SML - Synlait Milk Ltd

[Leemsip]

Cap raise coming...

Super tough situation (as always with a cap raise). Got to raise the $$ when your share price at the lows and there isnt any confidence in the business.....

[Lego_Man]

Classic. A2 - "don't tar us with the same brush as these idiots".

If they've ruled out a cap raise then the only balance sheet relief i can see is sale/leaseback transactions for some of their plant assets.

[BlackPeter]

All a bit of a non-event this dramatic trading halt

F23 not a good year but jeez watch out for F24 with double digit growth blah blah …so what’s new

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/SML/410391/393130.pdf

Wondering what Westlands move into the Interferon business (they mentioned that today in the radio) will do to their numbers, but I suspect they will tell us about that next year, won't they?

Always keep another excuse up the sleeve ...

[Leemsip]

anyone buying this turd today?
Down to $2bucks at the open

[winner69]

anyone buying this turd today?
Down to $2bucks at the open

No mad rush to the exits …not many buyers though

They say they have a great future though.so 2 bucks could be good entry point

[silverblizzard888]

How do you even value something that barely makes money and is saddled with too much debt, not to mention pink?

[ratkin]

Awful announcement, they not making any profits, owe a ton of money in a high interest environment, and the banks are shortening their leash.
It could also get a lot worse, as they seem to be relying on this new customer to kickstart their return to profit, they have all their eggs in one basket.

The big debt was not a problem when they were going gangbusters (years ago now). I don't think they need to worry about the tight labour market, the days of them adding new factory lines for nightshift are long gone.

If these jokers were on dragons den they would be laughed out the room.




.

[bull....]

How do you even value something that barely makes money and is saddled with too much debt, not to mention pink?

with great difficulty considering it looks like debt is due in another yr , so no wonder they are doing capital review

[whatsup]

Hands in the pocket time ( once Aussie opened ) DOWN 20 + % , not good if there is a C R in the future, ATM also getting smacked down 5.9 % !!

[Habits]

I ordered some of these at 1.70 but cancelled the order. The SAMR could go either way and other factors makes this too risky for me. The company and SP are in for a slog.

[winner69]

I ordered some of these at 1.70 but cancelled the order. The SAMR could go either way and other factors makes this too risky for me. The company and SP are in for a slog.

Jeez 165 pretty low …some would say cheap seeing they were 12 bucks once

[Rawz]

trading half of book value omg so cheap :eek2:

[Balance]

Market pricing in a CR.

[BlackPeter]

No mad rush to the exits …not many buyers though

They say they have a great future though.so 2 bucks could be good entry point

Cheap as chips ... surely. Hey - the infallible market valued this share less than 5 years ago at $13 a piece.

For anybody who thinks money is smart and markets are always right - this must be the buy of the century!

Discl: I don't think there is such a thing as smart money, but this is just me :)

PM: Maybe we should watch the stainless steel market ... always worth a surprise :) ;

[bull....]

Market pricing in a CR.

then your saying they lied in the announcement this morning

[Balance]

Cheap as chips ... surely. Hey - the infallible market valued this share less than 5 years ago at $13 a piece.

For anybody who thinks money is smart and markets are always right - this must be the buy of the century!

Discl: I don't think there is such a thing as smart money, but this is just me :)

PM: Maybe we should watch the stainless steel market ... always worth a surprise :) ;

Smart money sold at $13.

Dumb money bought off smart money.

[BlackPeter]

Smart money sold at $13.

Dumb money bought off smart money.

Not really - I guess at best it was smart speculators (or traders), clearly its not the money which is smart.

I recon however the ones selling at $13 have just been lucky (and it wasn't many, you know -- the exit is always too thin) - well, luckier than the poor bastards still holding.

But than - I am sure City of Shanghai has a master plan and the share might raise like phoenix out of the ashes after the dragon took the next big bite. Maybe the poor bastards still holding are the lucky ones, but it still wouldn't be their money being smart.

Time will tell.

[Rawz]

Dumb money was ATM wasnt it?

[winner69]

then your saying they lied in the announcement this morning


Was only a few months ago they said “ Synlait intends to exit FY23 and enter FY24 with a similar level of profitability experienced before FY21.” ……in other words profit about $75m

Suppose at the time they weren’t telling ‘lies’

[BlackPeter]

Dumb money was ATM wasnt it?

No - you might say that board and management have been pretty dumb in buying for a ridiculous amount of money into SML, but it clearly was not the money which was dumb.

[silverblizzard888]

Major questions how they will be addressing their debt this year.

The Group facilities include:

• A secured revolving credit facility (Facility A) of NZD $66.7m maturing 1 October 2023, with NZD $33.3m amortising31 July 2023 and the remainder maturing on 1 October 2023.
• A secured revolving credit facility (Facility B) of NZD $50m maturing 1 October 2023.
• A secured revolving credit facility (Facility C) of NZD $50m maturing 1 October 2023.
• A secured working capital facility of NZD $250m maturing 1 October 2023 which included temporary increases toNZD $300m from 20 October 2022, to NZD $330m from 21 December 2022, and then decreasing over 6 monthsto NZD $250m from 30 June 2023.

Facility limits were updated on 21 December 2022 in an amended agreement.The Group is subject to capital requirements imposed by its bank through covenants agreed as part of the lendingfacility arrangements.


The following summarises banking covenants effective for the year ending 31 July 2023:

1. Total shareholder funds of no less than NZD $600m at all times.
2. Working capital ratio of no less than 1.5x at all times.
3. Interest cover ratio of no less than 3.0x at all times.
4. Leverage ratio of no greater than 4.0x at 31 July 2023.
5. Senior leverage ratio of no greater than 3.0x at 31 July 2023.

[Lego_Man]

Major questions how they will be addressing their debt this year.

The Group facilities include:

• A secured revolving credit facility (Facility A) of NZD $66.7m maturing 1 October 2023, with NZD $33.3m amortising31 July 2023 and the remainder maturing on 1 October 2023.
• A secured revolving credit facility (Facility B) of NZD $50m maturing 1 October 2023.
• A secured revolving credit facility (Facility C) of NZD $50m maturing 1 October 2023.
• A secured working capital facility of NZD $250m maturing 1 October 2023 which included temporary increases toNZD $300m from 20 October 2022, to NZD $330m from 21 December 2022, and then decreasing over 6 monthsto NZD $250m from 30 June 2023.

Facility limits were updated on 21 December 2022 in an amended agreement.The Group is subject to capital requirements imposed by its bank through covenants agreed as part of the lendingfacility arrangements.


The following summarises banking covenants effective for the year ending 31 July 2023:

1. Total shareholder funds of no less than NZD $600m at all times.
2. Working capital ratio of no less than 1.5x at all times.
3. Interest cover ratio of no less than 3.0x at all times.
4. Leverage ratio of no greater than 4.0x at 31 July 2023.
5. Senior leverage ratio of no greater than 3.0x at 31 July 2023.

I'm surprised that the banks only gave such a short covenant waiver. Wouldn't it have made more sense to align the waiver with the facility maturities at 31 October?

[whatsup]

I guess the short term future is in the hands of the mystery entity who is in the wings with a meaningful purchase order isnt it !

[bull....]

lol you mean the liquidators ?

[bull....]

anyway now we have guessed sml is selling 1 or more of its factories to atm or bright dairy ( my pick atm as they have stated they want to own factories ) to reduce debt and this not need to undertake a cap raising.
the key question becomes is it a distressed sale $ amount as obviously atm have sml over a barrel and what are the leasing arrangement ie good or onerous

anyway if above is not true then major s/h may do loan

[winner69]

Pink ASM preso for ASM hard on the eyes to read but I think I saw ambition to have more than $2.55 billion in revenues in F27 and a return on capital of 15% (F22 ROCE was 5%)

So planning 9% pa revenue growth but big jump in profits ... maybe as high as 30% pa

Share price recovered from that recent dip and at $3.18 back in that 310/350 trading range

With Customer S about to start buying and with what the 'new' team intends to do I reckon share price could be close to $5 by the time of next years ASM

Lot to like about Synlait

Posted early December …not that many months ago. Such was the enthusiastic response share price shot up to $3.82:):t_up::)

Maybe current problems just a hiccup along that path to those F27 targets.

They’ve had this to say about F23 profit

1 - reported $38m npat in F22 in September
2 - guidance given then was F23 profits will be returning to levels seen pre 2021 (about $75m).
3 - this guidance confirmed at ASM in early December
4 - at ASM pretty enthusiastic promotion of the F27 targets
5 - on December 22 full year guidance maintained but said first half profits will be less than pcp …but no worries we’ll catch up in second half
6 - March 17 and the the ‘two your recovery now three years’ bombshell with guidance cut to $15m - $25m
7 - March 26 H123 profit of $9m (adjusted) and the $15m-$25m full year guidance confirmed
8 - then month later break even will be an outstanding result.

That’s some story they have told ….maybe not intentional but jeez one would have to say almost bordering on the irresponsible (and some might describe it in even worse terms)

I’ve asked NZRegco for their views of events

hope nobody on here got caught out after that spike up to $3.82 ……I feel guilty in being sucked in by their bull **** and saying things like ‘a lot to like about Synlait’ but don’t worry about me cause I made a few bucks at the time

[Rawz]

Posted early December …not that many months ago. Such was the enthusiastic response share price shot up to $3.82:):t_up::)

Maybe current problems just a hiccup along that path to those F27 targets.

They’ve had this to say about F23 profit

1 - reported $38m npat in F22 in September
2 - guidance given then was F23 profits will be returning to levels seen pre 2021 (about $75m).
3 - this guidance confirmed at ASM in early December
4 - at ASM pretty enthusiastic promotion of the F27 targets
5 - on December 22 full year guidance maintained but said first half profits will be less than pcp …but no worries we’ll catch up in second half
6 - March 17 and the the ‘two your recovery now three years’ bombshell with guidance cut to $15m - $25m
7 - March 26 H123 profit of $9m (adjusted) and the $15m-$25m full year guidance confirmed
8 - then month later break even will be an outstanding result.

That’s some story they have told ….maybe not intentional but jeez one would have to say almost bordering on the irresponsible (and some might describe it in even worse terms)

I’ve asked NZRegco for their views of events

hope nobody on here got caught out after that spike up to $3.82 ……I feel guilty in being sucked in by their bull **** and saying things like ‘a lot to like about Synlait’ but don’t worry about me cause I made a few bucks at the time

thanks for laying that out W69. So they have had 2 and a half downgrades. Bit of a train wreck

Glad you made some money and got out

[whatsup]

anyway now we have guessed sml is selling 1 or more of its factories to atm or bright dairy ( my pick atm as they have stated they want to own factories ) to reduce debt and this not need to undertake a cap raising.
the key question becomes is it a distressed sale $ amount as obviously atm have sml over a barrel and what are the leasing arrangement ie good or onerous

anyway if above is not true then major s/h may do loan

bull, if that is announced it would have to be the biggest buy signal ever in the life of SML !!

[bull....]

bull, if that is announced it would have to be the biggest buy signal ever in the life of SML !!

under the senario not necessarily , depends what price they get and as i see them as in a distressed sale position good luck

[bull....]

bull, if that is announced it would have to be the biggest buy signal ever in the life of SML !!

maybe it was seems to be much more support for the price today

[bull....]

see the australian running a news story now that synliat may sell its most valuable asset so maybe i was on to something

[bull....]

managed to get a snippet of the australian news story they were saying sml might sell the factory in CHCH might get 400 - 500m. guess that would make them nearly debt free if they got 500m

[whatsup]

managed to get a snippet of the australian news story they were saying sml might sell the factory in CHCH might get 400 - 500m. guess that would make them nearly debt free if they got 500m

So how many manufactoring enterprises will that leave them then ?

[bull....]

So how many manufactoring enterprises will that leave them then ?

6 i believe , dunsudale is the flagship state of the art so thats why i guess the australian is saying it could be worth 500m. anyway i was saying yesterday atm had themm over a barrel but my mistake i forghot in my haste sml has the licence to china which atm need so i guess they need each other just as much so any sale probably wont be fire sale if it happens

[whatsup]

6 i believe , dunsudale is the flagship state of the art so thats why i guess the australian is saying it could be worth 500m. anyway i was saying yesterday atm had themm over a barrel but my mistake i forghot in my haste sml has the licence to china which atm need so i guess they need each other just as much so any sale probably wont be fire sale if it happens

Their web page says 8 locations, big in the S I .

[hesiod]

Pretty sure a change in ownership would trigger a reset on SAMR. Pokeno most likely if anything is being sold.

[whatsup]

$1.50 ATLow, day trading for the very brave !!

[carrom74]

Currently seeking 26 roles- as advertised in seek.Not bad for a loss making company.

[Balance]

Currently seeking 26 roles- as advertised in seek.Not bad for a loss making company.

Case of trying to replace staff leaving the sinking ship? Like the Director of Operations.

[BlackPeter]

Case of trying to replace staff leaving the sinking ship? Like the Director of Operations.

Not sure his role was on the vacancy list, was it?

https://www.seek.co.nz/Synlait-jobs?tracking=SEM-GGL-SRC-company-names-7998&gclid=Cj0KCQjw9deiBhC1ARIsAHLjR2AhMUzNqeKpJGJbduQT Dc9BFVdcpyDtiCRPfw-3kmbDEwjodStAeFsaAtiBEALw_wcB&gclsrc=aw.ds

Interesting, though - not all jobs they are searching seem to operate under the pink label.

[whatsup]

Heading lower again today @ $1.38, will it hit $1.00 !!!!! yeaks !!

[Leemsip]

these high debt companies need to raise capital. Getting absolutely taken behind the wood shed for high debt , no profit. Reminds me of my favourite train wreck MPG.

What do you raise at here though? $200m at $1... gosh.

Sell the best assets? Not great either.

I would participate in a raise at $1...

[whatsup]

these high debt companies need to raise capital. Getting absolutely taken behind the wood shed for high debt , no profit. Reminds me of my favourite train wreck MPG.

What do you raise at here though? $200m at $1... gosh.

Sell the best assets? Not great either.

I would participate in a raise at $1...

