan was a first in New Zealand and encourages a borrower to further improve performance and disclosure against a set of independent ESG criteria. A second $50 million ESG loan was arranged in 2020 with BNZ. A discount or premium to the base lending margin is applied to the loans, "

Might be something there Beagle :) Wonder how much they save.

[Nigel]

Might be something there Beagle :)


Might also be something in it in terms of winning new customers. Like Synlait, Danone is also a B-Corp company. As more and more end users start paying attention to environmental issues, providence and sustainability, more companies will take a closer look at their own supply chains as it gives them a marketing edge. Eventually a sustainable supply chain may well simply be a requirement to do business, a licence to operate if you will.

Synlait is ahead of the game here. And if you have the likes of Danone wanting to do business with a NZ-based supplier/producer, Synlait's commitment to "doing milk differently for a healthier world" makes them an attractive partner.

[HITMAN]

I managed to jump onboard. Been watching this since listing, paid $5.20, has it hit is low or more falls to come.

[Cash_Lion]

think it's up from here to be honest.

[mcdongle]

Dont Synlait already make stuff for Danone?

[Nigel]

Dont Synlait already make stuff for Danone?

I think we do already supply to Danone (did they come on board after the Fonterra botulism scare?).

I still think the "new multinational customer" is an Asian client, given that those were the new market opportunities discussed at the AGM.

[Scrunch]

" We have been able to leverage our sustainability performance to access an ESG-linked loan from ANZ Bank. The $50 million Environmental, Social and Governance (ESG) linked loan was a first in New Zealand and encourages a borrower to further improve performance and disclosure against a set of independent ESG criteria. A second $50 million ESG loan was arranged in 2020 with BNZ. A discount or premium to the base lending margin is applied to the loans, "

Might be something there Beagle :) Wonder how much they save.


A few years ago Westpac presented to our team about possible sustainability/green bonds. It all sounded good till you asked if they came with a lower coupon and at that stage the answer was no, basically the same pricing as a non-green bond. Things may have moved on in the last few years, but unlikely to be saving many dollars (if any) relative to a vanilla loan. It does however sound better.

[Sideshow Bob]

Dont Synlait already make stuff for Danone?

Danone already own a (small) plant at Clydevale, near Balclutha.

Balclutha: investing in innovation to preserve our planet for the future - Danone (https://www.danone.com/stories/articles-list/balclutha1.html)

[lctham]

have people got their refunds back from being scaled back yet?

[dobby41]

have people got their refunds back from being scaled back yet?

Not yet for me

[Nigel]

Not yet. 83%+ of what I sent is coming back to me :(

[JoeM]

Good to see directors participating in the SPP with most at the full $50k.

[winner69]

Not yet for me

I assume they got scaled like everybody else

[dobby41]

I assume they got scaled like everybody else

Mine did - got 1/3

[mcdongle]

Danone already own a (small) plant at Clydevale, near Balclutha.

Balclutha: investing in innovation to preserve our planet for the future - Danone (https://www.danone.com/stories/articles-list/balclutha1.html)

Yes they do...but they are not a new customer....Im hoping its a North American co..

[winner69]

Mine did - got 1/3

Same as Director Robertson ....he had 10,000 shares before hand.

Suppose scaling all above board


Bit of a bugger for Penno - his nice round number held is no more, now 5,109,803

[Mel]

have people got their refunds back from being scaled back yet?
Yes, I received the refund today

[Cash_Lion]

Why is Synlait Milk's forum pretty dead compared to a much smaller market cap company such as SKT?

[BlackPeter]

Why is Synlait Milk's forum pretty dead compared to a much smaller market cap company such as SKT?

Nothing to talk about?

The noise (chatter, post frequency) in the various forums is typically proportional to the current market hype (be it positive or negative) of the relevant companies. It has absolutely nothing to do with the market cap or with the long term performance of any company.

[Joshuatree]

Why is Synlait Milk's forum pretty dead compared to a much smaller market cap company such as SKT?

Looks like minimoke (used to be on here)has killed off interest rightly or wrongly.

[Sideshow Bob]

From Business Day's free email:

Food giants ready to pay for sustainable products - Synlait (https://businessdesk.us20.list-manage.com/track/click?u=786ac0b2dc4f2240875208882&id=60eded3d85&e=3b6f9185d3)New Zealand dairy producers and food processors have a great opportunity to benefit from recent emission-reduction pledges by global brands, Synlait Milk said.
Many major food makers including the likes of Nestle – the world’s largest - have made pledges this year to cut greenhouse gas emissions.
Read the full story at BusinessDesk — subscribe now (https://businessdesk.us20.list-manage.com/track/click?u=786ac0b2dc4f2240875208882&id=6018ae8742&e=3b6f9185d3)

[Cash_Lion]

Anyone gonna discuss how undervalued Synlait milk is? Lol

[dobby41]

Anyone gonna discuss how undervalued Synlait milk is? Lol

would you like to start? How overvalued are they?