Yeh, but even at $1-00 would you participate ?

[Leemsip]

I would if they used it all to pay down the debt and tabled a credible plan?

Interesting to see this play out eh

[carrom74]

Some brave fund/company just bought 5,842,690 shares at $1.40 … was it A2?? the cornerstone saviour?

[Lego_Man]

Some brave fund/company just bought 5,842,690 shares at $1.40 … was it A2?? the cornerstone saviour?

That is a massive crossing. 2.5% of the company.

[Baa_Baa]

deleted .....

[silverblizzard888]

Market's treating Synlait bonds like junk bonds, a nice 15.25% yield!

[Leemsip]

Market's treating Synlait bonds like junk bonds, a nice 15.25% yield!

:eek2:. Wow can buy Dec 2024 bonds for 85c on the $1 and 4% yeild. Thats a $150m bond issue

Didnt think it was this bad.

[silverblizzard888]

:eek2:. Wow can buy Dec 2024 bonds for 85c on the $1 and 4% yeild. Thats a $150m bond issue

Didnt think it was this bad.

For the bond holders it really isnt that bad, because at its worse if Synlait were to be sold for scrapes theres enough to pay back the debt, so the fear driving this is giving any buyers a very large premium for what is relatively moderate risk.

[BlackPeter]

For the bond holders it really isnt that bad, because at its worse if Synlait were to be sold for scrapes theres enough to pay back the debt, so the fear driving this is giving any buyers a very large premium for what is relatively moderate risk.

Are you sure the bonds are secured? Haven't checked (don't hold them), but I heard they are not ...

[GTM 3442]

SML
29/11/2019 09:45
OFFER
PRICE SENSITIVE
REL: 0945 HRS Synlait Milk Limited (NS)

OFFER: SML: Synlait lodges PDS and announces indicative margin

Synlait Milk Limited (Synlait) is making an offer of up to $150 million of
five-year unsecured subordinated fixed rate bonds (with the ability to accept
up to $50 million of oversubscriptions at Synlait's discretion) maturing on
17 December 2024 to New Zealand institutional and retail investors (the
Offer).

The Offer is expected to open on 9 December 2019 and close on 13 December
2019, with the bonds quoted on the NZX Debt Market.

[Lego_Man]

Are you sure the bonds are secured? Haven't checked (don't hold them), but I heard they are not ...

They're not secured. But if the company got in a position where they couldn't repay it and went into administration, there's enough asset backing to pay all the debt ahead of the subordinated notes, and then repay them in full.

[Balance]

SML
29/11/2019 09:45
OFFER
PRICE SENSITIVE
REL: 0945 HRS Synlait Milk Limited (NS)

OFFER: SML: Synlait lodges PDS and announces indicative margin

Synlait Milk Limited (Synlait) is making an offer of up to $150 million of
five-year unsecured subordinated fixed rate bonds (with the ability to accept
up to $50 million of oversubscriptions at Synlait's discretion) maturing on
17 December 2024 to New Zealand institutional and retail investors (the
Offer).

The Offer is expected to open on 9 December 2019 and close on 13 December
2019, with the bonds quoted on the NZX Debt Market.

Unsecured.

Subordinated.

Scary words when a company is nearing breach of its secured banking covenants.

[Snoopy]

They're not secured. But if the company got in a position where they couldn't repay it and went into administration, there's enough asset backing to pay all the debt ahead of the subordinated notes, and then repay them in full.


You think that if there was a distressed sale of assets, presumably due to a downturn in demand for the product that assets were producing, those assets would sell at asset backing?

SNOOPY

[Lego_Man]

You think that if there was a distressed sale of assets, presumably due to a downturn in demand for the product that assets were producing, those assets would sell at asset backing?

SNOOPY

I think the capital markets will support Synlait before we get into this hypothetical situation. Despite the company's protestations, i think the outcome will be a deep discount capital raise that pays off most of the senior debt.

[Balance]

Unsecured.

Subordinated.

Scary words when a company is nearing breach of its secured banking covenants.

Synlait currently has four syndicated bank facilities in place with ANZ and BNZ:
1. A secured working capital facility of NZD $250m (with a temporary increase to
NZD $330m) maturing 1 October 2023.
2. A secured revolving credit facility (Facility A) of NZD $66.7m with NZD $33m amortising
31 July 2023, and the remainder maturing 1 October 2023.
3. A secured ESG-linked revolving credit facility (Facility B) of NZD $50m maturing
1 October 2023.
4. A secured ESG-linked revolving credit facility (Facility C) of NZD $50m maturing
1 October 2023.

Key financial covenants imposed by the syndicate for FY 23:
1. Total shareholder funds of no less than $600m at all times.
2. Working capital ratio of no less than 1.5x at all times.
3. Interest cover ratio of no less than 3.0x at all times.
4. Leverage ratio of no greater than 4.0x at 31 July 2023.
5. Senior leverage ratio of no greater than 3.0x at 31 July 2023

As previously indicated, Synlait is currently undertaking a review of its capital strategy, which is
progressing well. The focus of this review is primarily on debt. It expects to provide an update on
8 May 2023 at the Investor Day.


No update on capital strategy review and with ALL BANKING FACILITIES maturing and due for repayment in October 2023.

No wonder the bonds are trading at 15.25% pa!

[BlackPeter]

They're not secured. But if the company got in a position where they couldn't repay it and went into administration, there's enough asset backing to pay all the debt ahead of the subordinated notes, and then repay them in full.

Hmm - I guess the thing with their assets is - how much would all that stainless steel really be worth if a receiver wants to sell (and they always do)? Might be (significantly) less than book value :) ;

Remember - receivers have no interest to optimise the financial outcomes for creditors, the only thing they are incentivised to do is sell the stuff fast and make sure their fees are covered in full.

Chris Lee wrote an interesting (though hard to read) book describing how receivers (and yes, politicians) destroyed 1 billion dollars give or take in the South Canterbury Finance receivership (The one billion dollar bonfire). Sure - different industry, though Scales was one of the companies the receivers gave away in that story for a song - ignoring the value of the company and shafting the creditors. Sure - in that case taxpayer was happy to help out - might not work out the same way with Synlait.

Always bad to hold unsecured debts when a company looks at risk.

[silverblizzard888]

First you have to consider their top 2 shareholders, Bright Dairy (39%) and A2 Milk (19.8%) , before its sold off for scrapes, these two have a huge incentive to come in and purchase part of the business or help it refinance than to let it fail. The way I'd rank the solutions to their problem:

1. Restructuring existing debt with current banks
2. Find new banks to refinance
3. Do a partial asset sale
4. Capital raising
5. Administration

Until they have exhausted these options they are still alright.

[BlackPeter]

First you have to consider their top 2 shareholders, Bright Dairy (39%) and A2 Milk (19.8%) , before its sold off for scrapes, these two have a huge incentive to come in and purchase part of the business or help it refinance than to let it fail. The way I'd rank the solutions to their problem:

1. Restructuring existing debt with current banks
2. Find new banks to refinance
3. Do a partial asset sale
4. Capital raising
5. Administration

Until they have exhausted these options they are still alright.

Great advertisement for the unsecured bonds ... wonder whether they put it in these words into their prospectus?

All good - just buy them and who knows, maybe you even get your capital back ...

[whatsup]

Market's treating Synlait bonds like junk bonds, a nice 15.25% yield!

I wonder at what yield the bonds would have to get before the really hard questions are asked 20% + ?

[Baa_Baa]

I wonder at what yield the bonds would have to get before the really hard questions are asked 20% + ?

Look at the revised bank covenants and when the outstanding debts have to be repaid, there's no doubt the bond market is factoring in a great deal of uncertainty that SML will continue to trade as a going concern. No need to wait until the bonds are at 20% return, it's already obviously more of a question whether bond holders will get their money back.

Who knows really, but the discussion centres around whether Bright Diary, or A2 Milk, who are combined by far the largest shareholders, and reliant on Synlait supply, would let the company fail. I don't think they will, no matter how desperate it all seems to have become.

[whatsup]

Look at the revised bank covenants and when the outstanding debts have to be repaid, there's no doubt the bond market is factoring in a great deal of uncertainty that SML will continue to trade as a going concern. No need to wait until the bonds are at 20% return, it's already obviously more of a question whether bond holders will get their money back.

Who knows really, but the discussion centres around whether Bright Diary, or A2 Milk, who are combined by far the largest shareholders, and reliant on Synlait supply, would let the company fail. I don't think they will, no matter how desperate it all seems to have become.

I wonder if those two , Bright Dairy and A2 hold any of the bonds, great investment for them considering the could hold the cards !

[Sideshow Bob]

I wonder if those two , Bright Dairy and A2 hold any of the bonds, great investment for them considering the could hold the cards !

Doesn't look like they are holding a large parcel of bonds - not in the top 20 which is over 80% of the total

14598

[silverblizzard888]

I wonder at what yield the bonds would have to get before the really hard questions are asked 20% + ?

I think the really hard questions get asked in June with anticipation of their july debt maturing and if no solution is announced, because any solution requires a good amount of time to execute. We would definitely see a higher yield if no announcement is made.


Look at the revised bank covenants and when the outstanding debts have to be repaid, there's no doubt the bond market is factoring in a great deal of uncertainty that SML will continue to trade as a going concern. No need to wait until the bonds are at 20% return, it's already obviously more of a question whether bond holders will get their money back.

Who knows really, but the discussion centres around whether Bright Diary, or A2 Milk, who are combined by far the largest shareholders, and reliant on Synlait supply, would let the company fail. I don't think they will, no matter how desperate it all seems to have become.

Given A2's reliance on Synlait's supply and licensing, they would be watching their golden goose get shot if they do nothing. To an extent their fates are quite intertwined cause they would have no golden eggs to sell.


I wonder if those two , Bright Dairy and A2 hold any of the bonds, great investment for them considering the could hold the cards !

There's a very good chance A2 holds some of their bonds since they have such a large cash holding, they have to park that money somewhere.


Doesn't look like they are holding a large parcel of bonds - not in the top 20 which is over 80% of the total

14598

Likely under a custodial holding because they aren't generally in the business of managing financial assets. They would likely outsource the management of investments, just as they would of outsource their share buyback to a third party.

[whatsup]

Can someone post the very good/explaining SML article in todays N Z Herald. says it all.

[Newman]

Nothing new in the article. It says A2 milk could buy SML.

[silverblizzard888]

It wouldn't be a bad proposition for A2 to come in with a merger offer, 1 A2 share for every 2 Synlait share and then using their cash to help pay down debt. The operation would be more stable and they will have acquired some pretty decent assets since they were in the stage of acquiring milk production facilities anyway. A gain for both companies if you consider how aligned their businesses are.

[Sideshow Bob]

It wouldn't be a bad proposition for A2 to come in with a merger offer, 1 A2 share for every 2 Synlait share and then using their cash to help pay down debt. The operation would be more stable and they will have acquired some pretty decent assets since they were in the stage of acquiring milk production facilities anyway. A gain for both companies if you consider how aligned their businesses are.

Would be very dependent on Bright, owning almost 40%. I'd lay odds on them trying to do something.

[carrom74]

The report also spoke about how dependent A2 is and vice-versa… with 6 million shares changing hands this week and a wee-uplift in buying interest- to me something is cooking… as it is trading at a heavy discount to its NTA..

[silverblizzard888]

Would be very dependent on Bright, owning almost 40%. I'd lay odds on them trying to do something.

For both A2 and Bright there is a strong interest in the company remaining separate from the two, if A2 or Bright were to own it outright the other could be effected, but if push came to shove, they would definitely table a takeover offer.

[billkiapi]

It wouldn't be a bad proposition for A2 to come in with a merger offer, 1 A2 share for every 2 Synlait share and then using their cash to help pay down debt. The operation would be more stable and they will have acquired some pretty decent assets since they were in the stage of acquiring milk production facilities anyway. A gain for both companies if you consider how aligned their businesses are.

Why wouldn’t ATM just buy the debt and call it to repossess the assets- would leave shareholders with little, but no merger needed if they just buy the debt. This thing’s a disaster because management and board have not run this properly, blamed system problems and generally got slammed by number 1 customer ATM. My assumption is that management have no clue how to operate an effective IT driven/systems driven business

[Gerald]

Big insider buys going through, love to see confidence by management in the company. Things looking up...

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/SML/412129/395300.pdf

[Mel]

Big insider buys going through, love to see confidence by management in the company. Things looking up...

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/SML/412129/395300.pdf
That's the funniest thing I've seen all day!!

[Mafman]

341 shares! From a holding of zero. Sounds like a gun was held to his head.

[BlackPeter]

341 shares! From a holding of zero. Sounds like a gun was held to his head.

Hey - he is only "acting" director. Probably needs to make sure that his acquisition does not cost more money then his gig as director pays.

[Gerald]

341 shares! From a holding of zero. Sounds like a gun was held to his head.

Read the whole thing, it looks like he owns nothing now (312 to 653 to 0). Portfolio was probably getting a little overweight and some good prudent risk management kicked in.

[Balance]

Read the whole thing, it looks like he owns nothing now (312 to 653 to 0). Portfolio was probably getting a little overweight and some good prudent risk management kicked in.

Weird.

Very very strange.

[Ferg]

Strange indeed.....bought initially on Sharesies or Hatch, did so a second time, mentioned it over the water cooler at work, was reminded of disclosure requirements, decided to divest is my guess.

[JSwan]

Looks like he made a grand total of -$7 not including brokerage

[silverblizzard888]

Likely timeline of whats happened:

Announcement of Nigel Macdonald leaves end of May.

Glen Laing share purchasing:
17th May – Share price at $1.44 – bought 341 shares
23nd May – Share price at $1.57 – bought 312 shares
23rd May – Glenn Laing appointed Acting Director of Operations
24th May – Sold shares on appointment
26th May – NZX Disclosure

[JSwan]

Why wouldn’t he just keep his shares on appointment?

[silverblizzard888]

Why wouldn’t he just keep his shares on appointment?

Because his new role means he knows more material information about the company and it could be seen as insider trading particularly given the current circumstances the company is in. Firstly even if he could keep his holding, it would potentially trigger an investigation given the timing, which is quite unnecessary and he could be penalized for insider trading too. Hardly worth it for a $1k holding, so likely hes been told to be safe and sell it off.

[silverblizzard888]

Looks like a tough run for the dairy sector with a drop in pricing going forward.

Synlait has reduced its forecast base milk price for the 2022/2023 season to $8.20/kgMS from $8.30/kgMS

Opening 2023/2024 season forecast Synlait’s opening forecast for the 2023/2024 season is $8.00/kgMS.

https://www.nzx.com/announcements/412292

The announcement also sounds like business as normal, which feels like a bit of optimism that things are still alright for the company for the foreseeable future.

[billkiapi]

anyone got a phone number for Slater & Gordon or Litigation Funding Partners...?

[BlackPeter]

Looks like a tough run for the dairy sector with a drop in pricing going forward.

Synlait has reduced its forecast base milk price for the 2022/2023 season to $8.20/kgMS from $8.30/kgMS

Opening 2023/2024 season forecast Synlait’s opening forecast for the 2023/2024 season is $8.00/kgMS.

https://www.nzx.com/announcements/412292

The announcement also sounds like business as normal, which feels like a bit of optimism that things are still alright for the company for the foreseeable future.

I assume you realise that Synlait is making their money by clipping the ticket? The price of milk is for them quite irrelevant ... They just hand whatever they get minus the ticket (well - processing) cost through to the farmers.

[silverblizzard888]

I assume you realise that Synlait is making their money by clipping the ticket? The price of milk is for them quite irrelevant ... They just hand whatever they get minus the ticket (well - processing) cost through to the farmers.

Even though they are just clipping the ticket, a low dairy price has a far wider implication. Low dairy price either signals too much supply or not enough demand, which is both equally bad for Synlait as its customers won't be order as much from them. Reason for the recent downgrade in earnings was a reduction in demand from their customers, which has put them in a tough spot. Its all pretty linked together at the end of the day.

[xafalcon]

Even though they are just clipping the ticket, a low dairy price has a far wider implication. Low dairy price either signals too much supply or not enough demand, which is both equally bad for Synlait as its customers won't be order as much from them. Reason for the recent downgrade in earnings was a reduction in demand from their customers, which has put them in a tough spot. Its all pretty linked together at the end of the day.

A lower milksolids price means greater margin on value add products, unless Synlait have agreed a pricing mechanism that references their milksolids price ie. Open book pricing

[silverblizzard888]

A lower milksolids price means greater margin on value add products, unless Synlait have agreed a pricing mechanism that references their milksolids price ie. Open book pricing

Its indeed good for value added products, which their Dairyworks brand would benefit from, but my concern is more the wider picture. Milk solids are low in price for a reason, usually because not enough demand for it. For Synlait they are mainly just clipping the ticket their main revenue and they have some pretty high fix cost for their set up, so they need a certain level of demand just to breakeven because they need to keep things running regardless if there is demand or not and can't adjust cost so easily.

[Balance]

Likely timeline of whats happened:

Announcement of Nigel Macdonald leaves end of May.

Glen Laing share purchasing:
23rd Mar – Nigel resigns to leave at end of May, Glenn appointed Acting Director of Operations
17th May – Share price at $1.44 – bought 341 shares
23nd May – Share price at $1.57 – bought 312 shares
23rd May – Glenn Laing appointed Acting Director of Operations - Was actually 23rd Mar
24th May – Sold shares on appointment
26th May – NZX Disclosure

Had another look at this and I think there is more to the shares being bought and then sold by Glenn Laing. Refer narration in red above.

So Glenn actually bought shares when he was already Acting Director of Operations.

I think Ferg is on the mark here :


Strange indeed.....bought initially on Sharesies or Hatch, did so a second time, mentioned it over the water cooler at work, was reminded of disclosure requirements, decided to divest is my guess.

https://www.nzx.com/announcements/408801

23/3/2023, 8:30 am ADMIN

Director of Operations Nigel Macdonald has resigned from Synlait Milk Limited (Synlait).

Nigel will leave Synlait at the end of May 2023. His focus over the coming months will be on Synlait’s 10-year asset plan. Nigel has built and led Synlait’s operations team through COVID-19, which was a challenging period for the company and its people. Nigel leaves with Synlait’s best wishes and thanks.

Head of Manufacturing Glenn Laing has been appointed Acting Director of Operations.

For more information contact:
Hannah Lynch
Head of Strategy & Corporate Affairs
P: +64 21 252 8990
E: hannah.lynch@synlait.com

[Balance]

Article (2 weeks ago) speculating on what SML is likely to do or what could happen.

https://www.nzherald.co.nz/business/stock-takes-a-capital-raise-for-synlait-or-maybe-something-stronger/DDZVAFTOLNGPXJLRETZG2P3E54/

Is Synlait Milk heading for a capital raise, or is there a more radical answer to its balance sheet problems? Alongside its April 24 earnings downgrade, Synlait said it continued to actively engage with its banking syndicate, which it said remained “strongly supportive”. As previously communicated, Synlait said it was reviewing its capital strategy to ensure it had the appropriate funding for 2024 and beyond.

The review’s focus was primarily on its debt levels, but the company said it was not considering an equity capital raising. Much depends on how Synlait - a dairy company and maker of infant formula - trades from here on, but a capital raise may indeed be required, analysts say. Synlait’s share price has been under pressure, trading around $1.46 - down $2.31 or 61.3 per cent from last December’s peak - after a string of downgrades. “It is trading at a significant discount to its [net tangible assets] so a capital raise can’t be ruled out, or even something more radical where a2 actually buys Synlait and offloads Mataura Valley Milk (MVM), which is a loss-making business,” said Devon Funds head of retail Greg Smith.

Synlait is a2 Milk’s sole supplier of infant formula and a2 Milk is Synlait’s biggest customer by far. “A2 has got reasonably clear intentions around the investment that they are planning, or willing to make, taking control over the supply chain directly [through MVM],” he said. “On a2′s part, it’s heavily reliant on Synlait Milk. It can’t sell its China-label infant formula without Synlait, because Synlait has the licence. “It’s not like they [a2] can switch to another manufacturer,” he said. “A2 has got a vested interest in seeing Synlait being in the best shape possible.

“A capital raising can’t be ruled out as an option.

“Even more radical would be an outright takeover.”

Forsyth Barr analyst Matt Montgomerie said Synlait’s share price was reflecting uncertainty. “I pitch it as them being able to trade out of this elevated debt scenario as possible and plausible, but I certainly don’t think it’s without risk, and I think that’s what the share price is telling us at the present time,” he said. “For them to trade out of it, we need to see a clear recovery in earnings or see a pathway to that outside of the full 2023 year.

“And then in the short term being able to get rid of or reduce the elevated inventory that they have on the balance sheet.” Montgomerie said a straight-out takeover of Synlait by a cashed-up a2 Milk was not “top of mind” for the market but was not out of the question. “A2 can’t do without Synlait and vice versa,” Montgomerie says. “But I still think it’s plausible for them to trade out from here. “Clearly they are mutually beneficial, with the mix of a2 business leaning more and more towards China-label infant formula - and their reliance or the need for Synlait only increases given the licence that it has over the Dunsandel sites,” Montgomerie said. “I would certainly not rule it out, that would be my comment.”

Montgomerie did not think Synlait would sell assets to repay debt.

If and when it does come to a capital raise or a takeover, a2 certainly has the cash for it. At its half-year profit announcement, the company said it had $700.2m in cash on hand.

Synlait’s market capitalisation stands at $320m.

Together, a2 and China’s Bright Dairy own about 60 per cent of Synlait. Synlait has $180m in bonds trading on the NZX, which roll off in 18 months. The company last went to the market in November 2020, raising $200m.

[silverblizzard888]

Synlait intends to divest Dairyworks & Talbot Forest CheeseSynlait's Board and Management are undertaking a strategy and capital structure refresh, including an asset review. To ensure greater focus and execution of Synlait's overall business strategy, the company intends to evaluate the divestment of Dairyworks and Talbot Forest Cheese.

Synlait has engaged investment banking firm Jarden to advise on the divestment. Should a divestment occur, the proceeds will be used to pay down debt.

https://www.nzx.com/announcements/412456

[silverblizzard888]

SML spent about $150 million when it purchased

Dairyworks in 2020 for $112 million (they have sold off deep south ice cream part of the business)

Talbot Forest Cheese in 2019 for between $35-$40 million

If they can get close to a $150 million it might be enough for their banking partners to refinance their loans.

[jonu]

Synlait intends to divest Dairyworks & Talbot Forest CheeseSynlait's Board and Management are undertaking a strategy and capital structure refresh, including an asset review. To ensure greater focus and execution of Synlait's overall business strategy, the company intends to evaluate the divestment of Dairyworks and Talbot Forest Cheese.

Synlait has engaged investment banking firm Jarden to advise on the divestment. Should a divestment occur, the proceeds will be used to pay down debt.

https://www.nzx.com/announcements/412456

What's with the constant reference to "right to win"? Is this the latest jargon to emerge out of US Corporate speak?

[silverblizzard888]

What's with the constant reference to "right to win"? Is this the latest jargon to emerge out of US Corporate speak?

Apparently its language they teach in strategy

"A right to win is the ability to engage in any competitive market with a better-than-even chance of success "

[billkiapi]

Weren't they suing the vendors of Talbot? Are proceeds from what is essentially a fire sale of the cheese assets enough to address debt, with the unsecured bonds still sitting out there? Is ask these questions because I don't know, not to challenge the decision

[Balance]

SML spent about $150 million when it purchased

Dairyworks in 2020 for $112 million (they have sold off deep south ice cream part of the business)

Talbot Forest Cheese in 2019 for between $35-$40 million

If they can get close to a $150 million it might be enough for their banking partners to refinance their loans.

If they achieve anything $150m from the asset sales, SML should be fine with its debt situation going forward as the substantial working capital carry is going to fall as ATM draws down the deliberate build up in stock by SML to tide over the SAMR approval period.

The way the interest rate on SML010 bond price has dropped shows the market sharing that view?

[winner69]

Apparently its language they teach in strategy

"A right to win is the ability to engage in any competitive market with a better-than-even chance of success "


It’s that right to win that gets them big new global customers

[jonu]

Apparently its language they teach in strategy

"A right to win is the ability to engage in any competitive market with a better-than-even chance of success "

That's what I figured. US corporate jargon. No doubt essential for an MBA.

[bull....]

even with the sale ( speculative what price they get ) they still have huge debt levels

[Filthy]

even with the sale ( speculative what price they get ) they still have huge debt levels

easy money back in 2020. things a lot tighter now. surely will have to take less than what they paid.

[bull....]

easy money back in 2020. things a lot tighter now. surely will have to take less than what they paid.

yep distressed seller , many will try there luck for fire - sale prices

[silverblizzard888]

Graeme Hart snares 2023 biggest leasing deal: $100m Wiri warehouse to Synlait

https://www.nzherald.co.nz/business/graeme-hart-snares-2023-biggest-leasing-deal-100m-wiri-warehouse-to-synlait/XKCJLABFSRHTHCXKVFCSO25VF4/

[Balance]

Graeme Hart snares 2023 biggest leasing deal: $100m Wiri warehouse to Synlait

https://www.nzherald.co.nz/business/graeme-hart-snares-2023-biggest-leasing-deal-100m-wiri-warehouse-to-synlait/XKCJLABFSRHTHCXKVFCSO25VF4/

Obviously business as usual with SML.

[winner69]

Need it for this new huge global customer

All falling into place

[silverblizzard888]

The next 12 months could look entirely different for SML if everything goes as planned. The key parts for SML's turnaround is the SAMR registration, timing of new Pokeno multi-national customer, management of debt levels, which are all closely linked together.

SAMR

Part of their main problem is the the SAMR re-registration putting a hold on how they manage their future which they expect to be completed this month as stated:

"The State Administration for Market Regulation (SAMR) re-registration process remains on track. The on-site audit process is complete and Synlait still expects to receive re-registration and commence production in Q4 FY23, subject to SAMR approval."

Timeline expected to be:
Q3 FY23 - Audit of facilities
Q4 FY23 - Re-registration and commencement of production
Q2 FY24 - Product back onto the market

Inventory levels
SML stocked extra inventory mainly for A2's sake due to the wait on SAMR re-registration by increasing finished goods held for the same period last year from $203m to $277m or if compared to the lower inventory period of $80m its a massive contrast, it should improve on SAMR re-registration and when they sell down their inventory to A2. The capital from that can be used to repay their debt.

"Inventory build for The a2 Milk Company resulted in higher closing inventory, up 45% (H1 23: 10,545 MT, H1 22: 7,259 MT)"

Debt
With the sale of Dairyworks (purchased 2020 $112m) and Talbot Forest Cheese (purchased 2019 for $38m) to pay down some debt that should put more confidence for the banks for refinancing. Sell down could generate up to $150m.

"The Directors are confident that the facilities, which expire on 1 October 2023, will be renewed in July 2023"

Pokeno
Part of a drain on capital is trying to set up their facilities in preparation to manage a new multi-national customer, which once they start delivering and getting those invoices out should help boost working capital and cover their expenses. Problem with fresh set ups is that they are always 'money burning furnaces' until it delivers.

"Demand coming from Synlait Pokeno's new multinational customer, once commercial production commences, will assist in delivering strong double-digit growth in Advanced Nutrition sales volumes in FY24."

Overall
The capital demands are intensive for SML right now from holding more inventory for A2 while they wait for SAMR re-registration to the cost of setting Pokeno up for their new customer. The working capital required has increased debt levels by at least $100m. Add that along with freeing up capital from sales of Dairyworks and Talbot Forest Cheese which could generate up to $150m, thats about $250m or more that could be available depending their burn rate at Pokeno. Once you subtract that from their current debt levels $518m the situation isn't actually that bad.

They should get SAMR re-registration in June and renew banking facilities in July, along with potential sales for Dairyworks and Talbot Forest Cheese arranged, once thats all done I think their future as a going concern should be solved.