[mcdongle]

If they could get their product out of the country the share price may be higher

[dreamcatcher]

Pokeno fiasco cost them heaps but future now looking more promising, not surprised if those SAMR registrations get approval.

They need to develop and market their own IF Brand

[Cash_Lion]

would you like to start? How overvalued are they?

Why do you think they're overvalued?

[ratkin]

Anyone gonna discuss how undervalued Synlait milk is? Lol

It even more undervalued today 🤣🤣🤣

[Cash_Lion]

Pokeno fiasco cost them heaps but future now looking more promising, not surprised if those SAMR registrations get approval.

They need to develop and market their own IF Brand

How do you know it cost them heaps, they stated:

"Further details of the settlement agreement will not be disclosed due to confidentiality. The settlement price was reasonable and not material to Synlait."

[dreamcatcher]

I reckon settlement was 3m tops but their hands were tied as unable to sign new business until Pokeno finalized because of the uncertainy

[Cash_Lion]

I reckon settlement was 3m tops but their hands were tied as unable to sign new business until Pokeno finalized because of the uncertainy

Yeah + the $200mil pay down of their debt. Looks like blue skies from here

[Cash_Lion]

Jeez whats with the dip

[Scrunch]

Jeez whats with the dip

Atm trading halt

[Hello123]

Jeez whats with the dip

Do you read the news? haha

[ratkin]

Could be an interesting opportunity for the brave. When does a rational selloff become panic?

Assuming a big downgrade for A2 i GUESS WE NEED TO KNOW

A) What percentage of Sinlait sales are to A2
B) Will those sales be under threat.
C) What ever is causing problems for A2s products, could it also be a problem for Sinlaits own products

[Panda-NZ-]

4.97 on the sell side. gobble gobble :t_up:

[ratkin]

4.97 on the sell side. gobble gobble :t_up:

Was not much of a fight at 5.00 might indicate further to go, was expecting a late rally, but no sign

[bull....]

trading halt , lost a2 contract?

[Gerald]

trading halt , lost a2 contract?


Do your research rather then scaremongering

" Once an announcement is released by The a2 Milk Company, Synlait will assess this information, and the impact on its own company, and provide a further update to the market if necessary. "

[bull....]

Do your research rather then scaremongering

" Once an announcement is released by The a2 Milk Company, Synlait will assess this information, and the impact on its own company, and provide a further update to the market if necessary. "

why would you go into a trading halt based another companies downgrade. it be because a2 has changed something to do with them

[ratkin]

why would you go into a trading halt based another companies downgrade. it be because a2 has changed something to do with them

Yes unless they too know they are not going to make their forecasts and see it as a good time to own up, doing it when all the attention on ATM will make them look less culpable. Those that took part in the recent capital raise will be none too happy though.

ATM own a big chunk of the company so would they really do anything to screw them over?

[Nigel]

Synlait is a key supplier to A2. As a result of today's A2 announcement, revenues may decline (and therefore guidance may change) for Synlait. All will be revealed next week. Long term, both companies will do just fine. You couldn't ask for a better buying opportunity! Both SYN and ATM are currently where they were 3-3.5 years ago. There may be further to fall, but I'll be accumulating if prices drop further (bought some A2 at its lows on ASX today).

[nztx]

why would you go into a trading halt based another companies downgrade. it be because a2 has changed something to do with them


could be as simple as not as much SML processed product now needed by ATM, could it not ? ;)

[Scrunch]

could be as simple as not as much SML processed product now needed by ATM, could it not ? ;)

Quite possibly, the second line of the halt announcement is "The trading halt has been put in place while SML considers a recent announcement that The a2 Milk Company Limited ("ATM") has published to the market."

I read this to mean ATM's forecast has lower volumes than they had expected to be supplying. Its therefore going to reduce their sales to ATM over the next 6+ months. This will have profitability implications. The trading halt is to figure this all out and provide an update to the market.

[dreamcatcher]

trading halt , lost a2 contract?

Just remind me who owns the SAMR

[winner69]

Ouch - A2 problems going to cause a 50% drop in NPAT (volumes down 35%)

That's pretty horrendous

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/SML/365379/337837.pdf

[bull....]

Synlait now expects total consumer-packaged infant formula volumes to be approximately 35% lower than FY20.

As a result of this change, initial estimates, on currently available information, indicate that the overall FY21 NPAT result will be approximately half that of the FY20 NPAT result.

https://www.nzx.com/announcements/365379

massive downgrade , well overpriced stock

[winner69]

NPAT F21 expected to be 50% of F20

A few weeks ago they said F21 NPAT at or about F20 levels'

So a 50% profit downgrade

[DownTownJr]

Wow, massive downgrade. This is going to take a hit today.

[winner69]

These days of sophisticated production planning tools etc and usually with input from customers you'd question if A2 was actually talking to Synlait

If they were and A2s for forecasts have proved to be on the high side you'd have to conclude that there must be excessive stock in the system (no idea what lead times are but I assume Synlait produce well in advance)

At least Synlait have plenty of cash (working capital)

[JohnnyTheHorse]

Synlait now expects total consumer-packaged infant formula volumes to be approximately 35% lower than FY20.