[Balance]

The next 12 months could look entirely different for SML if everything goes as planned. The key parts for SML's turnaround is the SAMR registration, timing of new Pokeno multi-national customer, management of debt levels, which are all closely linked together.

SAMR

Part of their main problem is the the SAMR re-registration putting a hold on how they manage their future which they expect to be completed this month as stated:

"The State Administration for Market Regulation (SAMR) re-registration process remains on track. The on-site audit process is complete and Synlait still expects to receive re-registration and commence production in Q4 FY23, subject to SAMR approval."

Timeline expected to be:
Q3 FY23 - Audit of facilities
Q4 FY23 - Re-registration and commencement of production
Q2 FY24 - Product back onto the market

Inventory levels
SML stocked extra inventory mainly for A2's sake due to the wait on SAMR re-registration by increasing finished goods held for the same period last year from $203m to $277m or if compared to the lower inventory period of $80m its a massive contrast, it should improve on SAMR re-registration and when they sell down their inventory to A2. The capital from that can be used to repay their debt.

"Inventory build for The a2 Milk Company resulted in higher closing inventory, up 45% (H1 23: 10,545 MT, H1 22: 7,259 MT)"

Debt
With the sale of Dairyworks (purchased 2020 $112m) and Talbot Forest Cheese (purchased 2019 for $38m) to pay down some debt that should put more confidence for the banks for refinancing. Sell down could generate up to $150m.

"The Directors are confident that the facilities, which expire on 1 October 2023, will be renewed in July 2023"

Pokeno
Part of a drain on capital is trying to set up their facilities in preparation to manage a new multi-national customer, which once they start delivering and getting those invoices out should help boost working capital and cover their expenses. Problem with fresh set ups is that they are always 'money burning furnaces' until it delivers.

"Demand coming from Synlait Pokeno's new multinational customer, once commercial production commences, will assist in delivering strong double-digit growth in Advanced Nutrition sales volumes in FY24."

Overall
The capital demands are intensive for SML right now from holding more inventory for A2 while they wait for SAMR re-registration to the cost of setting Pokeno up for their new customer. The working capital required has increased debt levels by at least $100m. Add that along with freeing up capital from sales of Dairyworks and Talbot Forest Cheese which could generate up to $150m, thats about $250m or more that could be available depending their burn rate at Pokeno. Once you subtract that from their current debt levels $518m the situation isn't actually that bad.

They should get SAMR re-registration in June and renew banking facilities in July, along with potential sales for Dairyworks and Talbot Forest Cheese arranged, once thats all done I think their future as a going concern should be solved.

Well summarized, sb888.

I expect the sale of Dairyworks and Talbot Forest Cheese to proceed smoothly as there will be many Asian based food companies (especially China, Japan & Singapore) interested in taking a slice of NZ's value end dairy industry.

Think Olam (already in NZ) with its S$55 billion revenues and S$19.3 billion capital as one potential bidder. Chances are however that Bright Foods or one of the China companies will end up buying them.

Note how the yield of SML's bonds have fallen rapidly?

[silverblizzard888]

I saw on the ATM thread this linked was posted https://www.cfe-samr.org.cn/sldt/sdx...0605_4921.html (https://www.cfe-samr.org.cn/sldt/sdxx/yyepfrfcppf_180/pjyj_182/202306/t20230605_4921.html), suggesting approval for SAMR, which I guess we will be find out soon enough, thought I might post it here since its directly relevant to SML. Links in Chinese but you can always translate it.

Translations say:
June 5, 2023 Infant formula milk powder product formula registration approval document (decision) mailing details list



serial number
product name
reporting unit
mailing date
mailing address
EMS tracking number


1
Zhichu® infant formula milk powder ( 0-6 months old, stage 1 )
Synlait Dairy Co. Ltd.
2023-6-5
Room 1608 , Rui'an Plaza, No. 333 Huaihai Middle Road, Huangpu District, Shanghai
1284203733038


2
Zhichu® Older Infant Formula Milk Powder ( 6-12 months old, stage 2 )
Synlait Dairy Co. Ltd.
2023-6-5
Room 1608 , Rui'an Plaza, No. 333 Huaihai Middle Road, Huangpu District, Shanghai
1284203733038


3
Zhichu® Toddler Formula Milk Powder ( 12-36 months old, stage 3 )
Synlait Dairy Co. Ltd.
2023-6-5
Room 1608 , Rui'an Plaza, No. 333 Huaihai Middle Road, Huangpu District, Shanghai
1284203733038

[kiora]

Serial number 3 ?
https://www.google.com/search?q=how+long+does+infant+formula+last+unopene d&rlz=1C1CHZN_enNZ1004NZ1005&oq=how+long+does+infant+formulalast&gs_lcrp=EgZjaHJvbWUqCQgCEAAYDRiABDIGCAAQRRg5MgkIAR AAGA0YgAQyCQgCEAAYDRiABDIJCAMQABgNGIAEMgkIBBAAGA0Y gAQyCAgFEAAYFhgeMggIBhAAGBYYHjIICAcQABgWGB4yCAgIEA AYFhgeMggICRAAGBYYHtIBCTI0MTE1ajFqN6gCALACAA&sourceid=chrome&ie=UTF-8

[bull....]

cool looks promising

[silverblizzard888]

Announcements out!

“Synlait Milk Limited (Synlait) is extremely pleased to announce that the State Administration for Market Regulation (SAMR) has notified it of the successful re-registration of The a2 Milk Company’s Chinese labelled 至初® Infant Formula (stages one, two and three) at its Dunsandel facility, which will allow it to manufacture and export this product for the China market until September 2027.”

https://www.nzx.com/announcements/412548

[winner69]

Good news this certification

Changing the Directors around a bit a good sign

New big global customer to be announced any day day now?

SML a BUY at current levels I reckon ….share price could potentially double in next 12 months

[silverblizzard888]

Good news this certification

Changing the Directors around a bit a good sign

New big global customer to be announced any day day now?

SML a BUY at current levels I reckon ….share price could potentially double in next 12 months

Pretty much, I think this announcement eases $100 million in working capital from inventory so maybe stock price up by that much.

easy double by the end of the year if new customer is onboarded soon.

[Balance]

Announcements out!

“Synlait Milk Limited (Synlait) is extremely pleased to announce that the State Administration for Market Regulation (SAMR) has notified it of the successful re-registration of The a2 Milk Company’s Chinese labelled 至初® Infant Formula (stages one, two and three) at its Dunsandel facility, which will allow it to manufacture and export this product for the China market until September 2027.”

https://www.nzx.com/announcements/412548

4 more years!

Will always remember that line which was used as a taunt by George Gregan after the Wallabies knocked the ABs out of the RWC semi-finals.

This is a much better cry for SML!

[bull....]

Saputo likely for Synlait’s NZ assets

Canadian dairy giant Saputo is tipped as the most likely buyer of Synlait’s dairy assets that it told the market were for sale.

https://www.theaustralian.com.au/business/dataroom


gap to fill at just over 2

[Sideshow Bob]

Quick 13.3% bounce!

[Leemsip]

Quick 13.3% bounce!

I have bought in today. Hopefully the turn around is on.

[silverblizzard888]

4 more years!

Will always remember that line which was used as a taunt by George Gregan after the Wallabies knocked the ABs out of the RWC semi-finals.

This is a much better cry for SML!
4 more years!

Good to have certainty back in the main business.


Saputo likely for Synlait’s NZ assets

Canadian dairy giant Saputo is tipped as the most likely buyer of Synlait’s dairy assets that it told the market were for sale.

https://www.theaustralian.com.au/business/dataroom


gap to fill at just over 2

When it rain it really does pour, last week the company was uncertain in every direction, now its almost certain in all directions. Just need word on renewal of debt and the new customer.


Quick 13.3% bounce!

Should be a good week


I have bought in today. Hopefully the turn around is on.

Its definitely on

[billkiapi]

They are stocking extra China label product for A2M because what was made before late Feb could still be sold in China- one would expect that a2M will need to unwind that $70M or so of inventory before they order more. That suggests cash will come in for the inventory to SML, but it also suggests plant overhead recovery at the moment must be ugly. Fixed costs don't go away just because volume/throughput isn't there... The A2M contract expires soonish (maybe 2 years?) and I can't imagine a2M will want to pay more for product, so they may be better buying the debt and taking the assets than expanding their holding in SML

[mshierlaw]

Good news that SML have renewed Chinese registration and export sales will continue to flow as a result. Country listings are not easily won or lost so this news was to be expected and should have been fully factored into the share price. Not sure why this has resulted in a large SP rise today, looks like BAU to me.

[Baa_Baa]

Good news that SML have renewed Chinese registration and export sales will continue to flow as a result. Country listings are not easily won or lost so this news was to be expected and should have been fully factored into the share price. Not sure why this has resulted in a large SP rise today, looks like BAU to me.

I think there has been so much concern about Synlait for quite some time, that the SP has been hammered and deserved it, which in the noise was the uncertainty (or lack of being certain) that the SAMR renewal would be granted. It's like they have been piling on a seemingly endless stream of FUD, much of it self-inflicted. The SAMR renewal is massive though, without it SML and ATM would be pretty much wrecked. It's understandable that SAMR renewal would promote a SP relief rally, which may continue, but I suspect will be capped until SML sort out their balance sheet which is in very poor shape and on a tight timeline to remediate before their creditors get uppity.

[Sideshow Bob]

Good news that SML have renewed Chinese registration and export sales will continue to flow as a result. Country listings are not easily won or lost so this news was to be expected and should have been fully factored into the share price. Not sure why this has resulted in a large SP rise today, looks like BAU to me.

These things can be easily lost for sure - if you have a issue at plant or some sort of other non-conformance. Sure, easier to keep an existing one rather than get a new one, but expect alot of internal resources went into renewing the registration.

Not sure if Chinese ownership makes any difference - but it does help when the Chinese are keen on the particular product.....

[silverblizzard888]

Good news that SML have renewed Chinese registration and export sales will continue to flow as a result. Country listings are not easily won or lost so this news was to be expected and should have been fully factored into the share price. Not sure why this has resulted in a large SP rise today, looks like BAU to me.

Its not about the factor that it would have been lost, but the mere timing was going to be a issue because no one knew how long it could take and the delay was causing havoc for SML's financials. The longer it took the market starts factoring in that it was possible to lose the registration or maybe they failed the audit and that another audit might have to be done and cause more delays.

They were also stock piling almost a $100 million more inventory for A2 using borrowed money and holding a license that expired back in February, if it dragged on for another 3-6 months and the inventory had run dry both companies would take a big hit to their financials. Add the other factors into the mix and the market was getting very edgy for SML; todays news relieves the market in many ways, but most important was the certainty of the company's future.

[Baa_Baa]

.. Add the other factors into the mix and the market was getting very edgy for SML; todays news relieves the market in many ways, but most important was the certainty of the company's future.

Totally agree that the SAMR is an important, vital even, turning point, though this company is bordering on insolvent and no market would re-rate it until they have certainty about their debt covenants and viability as a going concern. It might look cheap, but there are valid reasons for that, somewhat mollified buy a continuation of supply, but not wholly as there are seroius balance sheet issues to be sorted out.

[silverblizzard888]

Couple of relevant comments made by institutions in this article.
https://www.stuff.co.nz/business/132238369/synlait-secures-right-to-keep-making-a2-milks-infant-formula-for-chinese-market

"Synlait announced its intention to divest its Dairyworks and Talbot Forest Cheese businesses to reduce debt, with Forsyth Barr estimating sales proceeds of about $150m."

"Craigs now expected Synlait to report earnings in the mid to upper end of its latest forecast"

[Sideshow Bob]

Could A2 Milk be eyeing up a bigger stake in Synlait Milk? (https://businessdesk.us20.list-manage.com/track/click?u=786ac0b2dc4f2240875208882&id=4a216cb972&e=3b6f9185d3)



Good news from Synlait Milk could lead to A2 Milk eyeing up a bigger stake in the dairy processing company.
Synlait shares shot up Tuesday (https://businessdesk.us20.list-manage.com/track/click?u=786ac0b2dc4f2240875208882&id=8cfa0bab25&e=3b6f9185d3) on news it was re-registered by China’s State Administration for Market Regulation (SAMR) to produce A2 Milk’s Chinese-labelled infant formula at its Dunsandel facility.

Read on » (https://businessdesk.us20.list-manage.com/track/click?u=786ac0b2dc4f2240875208882&id=eadfd53871&e=3b6f9185d3)

https://businessdesk.co.nz/article/primary-sector/could-a2-milk-be-eyeing-up-a-bigger-stake-in-synlait-milk?utm_source=7am+Headlines+from+BusinessDesk&utm_campaign=6bde87888f-7am+Headlines&utm_medium=email&utm_term=0_617c2ef34a-6bde87888f-402467359 (Paywalled)

[Balance]

Could A2 Milk be eyeing up a bigger stake in Synlait Milk? (https://businessdesk.us20.list-manage.com/track/click?u=786ac0b2dc4f2240875208882&id=4a216cb972&e=3b6f9185d3)



Good news from Synlait Milk could lead to A2 Milk eyeing up a bigger stake in the dairy processing company.
Synlait shares shot up Tuesday (https://businessdesk.us20.list-manage.com/track/click?u=786ac0b2dc4f2240875208882&id=8cfa0bab25&e=3b6f9185d3) on news it was re-registered by China’s State Administration for Market Regulation (SAMR) to produce A2 Milk’s Chinese-labelled infant formula at its Dunsandel facility.

Read on » (https://businessdesk.us20.list-manage.com/track/click?u=786ac0b2dc4f2240875208882&id=eadfd53871&e=3b6f9185d3)

https://businessdesk.co.nz/article/primary-sector/could-a2-milk-be-eyeing-up-a-bigger-stake-in-synlait-milk?utm_source=7am+Headlines+from+BusinessDesk&utm_campaign=6bde87888f-7am+Headlines&utm_medium=email&utm_term=0_617c2ef34a-6bde87888f-402467359 (Paywalled)



It makes sense for ATM to increase its stake in SML at the current depressed share prices - STM paid $288m for its current 19.8%.

ATM cannot buy any more however unless it moves out of the no-fly zone (20% to 50%) so must buy another 30% at least if it wants to increase its stake.

SML's current market cap of $400m means that ATM could increase its shareholding to 50% by outlaying another $150m (at 25% premium to market) which the company can comfortably fund from its $700m odd cash pile.

Bright Dairy would need to agree (it holds 39%) which would most probably take the form of a JV by the two to privatize SML. In which case a much higher takeover premium would be required.

Meanwhile, why would minority shareholders sell when the pieces are starting to fall into place for SML?

1. SAMR obtained.

2. Asset sale & inventory reduction underway - $250m would be retired from debt to bring total debt down to $260m.

3. Imminent announcement of new major customer (leasing the new warehouses from Hart an excellent indication) which will reduce debt further via further reduction in inventories.

The worse is definitely over for SML imo.

[carrom74]

It makes sense for ATM to increase its stake in SML at the current depressed share prices - STM paid $288m for its current 19.8%.

ATM cannot buy any more however unless it moves out of the no-fly zone (20% to 50%) so must buy another 30% at least if it wants to increase its stake.

SML's current market cap of $400m means that ATM could increase its shareholding to 50% by outlaying another $150m (at 25% premium to market) which the company can comfortably fund from its $700m odd cash pile.

Bright Dairy would need to agree (it holds 39%) which would most probably take the form of a JV by the two to privatize SML. In which case a much higher takeover premium would be required.

Meanwhile, why would minority shareholders sell when the pieces are starting to fall into place for SML?

1. SAMR obtained.

2. Asset sale & inventory reduction underway - $250m would be retired from debt to bring total debt down to $260m.

3. Imminent announcement of new major customer (leasing the new warehouses from Hart an excellent indication) which will reduce debt further.

The worse is definitely over for SML imo.

And just to add…The A2 milk announcement on SAMR thanking Bright dairy(specifically) may mean something. Though I know that I am speculating…the newfound bonhomie is worth to point out!

[Balance]

Drifting back to $1.75 after the initial burst to $1.87.

Big line of stock (293,000 shares) on the offer at the close with no countering bid.

Looks to me like the 6m+ shares transacted on 16 May at $1.41 are going to hang around for a while while the buyer(s) trade out at a nice profit.

Which is okay as those who missed out on the recent sale can participate. Be there or be square.

[silverblizzard888]

Drifting back to $1.75 after the initial burst to $1.87.

Big line of stock (293,000 shares) on the offer at the close with no countering bid.

Looks to me like the 6m+ shares transacted on 16 May at $1.41 are going to hang around for a while while the buyer(s) trade out at a nice profit.

Which is okay as those who missed out on the recent sale can participate. Be there or be square.

Yeah a lot of profit taking is damping the price, which is too be expected since a lot of people have been buying quite low. Just have to wait to next run up when they issue finance updates in July and potentially we will hear about the asset sales.

[Leemsip]

Anyone brave enough to buy the bonds? Current 12% yield and mature in Dec 24.
Im considering.....

[Leemsip]

Bright dairy bringing in some heavy hitters. These guys own 39%, so SML a pretty serious investment for them.

Might see some of the sales get expedited to get the debt down.

https://www.nzx.com/announcements/413231

Come on SML - stabilise thyself and make me some $$

[silverblizzard888]

Bright Dairy appointing the big guns to the directors seat to get things back on track

Min Chen (Joyce) and Gui Min (Gracie) have stepped down as Bright Dairy Holding Limited appointed directors on the Synlait Milk Limited Board.
Liu Ruibing (Ryan), the CFO of Bright Dairy, and Zhu Yi (Julia), the Vice President of Bright Dairy, will replace Joyce and Gracie.

https://www.nzx.com/announcements/413231

[silverblizzard888]

Bright dairy bringing in some heavy hitters. These guys own 39%, so SML a pretty serious investment for them.

Might see some of the sales get expedited to get the debt down.

https://www.nzx.com/announcements/413231

Come on SML - stabilise thyself and make me some $$
Haha looks like you beat me by mere seconds in posting that.

Its good Bright Dairy is concerned and doing something about it.

[BlackPeter]

Bright dairy bringing in some heavy hitters. These guys own 39%, so SML a pretty serious investment for them.

Might see some of the sales get expedited to get the debt down.

https://www.nzx.com/announcements/413231

Come on SML - stabilise thyself and make me some $$

Lets hope the new directors can better cope with the English spoken by some of the local directors. I found it in the past difficult to have with some of them a discussion in English.

Ah yes - and lets hope for the sake of retail shareholders that Bright Dairies interests align with theirs.

[winner69]

Good that Hon Ruth Richardson still on Board ….she gets on well with Chinese business

[winner69]

Might hear soon who Customer S is and how many zillions of sales they bring

[billkiapi]

the money is on Abbott to be customer "s" and if so, I don't hold a huge amount of hope that it's anywhere near the scale of ATM at its peak. Abbott have pulled out of China for infant and are hugely distracted in the US after not one, but two plant shutdowns last year.

[bull....]

Good that Hon Ruth Richardson still on Board ….she gets on well with Chinese business

they should get john key on board , he can talk to xi about getting chinese babies happening

[BlackPeter]

Good that Hon Ruth Richardson still on Board ….she gets on well with Chinese business

Hmm - I give you that she sometimes looks as colourful as a Chinese dragon ... but - is she able to translate during the board meetings?

[BlackPeter]

they should get john key on board , he can talk to xi about getting chinese babies happening

Never realized that John Key is an expert on booming Chinese babies. Quite amazing ...

[billkiapi]

Bubs investor presentation today goes on about value destruction, but Synlait is probs worse for that. Will be interesting to see what washes out for SML this month.

[silverblizzard888]

Refinancing expected to be done this month and hopefully hear an update on asset sale.

[Lego_Man]

Refinancing expected to be done this month and hopefully hear an update on asset sale.

Refinancing has to be done this month. Covenant waiver expires in 3 weeks.

[Poet]

Covenant modification was for test dates up to and including 31 July 2023 iirc

[Bikeguy]

Covenant modification was for test dates up to and including 31 July 2023 iirc

Do they not have to notify the market that this has/hasn’t taken place etc?

[Lego_Man]

Do they not have to notify the market that this has/hasn’t taken place etc?

I imagine they are in negotiations still. Asset buyer will know the deadline and probably playing hardball. Bank syndicate may have given them some grace.

Can't be far off...

[Bikeguy]

What are your thoughts on this one?

[Poet]

Do they not have to notify the market that this has/hasn’t taken place etc?
The revised covenants would have applied as at yesterday's test date - and presumably no breaches occurred otherwise we would have heard. The next time they need to test covenants may be in three to six months from now (I'm not sure of the precise dates)- they will need to have sorted the financing out by then or renegotiated the covenants. No particular urgency as of today

[silverblizzard888]

Fonterra just announced a massive drop in milk prices from $8 to $7 due to lower demand from China, likely to hit ATM and will hit Synlait for sure. Wheres that big new customer being on boarded? No announcement of bank refinancing or asset sales, starting to look a bit more risky for their financials.

"Fonterra Co-operative Group Ltd today reduced its 2023/24 season forecast Farmgate Milk Price range from $7.25 - $8.75 per kgMS, with a midpoint of $8.00 per kgMS, to $6.25 - $7.75 per kgMS, with a midpoint of $7.00 per kgMS.


Fonterra CEO Miles Hurrell says the revised forecast Farmgate Milk Price range reflects ongoing reduced import demand for whole milk powder from Greater China."

[winner69]

From Head of Manufacturing to Acting Director of Manufacturing to Director of Manufacturing in a few years


This guy going places

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/SML/415765/399701.pdf

[silverblizzard888]

From Head of Manufacturing to Acting Director of Manufacturing to Director of Manufacturing in a few years


This guy going places

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/SML/415765/399701.pdf

The man must be whistling to work .... could be CEO at this going rate!

[bull....]

could be a blood bath for the stock if my thinking around a2 sales is true

[winner69]

could be a blood bath for the stock if my thinking around a2 sales is true

Something spooked punters today

Jeez if your thinking A2 is right (to be verified with A2 results Monday) and SML sinks with its share price will go to al alltime low ……and maybe threaten $1

Could be exciting times

[bull....]

Something spooked punters today

Jeez if your thinking A2 is right (to be verified with A2 results Monday) and SML sinks with its share price will go to al alltime low ……and maybe threaten $1

Could be exciting times

and no news on there factory sales :scared: could be a nuplex fire sale rights issue

[silverblizzard888]

SML likely to hurt a fair bit from reduced demand, at least with A2 the reduction is supported by a low milk price meaning higher margins, but since SML more or less clip the ticket then their margins stay the same but a reduction in demand means they earn a lot less in general. China's birth rate is heading towards just above 7 million, which is a far cry from around 9 million last year and 16 million 7 years ago.

No announcement on debt restructuring or asset sales, not a good sign for the current business outlook with so much uncertainty.

[winner69]

Customer S will see things right eh

[Leemsip]

Pretty poor comms from the company. Maybe nothing good to report .....
Tough climate for SML. High debt, slowing sales...

[Sideshow Bob]

Pretty poor comms from the company. Maybe nothing good to report .....
Tough climate for SML. High debt, slowing sales...

Fonterra also reducing their forecast this morning. $7.00 mid-point down to $6.75. How many billion out of the economy is that??

Last year at YE they had $233m of inventory. Year before was $271m as at 31st of July. Decent haircut coming on any inventory instore......

[billkiapi]

A2 update this morning suggests that they have excess inventory from stock building/timing of inventory from Synlait which A2 will need to clear- with reduction in milk solids price, and if A2 has stock on hand, this doesn't bode well for Synlait. No short positions available I guess.....

[bull....]

A2 update this morning suggests that they have excess inventory from stock building/timing of inventory from Synlait which A2 will need to clear- with reduction in milk solids price, and if A2 has stock on hand, this doesn't bode well for Synlait. No short positions available I guess.....

yep not good news for sml

[Filthy]

continues to drift down; -31% off its SAMR re-reg price. cap now at ~$285M. results due on the 25th - hopefully some news with it. Surely its getting to the point of T/O. Reckon a part-cash & part-scrip from ATM; that wipes debt & gives bright a chunk of both (sum of the parts) might be a good cheap way to do it without using too much of the war chest? would that work?

[Balance]

continues to drift down; -31% off its SAMR re-reg price. cap now at ~$285M. results due on the 25th - hopefully some news with it. Surely its getting to the point of T/O. Reckon a part-cash & part-scrip from ATM; that wipes debt & gives bright a chunk of both (sum of the parts) might be a good cheap way to do it without using too much of the war chest? would that work?

Market is pricing in a capital raising.

[Sideshow Bob]

continues to drift down; -31% off its SAMR re-reg price. cap now at ~$285M. results due on the 25th - hopefully some news with it. Surely its getting to the point of T/O. Reckon a part-cash & part-scrip from ATM; that wipes debt & gives bright a chunk of both (sum of the parts) might be a good cheap way to do it without using too much of the war chest? would that work?

Bright would have to be 1st cab off the rank, as the largest shareholder, and as already at 39% pretty cheap to buy the rest of the company. Unlikely they would want out at the bottom - expect they'd take a longer term perspective than your average punter.

Been A2 & Bright they have close to 60% so expect it wouldn't be too hard for them to combine and take over the company.

Bright have 3 on the board (A2 none) so they should have their fingers on the pulse.....

[Marilyn Munroe]

Bright have 3 on the board (A2 none) so they should have their fingers on the pulse.....

The Commissar of the Bean Counting Directorate of the Shanghai Municipality will need to calm himself by contemplating the thoughts of Chairman Xi when the cadre from Bright Dairy asks for a heap of New Zealand pesos to prop up some dairy factory in the Antipodes.

I'm picking someone is going to be transferred to party discipline and ideological duties in Xinjiang.

Boop boop de do
Marilyn

[Newman]

Both A2 Milk and Bright Dairy have plenty of cash in their bank accounts. But why would they want to inject cash now into Synlait?

They could patiently wait until December 2024, when the bonds are due for redemption, to hand out cash and get what they want.

[Muse]

Uh oh...trouble in paradise:
Notice of cancellation of Synlait’s exclusive supply rightshttps://www.nzx.com/announcements/418353

[Sideshow Bob]

Uh oh...trouble in paradise:
Notice of cancellation of Synlait’s exclusive supply rights

https://www.nzx.com/announcements/418353

Will be interesting to see Synlait's announcement on this......

[Leemsip]

Terrible (sounding) news. Holy smoke.
Might see $1 today?

Is this part of the plan to takeover SML?

[Ggcc]

Terrible (sounding) news. Holy smoke.
Might see $1 today?

Is this part of the plan to takeover SML?
It might leave them without any options. ATM may get this for a song, but only if it benefited them. Better to not throw good money after bad money.

[Lego_Man]

Terrible (sounding) news. Holy smoke.
Might see $1 today?

Is this part of the plan to takeover SML?

The announcement just seems calculated to put the boot into SML rather than being a material change of relationship. As such i see it as a "mind game" pre a potential acquisition.

[winner69]

think it says we (A2) want to make some of this ‘exclusive’ stuff ourself (MVN) so we found a reason (DIFOT) to end the ‘exclusive’ bit ….and we not really friends

[Sideshow Bob]

Synlait in a trading halt.....until Wednesday!!

https://www.nzx.com/announcements/418354

NZ RegCo advises that, at the request of the issuer, it has placed a trading halt on Synlait Milk Limited (NS) (“SML”) ordinary shares and “SML010” bonds. The halt was placed at premarket open today, Monday, 18 September 2023.

SML has requested the trading halt while it considers new information it has received in relation to a material contract with a third-party customer, and the impact of this information on SML.

The trading halt is expected to be lifted at the earlier of the release of an announcement by SML in relation to the new information, or market open Wednesday 20 September 2023.

Please contact NZX Product Operations on +64 4 496 2853 or productoperations@nzx.com with any queries.

[Leemsip]

Going to be ugly on Wednesday.

They need to come out with something positive about asset sales and debt levels, otherwise this is going to crater.