As a result of this change, initial estimates, on currently available information, indicate that the overall FY21 NPAT result will be approximately half that of the FY20 NPAT result.

https://www.nzx.com/announcements/365379

massive downgrade , well overpriced stock

Ouch. I sold the parcel I had recently added to my long term portfolio when a2 was halted and the ASX release made clear a downgrade was coming. The weekly trend change I was expecting wasn't going to happen and there was no point holding whilst waiting for an a2 downgrade.

Manage your risk and accept when you're wrong, especially when a stock is in a strong downtrend.

[bull....]

Ouch. I sold the parcel I had recently added to my long term portfolio when a2 was halted and the ASX release made clear a downgrade was coming. The weekly trend change I was expecting wasn't going to happen and there was no point holding whilst waiting for an a2 downgrade.

Manage your risk and accept when you're wrong, especially when a stock is in a strong downtrend.

well done , you relized the risk and took action , an action which is not easy to do for sure

[Balance]

These days of sophisticated production planning tools etc and usually with input from customers you'd question if A2 was actually talking to Synlait

If they were and A2s for forecasts have proved to be on the high side you'd have to conclude that there must be excessive stock in the system (no idea what lead times are but I assume Synlait produce well in advance)

At least Synlait have plenty of cash (working capital)

So whose system is deficient - ATM or SML?

I believe ATM with its double downgrade in 3 months.

[winner69]

so NPAT going to be about $37m

With all the new shares (cap raise) that's an eps of 17 cents

A capital intensive producer with lots of stainless steel and uncertain growth prospects probably deserves a PE of 12

If so share price would be $2.04

That's ridiculous - if if we are generous and saw a bright future $3 might be fair value

Temporary blip? or start of long term decline? This new customerwill have to be pretty good to save the day.

[mcdongle]

These days of sophisticated production planning tools etc and usually with input from customers you'd question if A2 was actually talking to Synlait

If they were and A2s for forecasts have proved to be on the high side you'd have to conclude that there must be excessive stock in the system (no idea what lead times are but I assume Synlait produce well in advance)

At least Synlait have plenty of cash (working capital)

Synlait Know what is going on, their warehouses are almost full, As i have said before they cant get the stuff out of the country.
It was the street Christmas party saturday...Spoke to neighbour who works there, she said HR and Payroll have been given the push and are now outsourced

[Balance]

Synlait Know what is going on, their warehouses are almost full, As i have said before they cant get the stuff out of the country.
It was the street Christmas party saturday...Spoke to neighbour who works there, she said HR and Payroll have been given the push and are now outsourced

Yup, a contact of mine bought a couple of cans of A2 IF at Countdown over the weekend and said she was surprised at the production date - 27 Jan 2020 & 6 April 2020.

[Baa_Baa]

If so share price would be $2.04

That's ridiculous - if if we are generous and saw a bright future $3 might be fair value

Ugly news, TA supports (gonna need it) $4.36 covid low, then a band $3.75 - $2.90. Surely it won't go that low! Long way from the high $13.53 Sept 2018.

:scared:

[Balance]

Ugly news, TA supports (gonna need it) $4.36 covid low, then a band $3.75 - $2.90. Surely it won't go that low! Long way from the high $13.53 Sept 2018.

:scared:

Won't go that low ($2.90) imo. ATM will launch a full takeover offer with its billion cash reserve?

Can see $3.60 however before things settle down.

Have a look at CVT if you want an idea of how low a stock can go before recovering!

[winner69]

I've had a morbid fascination with Synlait financials ever since the share price was once about $9/$10.

Mainly focused on their cash flows and kept on telling Beagle (who was saying I need to join the milk train and become rich) that no way did cash flows (even projected ones with bullish assumptions) support such loft share prices. I think he listened and sold out near the highs and I never bought. THey've been burning cash ever since so in fundamental terms even less attractive now.

The morbid fascination keeps me updating models ....waiting patiently for the day that Synlait might come right

Couldn't help notice the NPAT trend

2017 $40m
2018 $75m
2019 $82m
2020 $75m
2021 $37m so they expect

Not very impressive is - a share price of more than $2 will have a very bright future baked into it.

[peat]

yes I made a mistake on this company but took the hit way back at $10. very glad now.
powdered milk goes off too.

[Beagle]

I've had a morbid fascination with Synlait financials ever since the share price was once about $9/$10.

Mainly focused on their cash flows and kept on telling Beagle (who was saying I need to join the milk train and become rich) that no way did cash flows (even projected ones with bullish assumptions) support such loft share prices. I think he listened and sold out near the highs and I never bought. THey've been burning cash ever since so in fundamental terms even less attractive now.

The morbid fascination keeps me updating models ....waiting patiently for the day that Synlait might come right

Couldn't help notice the NPAT trend

2017 $40m
2018 $75m
2019 $82m
2020 $75m
2021 $37m so they expect

Not very impressive is - a share price of more than $2 will have a very bright future baked into it.

I did sell a long time ago. Half the profit on heaps more shares that have just been issued.