Anyone know if they halt the bonds as well? SML010 currently at 15% yeild, Dec 24 payback.

[winner69]

Going to be ugly on Wednesday.

They need to come out with something positive about asset sales and debt levels, otherwise this is going to crater.

Anyone know if they halt the bonds as well? SML010 currently at 15% yeild, Dec 24 payback.

Bonds halted as well

[bull....]

new hope or bright cancelled orders ? most likely going to default on the bonds :scared: company collapse ?

[Leemsip]

Some amazing trades coming up if you are A2 and Bright. Buy the bonds and stock at huge discounts on Wednesday.

Proceed to takeover. Fish in a barrel...

[bull....]

actuall y just seen its a2 cancelling on synliat , must be looking to produce themselves

[Leemsip]

or do you just let them bankrupt and buy the assets later?

[winner69]

Just lost the ‘exclusivity’ part of the supply agreement and that won’t happen until 2024 if unsuccessful in arbitration

But the market being what it is will think of all the dire consequences and react accordingly

Might even impact A2 share price as well

[BlackPeter]

Just lost the ‘exclusivity’ part of the supply agreement and that won’t happen until 2024 if unsuccessful in arbitration

But the market being what it is will think of all the dire consequences and react accordingly

Might even impact A2 share price as well

Interesting situation for sure.

SML always insisted that they are holding IP rights to the A2 Platinum Formula (it contains an amazing amount of stuff which is not milk). Not sure, how long you can keep such a formula protected, but then - Coca Cola seems to manage that for many decades ...- i.e. not quite clear how A2M is able to just tell them they don't need (all of) their stuff anymore but produce it now by themselves.

Heck, this is what Chinese companies used to do (steal and copy IP as they please), but isn't ATM a sort of New Zealand company? Can one really trust these Kiwi companies?

Wondering, whether David did read the fineprint and talked with his lawyers before pulling the plug?

Interesting as well to see ATM systematically destroying the value of their cornerstone shareholding in SML. Didn't they pay more that $10 per share?

[silverblizzard888]

Writing was always on the wall that A2 would one day want to produce some of their product at MVM, they didn't pay $268.5m to have it sitting idle. Synlait still have SAMR so they wont' lose all the business in a hurry, but it certaintly puts a lot more pressure on the company to have their biggest customer slowly leaving them.

[bull....]

wonder if sml can play hardball under a dispute and restrict supply to a2 ?

[Rawz]

wonder if sml can play hardball under a dispute and restrict supply to a2 ?

i think they need to sell as much of the white powder as possible..

[Filthy]

it certaintly puts a lot more pressure on the company to have their biggest customer slowly leaving them.

might be time to start creating their own product, with a nice pink label

[winner69]

Synlait pissed A2 off last March when they came out with a big profit downgrade essentially blaming A2 for reducing their forecasts

A2 responded that their forecasts were minor …..reduced by about 5% ….but they did a bit of stirring saying Synlait delivery record wasn’t the best

Reaction now is for A2 to take the exclusive part of the supply agreement out …but supply agreement still in place

Obviously some intent to utilise their own shiny stainless steel.

I still don’t really understand why A2 want to shift from being a high margin marketing company (valuable) to being a milk producer (capital intensive and lower margins). Never mind if they have illusions of being another Fonterra good luck to them …and share price will never be 20 bucks again.

[alex f]

i think they need to sell as much of the white powder as possible..

It seems they cant supply enough to A2, if synlait disputes this notification and it isn’t sorted out, nothing will happen until after the end of 2024. Everyone will over react. I thought the company’s assets were quite valuable

[BlackPeter]

Synlait pissed A2 off last March when they came out with a big profit downgrade essentially blaming A2 for reducing their forecasts

A2 responded that their forecasts were minor …..reduced by about 5% ….but they did a bit of stirring saying Synlait delivery record wasn’t the best

Reaction now is for A2 to take the exclusive part of the supply agreement out …but supply agreement still in place

Obviously some intent to utilise their own shiny stainless steel.

I still don’t really understand why A2 want to shift from being a high margin marketing company (valuable) to being a milk producer (capital intensive and lower margins). Never mind if they have illusions of being another Fonterra good luck to them …and share price will never be 20 bucks again.

I think you are right ... and this will be true for both ATM as well as SML.

Always wondered whether an underwear executive is the best fit for a marketing company ... maybe David is not measuring up?

Still sad - so much money destroyed just because two once great companies (well, this is clearly what the market thought) don't seem to be able these days to talk like grown ups with each other.

[silverblizzard888]

might be time to start creating their own product, with a nice pink label

In a way that was what dairyworks was bought for, but that doesn't seem to have worked that well and now its being sold off. They've literally tired everything. They've done the good old expansion up north, supply supermarket labels, acquired companies to sell branded product.

[winner69]

BP mentioned whether an underwear executive is the best fit for a marketing company (like A2)

Bit like the ex grocer/department store guy trying to run a retirement company (Ryman)

Maybe both not as bad as an accountant doing his best to run another retirement company (Oceania)

[Newman]

Unless A2 milk works together with Bright Dairy (and banks ) to take over SML at the expense of other shareholders, it would not get what it wants. Meanwhile, if SML could not sort out its debt and profit issues, the board and CEO have to be replaced.

[BlackPeter]

BP mentioned whether an underwear executive is the best fit for a marketing company (like A2)

Bit like the ex grocer/department store guy trying to run a retirement company (Ryman)

Maybe both not as bad as an accountant doing his best to run another retirement company (Oceania)

OK - fair enough, lets keep the colourful past of the respective actors out of the discussion - and I agree, many accountants have probably a lesser stature than David :p ;

Having said that - communication is an essential skill in running a company, and while I have to admit that Brent's communication with his shareholders sucks - at least is he not trying to communicate with his major suppliers (and a big investment of his firm as well) using NZX announcements.

So, yes - David might not be the only CEO lacking essential skills, but his lack of crucial communication skills related to major stakeholders certainly still trumps Brents deficiencies in his field.

[Bikeguy]

A2 are not going to burn their only supply channel and Bright dairy, this is simply the ongoing saga of Bright trying to buy Synlait for as little as possible. Bright are pulling the strings here, and A2 are doing as they are told…

[whatsup]

A2 are not going to burn their only supply channel and Bright dairy, this is simply the ongoing saga of Bright trying to buy Synlait for as little as possible. Bright are pulling the strings here, and A2 are doing as they are told…

Bikey, so on that basic do u think that Bright D will buy both ATM and SML ?

[winner69]

No worries

Business as usual. …..finances all sorted for now ….A2 and Synlait still don’t like each other

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/SML/418412/403201.pdf

[winner69]

Reopen at 120

Not many buyers and sellers but if anybody biggish wants to bail it’ll cost them

[BlackPeter]

No worries

Business as usual. …..finances all sorted for now ….A2 and Synlait still don’t like each other

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/SML/418412/403201.pdf

Interesting .. so they will enter into "good faith negotiations" re the exclusive supply agreement. No doubt - good faith will sort it.

Bit more worrysome that the banks seem to plan a managed retreat; While they extended the credit facilities for a year, they seem to have as well the desire to reduce (and soon after exit) their exposure:



Working capital facility of $240 million, maturing 1 October 2024, together with a $10 million on-demand bilateral facility. This facility is a seasonal facility where the facility limit changes at several times during the term of the facility.
Revolving credit facilities of $230 million. These facilities also step down over time with maturity dates between 31 July 2024 and 1 October 2025.
Synlait is required to make a prepayment of at least $130 million by no later than 31 March 2024.


Hmm ... but no doubt - there will be a long queue of new moneylenders form in front of their office asking them to take their money instead :) ;

Any volunteers?

[Bikeguy]

Bikey, so on that basic do u think that Bright D will buy both ATM and SML ?

I have worked in China previously, my thoughts are that Bright will look to lock up the production assets of Synlait. They will do it in a JV with A2 simply because the reality is they would own the whole channel to market anyway.
China likes to own the foreign assets of the products it’s people use, they are very astute and understand the value of dairy as a staple, much like how they purchased the sugar off CSR etc…
It’s not about A2, it’s about securing the ability to feed their people…A2 is nothing to them in the terms of their strategic thinking,

[whatsup]

I have worked in China previously, my thoughts are that Bright will look to lock up the production assets of Synlait. They will do it in a JV with A2 simply because the reality is they would own the whole channel to market anyway.
China likes to own the foreign assets of the products it’s people use, they are very astute and understand the value of dairy as a staple, much like how they purchased the sugar off CSR etc…
It’s not about A2, it’s about securing the ability to feed their people…A2 is nothing to them in the terms of their strategic thinking,

Agree, agree, agree, agree.

[Balance]

Interesting .. so they will enter into "good faith negotiations" re the exclusive supply agreement. No doubt - good faith will sort it.

Bit more worrysome that the banks seem to plan a managed retreat; While they extended the credit facilities for a year, they seem to have as well the desire to reduce (and soon after exit) their exposure:



Hmm ... but no doubt - there will be a long queue of new moneylenders form in front of their office asking them to take their money instead :) ;

Any volunteers?


Notice the China banks in the syndicate?

[aperitif]

Notice the China banks in the syndicate?
Yeah, Bright and a2 will steal this in JV. Would love to see in detail financing rates/terms

[aperitif]

I note MVMs new boiler to be commissioned in October in time to start producing English Label off Synlait.

[Muse]

I can't imagine the financing syndicate is too pleased with ATM's notice of cancellation of exclusivity. ATM only notified SML after hours on Friday, and banks completed the refinancing today (if I'm reading the announcement right, the refi was transacted today, and likely signed/documented some weeks ago). I suppose SML management would have notified the syndicate over the weekend of the news (and there would have been a lot of weekend discussion), as MAC (material adverse change) clauses are par for the course leading up to signing a financing deal, and in many cases remain in effect after. Speculation only, but not hard to guess the refi has a MAC clause, and not unreasonable to guess the notification would qualify. As an aside, lets say this did trigger a MAC clause, that wouldn't automatically mean anything untoward, just probably another big set of work for SML in explaining its position and workstreams to its bankers while the banks set out all their rights in relation to the financing docs. Uninformed speculation from the sideline, here. On a glass half full/optimistic perspective, you'd assume if SML notified the banks over the weekend and they still completed today, they waived the MAC or at least reserved their position in respect of it (or don't have a MAC clause but I wouldn't have thought that the case).

[aperitif]

I can't imagine the financing syndicate is too pleased with ATM's notice of cancellation of exclusivity. ATM only notified SML after hours on Friday, and banks completed the refinancing today (if I'm reading the announcement right, the refi was transacted today, and likely signed/documented some weeks ago). I suppose SML management would have notified the syndicate over the weekend of the news (and there would have been a lot of weekend discussion), as MAC (material adverse change) clauses are par for the course leading up to signing a financing deal, and in many cases remain in effect after.

Synlait wouldn’t want a lender withdrawing finance now….. I’m sure on of the five aren’t happy and expecting news soon

[silverblizzard888]

The financing should be fine, don't expect the banks to back out now since it will be reassessed next year at maturity. The $130m prepayment sounds like the money they will get from the asset sale goes straight to the bank. Assuming their large multi national customer comes onboard in a timely manner it will help mitigate the loss in the English label formula. Chinese Label formula is expected to remain for years to come since they have the SAMR license, they still have some leverage. Not as doom and gloom as feared, but still a lot of uncertainty for the company.

[BlackPeter]

The financing should be fine, don't expect the banks to back out now since it will reassessed next year at maturity. The $130m prepayment sounds like the money they will get from the asset sale goes straight to the bank. Assuming their large multi national customer comes onboard in a timely manner it will help mitigate the loss in the English label formula. Chinese Label formula is expected to remain for years to come since they have the SAMR license, they still have some leverage. Not as doom and gloom as feared, but still a lot of uncertainty for the company.

Financing is fine - short term, but it is clear the banks want out. If you just look at the extended credit facilities, they are tailored so that the auditors can assume the company stays an ongoing concern ... but I am wondering whether we can still assume that the year after next. At that stage the credit facilities will be signficantly reduced / gone ...

Agree however with balance (and some others) that Chinese banks might be happy to provide future funding ... but doubt that this will be of any benefit to current retail shareholders.

[bull....]

very much a distressed company and no word still on asset sales

[Sideshow Bob]

Not really getting any prettier.....

https://www.nzx.com/announcements/418751 (https://www.nzx.com/announcements/418751)

Key financial highlights:

• Total Group revenue down 3% to $1.60 billion
• Total Group NPAT down 111% to loss of ($4.3) million
• Total Group EBITDA down 31% to $90.7 million
• Total Group gross profit down 2% to $144.0 million
• Operating cashflow down 83% to $39.0 million
• Capital expenditure down 32% to $65.1 million
• Net debt up 21% to $413.5 million

Final 2022 / 2023 milk price:

• The final average base milk price is $8.22 per kgMS for the 2022 / 2023 season. In addition, an average of $0.27 per kgMS was paid for incentives, taking the total average milk payment to $8.49 per kgMS.

• The base milk price forecast for the 2023 / 2024 season remains unchanged at $7.00 per kgMS.

Key takeaways from today:

• Joyhana (UHT cream) launched, commercial sales underway.
• State Administration for Market Regulation (SAMR) re-registration achieved.
• TRIFR reduced more than 30% since Synlait Safe launch in November 2022.
• ELT renewal completed.
• Strategy refresh completed, creation of a more focused Synlait.

Full year 2024 outlook:

FY 23 was highly challenging for Synlait with material reductions in customer demand, CO2 shortages, extreme weather events, the COVID-19 pandemic, inflationary impacts, ongoing investments in new product workstreams (i.e., UHT cream and Advanced Nutrition customer growth), and the launch and stabilisation of the company’s new enterprise resource planning (ERP) system.

Looking ahead to the 2024 financial year, Synlait could still face challenging China market dynamics, softening global conditions more generally, and continued inflationary pressures across its cost base, which could impact future customer demand and the company’s overall profitability. Synlait does, however, expect Advanced Nutrition volumes to continue to grow at the Pokeno site in FY 24, and the company’s overall EBITDA performance is also expected to improve in FY 24, compared to FY 23.

The a2 Milk Company’s purported cancellation of the exclusivity arrangements under the Nutritional Powders Manufacturing and Supply Agreement (NPMSA) for the a2 Platinum® and other nutritional products is not expected to impact Synlait’s FY 24 results. Synlait disputes that The a2 Milk Company has the right to cancel the exclusivity arrangements.

While Synlait is confident in its strategy to right-size its cost base to current activities and its near-term Advanced Nutrition and Foodservice growth opportunities, the uncertainty of broader macroeconomic factors means the company will not provide guidance at this time.

Synlait is committed to its refreshed strategy to create a more focused company and remains largely on track to meet its five-year (FY 28) strategic ambitions.

[winner69]

$42m profit if you count the other income stuff …mainly cash flow hedges

That’s pretty good result

[JSwan]

So what’s happening with that new multi national customer?

[Balance]

So what’s happening with that new multi national customer?

If you were the multinational customer, you would be taking your time to screw SML for a superb deal.

It will happen imo but not just yet.

[ralph]

If you were the multinational customer, you would be taking your time to screw SML for a superb deal.

It will happen imo but not just yet.




Or be buying some shares whilst cheap giving more leverage

[Balance]

Or be buying some shares whilst cheap giving more leverage

Not when Bright Foods & ATM own 60% and control Synlait.

There's a game being played by Bright Foods & ATM imo - minorities are going to get screwed royally unless they are vocal and demand answers from the board.

dis. Not a shareholder (yet).

[BlackPeter]

$42m profit if you count the other income stuff …mainly cash flow hedges

That’s pretty good result

True. If they just would get rid of all these loss making stainless steel facilities, sell their loss making property and their huge truckfleet (maybe Fonterra would be interested?), than it might be possible to turn them into a quite successful hedgefund.

I guess shareholders invested at IPO time something like $350m (from memory), so $42m pa would not be a too bad return ... not sure, though whether this is sustainable.

Management of shareholder capital is a different subject, though.

They turned so far ~$350m IPO in 2013 (IPO) plus a $200m CR in 2020 into a total of $282m (market cap today) and never a dividend paid.

I guess - sure, could have been worse (they could have lost all) - but still. Lets hope their next decade is better.

Not sure though, I understand the 5 year plan they present. I see lots of pink and lots of small logos, I see taht there is a lot of stuff they must do anyway and some of their starting conditions but where exactly is the plan to prosperity? Anybody spotted it? For sure, they must have come further in 10 years?

But, to finish on a high note ... looks like they have a really diversified leadership team. What could possibly go wrong?

[winner69]

True. If they just would get rid of all these loss making stainless steel facilities, sell their loss making property and their huge truckfleet (maybe Fonterra would be interested?), than it might be possible to turn them into a quite successful hedgefund.

I guess shareholders invested at IPO time something like $350m (from memory), so $42m pa would not be a too bad return ... not sure, though whether this is sustainable.

Management of shareholder capital is a different subject, though.

They turned so far ~$350m IPO in 2013 (IPO) plus a $200m CR in 2020 into a total of $282m (market cap today) and never a dividend paid.

I guess - sure, could have been worse (they could have lost all) - but still. Lets hope their next decade is better.

Not sure though, I understand the 5 year plan they present. I see lots of pink and lots of small logos, I see taht there is a lot of stuff they must do anyway and some of their starting conditions but where exactly is the plan to prosperity? Anybody spotted it? For sure, they must have come further in 10 years?

But, to finish on a high note ... looks like they have a really diversified leadership team. What could possibly go wrong?

On track to achieve 2027 targets ….they are quite bullish

[Snoopy]

On track to achieve 2027 targets ….they are quite bullish


Even better than that - Synlait are on track to meet their 2127 targets as well.......

SNOOPY

[bull....]

interesting a capital raise is in the mix now if the assets dont sell that are for sale

[BlackPeter]

interesting a capital raise is in the mix now if the assets dont sell that are for sale

That's not a surprise. Just not sure, what "mix" means. If they don't sell their assetts at the right price I hardly see any other option for them. Do you?

[Bikeguy]

Having Abbott on board (the contract must be significant for Synlait to have invested what they have already) is going to provide a material lift to Synlait profits, with positive impact already commenced. Abbott have chosen Synlait as a supplier very wisely, and this business relationship is going to meet the expectations of both businesses very well.

[ralph]

Having Abbott on board (the contract must be significant for Synlait to have invested what they have already) is going to provide a material lift to Synlait profits, with positive impact already commenced. Abbott have chosen Synlait as a supplier very wisely, and this business relationship is going to meet the expectations of both businesses very well.

For sure ,nice to read a sensible comment for a change Hopefully they ditch the woke as well.

[silverblizzard888]

Great article on Stuff's that highlights a few things not particularly disclosed by Synlait. https://www.stuff.co.nz/business/farming/agribusiness/133002186/synlait-reports-43m-annual-loss-expects-to-improve-this-year

-New customer is Abbott (as mentioned above): "Synlait started producing plant-based advanced nutrition products in the last quarter of its financial year for a new customer, Abbott, the biggest supplier of infant formula powder in the United States." This will be a massive contract as abbott sells between $1-$2 billion worth of infant formula internationally, though they do have a plant in Ireland and they are now resuming production in the US after their infant formula recall. Could amount to hundreds of millions a year in business for Synlait over time.

-Dairyworks is profitable, so a sale should be likely given the decent numbers: "The Dairyworks business reported an after-tax profit of $9.8m on revenue of $282.8m, with total assets worth $177.9m. After liabilities, it had net assets of $117.3m."

Upcoming bonds to be refinanced, not bad yield at the moment of 18%: "Synlait has $180m of five-year bonds due for repayment in December next year, which it plans to refinance, in part or wholly, with bank debt." I assume the current lenders signaled that they would be interested in doing the refinancing.

[aperitif]

This is all getting very interesting….when you consider the strategic importance of Bright/a2/Synlait/Abbott’s assets.

Abbott having pulled out of the Chinese IF market have a factory located in Jiaxing. Let’s see what transpires over the coming few months

[Bikeguy]

This is all getting very interesting….when you consider the strategic importance of Bright/a2/Synlait/Abbott’s assets.

Abbott having pulled out of the Chinese IF market have a factory located in Jiaxing. Let’s see what transpires over the coming few months

Yes, I agree with you this is getting interesting, coming to the business end of some clear strategic planning from all parties involved.
My personal opinion is that A2 have recognised they are actually the weaker hand in these strategic plans, ( I am a holder of A2, and currently underwater so have no interest in seeing them fall further) so they are looking to diversify their current supply channel ( smart move for any business) in having at least 2 viable options for supply…however the key is in the licences and the IP to actually produce these products to the high standard required, hence Abbott coming to Synlait, a proven supplier whose NZ source (raw materials) and finished goods quality is world recognised, coupled with main shareholder Bright (market access)
Bright are not in the least silent partners and are very very astute at what they do, capital is no issue and production facilities that are of the quality of Synlait are extremely valuable and will be highly profitable over the long term.

[Bikeguy]

Synlait about to heat up on the back of some asset sales…

[silverblizzard888]

A lot to be excited about for Synlait going forward, their situation has improved remarkably, but of course still a lot of uncertainty that surrounds the company. The management team know what they have to face and seem to be confident they can meet those challenges and now seem to have more control on their future.

New Customer
They have onboarded Abbott, which only started 4-5 months ago and included FDA audits of their facilities which went well and what I imagine has been the big delay for onboarding Abbott. A sign that the product made could be headed for the USA rather than the international market, which would be massive for Synlait getting a foot in the US market.

Upgrading facilities
Most of their upgrade spending is almost finished, which included the new ERP system, which had a lot of interruptions on their supply chain, but now they will see the benefits of making such a massive upgrade to their system. Pokeno facility saw dryer and wetmix upgrades and sets them up to meet the demands of their new customer Abbott.

Inventory
Inventory levels have dropped in value, which has lowered the amount of debt they have taken on; the full year report shows inventory at $250m compared $467m at the half year. Thats had an affect on debt seeing that reduce to $421m from $528m.

Even with the sale of Dairyworks, the debt facility use is expected to remain the same with new customers inventory expected to require a similar amount. Full year report shows Dairyworks inventory at $52m, so some fairly decent size customers are expected to be onboarded.

Asset sale
Dairyworks financial contribution to FY24 is expected to amount to 6 months financials, so a sale and settlement is probably expected to be the very end of the year or start of next year. Dairyworks has a value of $177m on Synlaits books, that includes $52m inventory. Management seem confident a sale will go through, but have left the door open for possible capital raising if required.

Debt
Debt seems to be heading into a healthy direction. With a reduction in inventory requirements theres no need to hold so much debt now and there will start to be a positive contribution from Pokeno with onboarding of new customers. If they can complete the sale of Dairyworks and meet their $130m repayment that further reduces debt to more a manageable level and see a huge reduction in their interest expense bill. If Synlait head back to a reasonably profitable level they will be able to start paying back debt and things should look good onces again.

A2 dispute
The process regarding exclusivity for the production of A2's infant formula will likely go on for a while to come, but in the case they lose exclusivity it might not be that bad, remember A2 squeezes Synlait on their margins, in 12 months time they might have onboarded enough new business that its worth off loading the low margin volume for more higher margin business.

Share price
Current share price represents a opportunity to get into the company at a fairly reasonable price vs the risk they face. I've taken the chance this week to add to my position and feel pretty happy about the company's certainty especially knowing who their new major customer is and that debt is slowly coming back under control. With a market valuation of $312m, a reasonable profit in the current financial year could see them trading at a very low PE and could represent pretty good value.

[Bikeguy]

A lot to be excited about for Synlait going forward, their situation has improved remarkably, but of course still a lot of uncertainty that surrounds the company. The management team know what they have to face and seem to be confident they can meet those challenges and now seem to have more control on their future.

New Customer
They have onboarded Abbott, which only started 4-5 months ago and included FDA audits of their facilities which went well and what I imagine has been the big delay for onboarding Abbott. A sign that the product made could be headed for the USA rather than the international market, which would be massive for Synlait getting a foot in the US market.

Upgrading facilities
Most of their upgrade spending is almost finished, which included the new ERP system, which had a lot of interruptions on their supply chain, but now they will see the benefits of making such a massive upgrade to their system. Pokeno facility saw dryer and wetmix upgrades and sets them up to meet the demands of their new customer Abbott.

Inventory
Inventory levels have dropped in value, which has lowered the amount of debt they have taken on; the full year report shows inventory at $250m compared $467m at the half year. Thats had an affect on debt seeing that reduce to $421m from $528m.

Even with the sale of Dairyworks, the debt facility use is expected to remain the same with new customers inventory expected to require a similar amount. Full year report shows Dairyworks inventory at $52m, so some fairly decent size customers are expected to be onboarded.

Asset sale
Dairyworks financial contribution to FY24 is expected to amount to 6 months financials, so a sale and settlement is probably expected to be the very end of the year or start of next year. Dairyworks has a value of $177m on Synlaits books, that includes $52m inventory. Management seem confident a sale will go through, but have left the door open for possible capital raising if required.

Debt
Debt seems to be heading into a healthy direction. With a reduction in inventory requirements theres no need to hold so much debt now and there will start to be a positive contribution from Pokeno with onboarding of new customers. If they can complete the sale of Dairyworks and meet their $130m repayment that further reduces debt to more a manageable level and see a huge reduction in their interest expense bill. If Synlait head back to a reasonably profitable level they will be able to start paying back debt and things should look good onces again.

A2 dispute
The process regarding exclusivity for the production of A2's infant formula will likely go on for a while to come, but in the case they lose exclusivity it might not be that bad, remember A2 squeezes Synlait on their margins, in 12 months time they might have onboarded enough new business that its worth off loading the low margin volume for more higher margin business.

Share price
Current share price represents a opportunity to get into the company at a fairly reasonable price vs the risk they face. I've taken the chance this week to add to my position and feel pretty happy about the company's certainty especially knowing who their new major customer is and that debt is slowly coming back under control. With a market valuation of $312m, a reasonable profit in the current financial year could see them trading at a very low PE and could represent pretty good value.

Impressive, thank you for taking the time to put it out there👊

[BlackPeter]

A lot to be excited about for Synlait going forward, their situation has improved remarkably, but of course still a lot of uncertainty that surrounds the company. The management team know what they have to face and seem to be confident they can meet those challenges and now seem to have more control on their future.

New Customer
They have onboarded Abbott, which only started 4-5 months ago and included FDA audits of their facilities which went well and what I imagine has been the big delay for onboarding Abbott. A sign that the product made could be headed for the USA rather than the international market, which would be massive for Synlait getting a foot in the US market.

Upgrading facilities
Most of their upgrade spending is almost finished, which included the new ERP system, which had a lot of interruptions on their supply chain, but now they will see the benefits of making such a massive upgrade to their system. Pokeno facility saw dryer and wetmix upgrades and sets them up to meet the demands of their new customer Abbott.

Inventory
Inventory levels have dropped in value, which has lowered the amount of debt they have taken on; the full year report shows inventory at $250m compared $467m at the half year. Thats had an affect on debt seeing that reduce to $421m from $528m.

Even with the sale of Dairyworks, the debt facility use is expected to remain the same with new customers inventory expected to require a similar amount. Full year report shows Dairyworks inventory at $52m, so some fairly decent size customers are expected to be onboarded.

Asset sale
Dairyworks financial contribution to FY24 is expected to amount to 6 months financials, so a sale and settlement is probably expected to be the very end of the year or start of next year. Dairyworks has a value of $177m on Synlaits books, that includes $52m inventory. Management seem confident a sale will go through, but have left the door open for possible capital raising if required.

Debt
Debt seems to be heading into a healthy direction. With a reduction in inventory requirements theres no need to hold so much debt now and there will start to be a positive contribution from Pokeno with onboarding of new customers. If they can complete the sale of Dairyworks and meet their $130m repayment that further reduces debt to more a manageable level and see a huge reduction in their interest expense bill. If Synlait head back to a reasonably profitable level they will be able to start paying back debt and things should look good onces again.

A2 dispute
The process regarding exclusivity for the production of A2's infant formula will likely go on for a while to come, but in the case they lose exclusivity it might not be that bad, remember A2 squeezes Synlait on their margins, in 12 months time they might have onboarded enough new business that its worth off loading the low margin volume for more higher margin business.

Share price
Current share price represents a opportunity to get into the company at a fairly reasonable price vs the risk they face. I've taken the chance this week to add to my position and feel pretty happy about the company's certainty especially knowing who their new major customer is and that debt is slowly coming back under control. With a market valuation of $312m, a reasonable profit in the current financial year could see them trading at a very low PE and could represent pretty good value.

No doubt, you did list some opportunities. Might be worthwhile though to look as well into the risks:

- board basically controlled by Chinese interests. Their interests are clearly not always aligned with the interests of retail shareholders (who are clearly in the hands of the city of Shanghai, aka the Chinese government).
- board communication difficult - not all of the Mandarin speakers on board used to be sufficiently proficient in English. Did they fix that?
- still a political NZ board assignment - what else but colour does she add to the board?
- management put ESG over shareholders interests - and the results are clearly visible.
- board and management made huge mistakes in the past (missing diversification, screwing up a halfa*sed attempt to diversify with Talbot cheese, taking huge legal risks with Pokeno, lack of even basic sales channel management). Not quite clear to me, how we know they learned from these mistakes.

Good they have a new big customer. How do they know that they won't screw SML similarly as A2 did? Did you read and analyse the contract?

[winner69]

Good stuff silverblizzard and BlackPeter

BP asks a good question in have they learnt. From past mistakes. I’d have my doubts and would question whether they have the wherewithal to do so.

I suppose we could compile another list …like what else can go wrong to adversely impact performance and score that.

[xafalcon]

Inventory
Inventory levels have dropped in value, which has lowered the amount of debt they have taken on; the full year report shows inventory at $250m compared $467m at the half year. Thats had an affect on debt seeing that reduce to $421m from $528m.


This is merely normal NZ dairy industry seasonal inventory levels, and will repeat ad infinitum

It does not indicate any material improvement in inventory management

In fact, carrying $250M inventory at the seasonal low point is terrible. It should be much lower

I have worked in NZ dairy industry (management) for over 30 years. I even used to contact SML to manufacture IF, but we could not live with their poor quality and terrible DIFOT, so we exited Dunsandel production

[silverblizzard888]

Impressive, thank you for taking the time to put it out there

Your welcome!


Good stuff silverblizzard and BlackPeter

BP asks a good question in have they learnt. From past mistakes. I’d have my doubts and would question whether they have the wherewithal to do so.

I suppose we could compile another list …like what else can go wrong to adversely impact performance and score that.

Indeed a management team to watch closely, they've made too many mistakes and not enough evidence to prove its behind them.


No doubt, you did list some opportunities. Might be worthwhile though to look as well into the risks:

- board basically controlled by Chinese interests. Their interests are clearly not always aligned with the interests of retail shareholders (who are clearly in the hands of the city of Shanghai, aka the Chinese government).
- board communication difficult - not all of the Mandarin speakers on board used to be sufficiently proficient in English. Did they fix that?
- still a political NZ board assignment - what else but colour does she add to the board?
- management put ESG over shareholders interests - and the results are clearly visible.
- board and management made huge mistakes in the past (missing diversification, screwing up a halfa*sed attempt to diversify with Talbot cheese, taking huge legal risks with Pokeno, lack of even basic sales channel management). Not quite clear to me, how we know they learned from these mistakes.

Good they have a new big customer. How do they know that they won't screw SML similarly as A2 did? Did you read and analyse the contract?

The politics can go both ways of course, while it can go against shareholder interest it can also work in favour too. Apparently Bright gave Synlait considerable help with navigating the SAMR renewal and probably the recent refinance with the banking syndicate involving quite a few Chinese banks, but of course in the future it could be different. So far we are yet to see too much direct politic interest and intervention at play in the dairy sector by chinese interest. 3 out of 8 of the board are Chinese and represent Bright, as long as 1 is proficient in English then that should help at least the other 2 translating if they aren't as proficient.

Three main factors have cause Synlait havoc and thats the low margin A2 contract which we can see A2 benefited hugely with their massive profits over the years and the ESG stuff really stuffed the company from being profit orientated to being about sustainability and the mismanagement of their growth strategy fueled by massive debt.

Yes Synlait have made many mistakes over the past for the sake of gain more growth, whether they've learned their lesson or not and whether they have become more competent at it remains a question mark. For now they don't seem to be doing to much else except focusing on their main business and getting it back on track. Pokeno is getting on with business and the sale of Dairyworks is the end of branching out.

Abbott could be doing a similar thing that A2 has done by squeezing them, but at least it diversifies their revenue base. They've clearly relied on A2 for far too long and having another big contract would give them some leverage to not rely so heavily on A2. At the end of the day if you invest in the company you have to trust management are doing the right thing or best not to invest and find a company with a more reliable management team.

[silverblizzard888]

This is merely normal NZ dairy industry seasonal inventory levels, and will repeat ad infinitum

It does not indicate any material improvement in inventory management

In fact, carrying $250M inventory at the seasonal low point is terrible. It should be much lower

I have worked in NZ dairy industry (management) for over 30 years. I even used to contact SML to manufacture IF, but we could not live with their poor quality and terrible DIFOT, so we exited Dunsandel production

Yes you are right inventory levels will change over the seasons and will continue to do so, but on top of that Synlait have said they ran up extra inventory for A2's sake due to waiting on the SAMR renewal, so based on what they've said and the dramatic drop in inventory it would be a sign of improvement. Due to A2 ordering less than expected which was part of the reason for the last downgrade in financials it is a sure sign they still hold considerable inventory for A2, but should continue to improve over time. A good question to ask at the AGM how their inventory management is going now that they have their SAMR renewal complete.

The reason you have stated about poor quality and terrible DIFOT is what A2 is using to get out of their exclusivity clause in their contract, so it sounds fairly accurate, Synlait sounds a bit tardy with their deliveries and could lose their exclusivity with A2.

[BlackPeter]

... 3 out of 8 of the board are Chinese and represent Bright, as long as 1 is proficient in English then that should help at least the other 2 translating if they aren't as proficient.

...



Hardly. First - if everyting needs to be translated, it takes twice the time (and I am pretty sure, they don't do that) ... and if they translate only on demand ... well, you don't ask for translation if you don't realise that you missed an important bit.

Suppose however that the Chinese directors do in boardmeetings what they typically do in Synlaits AGM's. Admittedly - I haven't been the last two years (so I don't know for these), but before that, they mainly played with their flash cell phones.

Their contribution in AGM's is mainly to take space and to avoid contact with shareholders (well, shareholders who try to speak with them in English) ...

[Balance]

Hardly. First - if everyting needs to be translated, it takes twice the time (and I am pretty sure, they don't do that) ... and if they translate only on demand ... well, you don't ask for translation if you don't realise that you missed an important bit.

Suppose however that the Chinese directors do in boardmeetings what they typically do in Synlaits AGM's. Admittedly - I haven't been the last two years (so I don't know for these), but before that, they mainly played with their flash cell phones.

Their contribution in AGM's is mainly to take space and to avoid contact with shareholders (well, shareholders who try to speak with them in English) ...

In my experience, directors seconded by Asian companies, be them Chinese, Japan or Koreans, to represent their parent companies all understand and speak English. They certainly speak English much better than the NZers seconded to represent Fonterra & other NZ companies in Asia in the Asian languages! And that is a fact!

As to them avoiding shareholders, hardly surprising as they represent Bright Foods. And that is indeed something that minority shareholders do need to be very very mindful of.

[BlackPeter]

In my experience, directors seconded by Asian companies, be them Chinese, Japan or Koreans, to represent their parent companies all understand and speak English. They certainly speak English much better than the NZers seconded to represent Fonterra & other NZ companies in Asia in the Asian languages! And that is a fact!

As to them avoiding shareholders, hardly surprising as they represent Bright Foods. And that is indeed something that minority shareholders do need to be very very mindful of.

OK - I didn't do a full English test on all Chinese Synlait directors, but I tried twice after AGM's, and both, while speaking English, had problems to understand my questions and respond.

Sure - you could say, it might be my bad English, but I never had similar communication problems with directors who were speaking English as their first language. But maybe I drew a bad sample :) ;

And of course - maybe they just didn't wanted to talk with me and considered it easier to pretend bad communication skills instead of just telling me that they are not interested in talking with me.

Otherwise (and for other companies) I agree with your observation.

[Balance]

I have zero doubts about your English skills, BP.

The key point I am trying to make is that minority shareholders have to be very mindful indeed about who the Chinese directors represent and they are not exactly very forthcoming with their intentions, are they?

There’s definitely more to the recent spat between ATM & Synlait/Bright Foods than disclosed to the market imo. I cannot quite figure it out yet but we may wake up one morning and find that Synlait has been broken up and taken over.

[silverblizzard888]

Took sometime this morning to compile the gross margin, revenue and NPAT of the company over the last 10 years. They've triple revenue over that time, but taken massive hit on the margin side. Before 2021 they were doing pretty well on the margin side.

2013 GM: 16% NPAT $11.5m REV: $420m
2014 GM: 13% NPAT $19.6m REV: $600m
2015 GM: 16% NPAT $10.5m REV: $448m
2016 GM: 18% NPAT $34.3m REV: $546m
2017 GM: 15% NPAT $38.2m REV: $758m
2018 GM: 19% NPAT $74.5m REV: $879m
2019 GM: 18% NPAT $82.2m REV: $1.02b
2020 GM: 16% NPAT $74.3m REV: $1.30b
2021 GM: 5% NPAT (-$28.4m) REV: $1.36b
2022 GM: 9% NPAT $38.5m REV: $1.39b
2023 GM: 9% NPAT (-$4.2m) REV: $1.32b

[winner69]

Those GM % numbers interesting

If comparable Fonterra GM% last 2 years has been 14% and 17.6%

Seems mid to high teens is where they should be

[silverblizzard888]

Those GM % numbers interesting

If comparable Fonterra GM% last 2 years has been 14% and 17.6%

Seems mid to high teens is where they should be

If SML had higher margins in the teens they would be fairly profitable rather than making losses past few years.

At 12% margins NPAT would be:
2023 : $14.6m
2022 : $65.2m
2021 : $41.1m

At 14% margins NPAT would be:
2023 : $33.6m
2022 : $85.3m
2021 : $61.1m

At 17% margins NPAT would be:
2023 : $62.4m
2022 : $115.5m
2021 : $90.7m

[aperitif]

Scenario 1 - Dairyworks sale/stay public
Scenario 2 - Bright/a2 joint venture/privatization
Scenario 3 - a2 buy License/Dunsandel $$$
Scenario 4 - a2/Synlait merge, Bright left holding a hefty stake, IP integration/BC facility at MVM.
Scenario 5 - Abbott buys stake in a2 and extends pediasure range to a2 opening up markets(haha).

Any I’ve missed?

[silverblizzard888]

If A2 and Synlait merged it would solve A2's MVM problem because Synlait could take it over and use it as their extra facility and Synlaits debt and loss of exclusivity is no longer a problem.

In the longer term if Synlait become a critical supplier of Abbott it would be in their interest to take a shareholding. Potentially Synlait could do a capital raise with Abbott, that way they secure a stronger partnership.

[BlackPeter]

Those GM % numbers interesting

If comparable Fonterra GM% last 2 years has been 14% and 17.6%

Seems mid to high teens is where they should be

True, however somewhat concerning the margins didn't used to be higher for Synlait. Lets not forget, Fonterra is just selling plain boring standard milk products and milkpowder, while Synlait sold basically the Rolls Royce of milk: A2 Platinum - $50 (now its $60) per 900g can, and ony 2/3 rds of that is valuable milk ... the rest is sugar (o.k., not the standard variant, but still sugar) imported from China; On top of that they told us for a long time how rich they will get with their Lactoferrin production .... liquid gold. Btw, anybody knows what happened with that? Did the previous CFO run away with the treasure they made?

[BlackPeter]

Scenario 1 - Dairyworks sale/stay public
Scenario 2 - Bright/a2 joint venture/privatization
Scenario 3 - a2 buy License/Dunsandel $$$
Scenario 4 - a2/Synlait merge, Bright left holding a hefty stake, IP integration/BC facility at MVM.
Scenario 5 - Abbott buys stake in a2 and extends pediasure range to a2 opening up markets(haha).

Any I’ve missed?

Scenario 6: Synlait gets broke and Bright Dairy picks up the bits they need to feed the middle empire for a song.

[xafalcon]

Yes you are right inventory levels will change over the seasons and will continue to do so, but on top of that Synlait have said they ran up extra inventory for A2's sake due to waiting on the SAMR renewal, so based on what they've said and the dramatic drop in inventory it would be a sign of improvement. Due to A2 ordering less than expected which was part of the reason for the last downgrade in financials it is a sure sign they still hold considerable inventory for A2, but should continue to improve over time. A good question to ask at the AGM how their inventory management is going now9 that they have their SAMR renewal complete.



Synlait are primarily a commodity processor. Their inventory is primarily commodities like AMF, WMP, SMP.

Any inventory carried for ATM will be very small in comparison . But SML can only sell it to ATM

If Synlait have over-produced ATM formula (without a forecast from ATM), it could be problematic. Certain markets are formula-age sensitive. Chinese customers, for example, view IMF products over 12M age as unsuitable.

Commodity products have no such issues. They are good for 2 years or more. Being commodities, they have standardised compositions. Hence they also have a variety of uses and many customers, so plenty of sales opportunities. It just may require SML to drop their price to move older stock

[BlackPeter]

Synlait are primarily a commodity processor. Their inventory is primarily commodities like AMF, WMP, SMP.

Any inventory carried for ATM will be very small in comparison . But SML can only sell it to ATM

If Synlait have over-produced ATM formula (without a forecast from ATM), it could be problematic. Certain markets are formula-age sensitive. Chinese customers, for example, view IMF products over 12M age as unsuitable.

Commodity products have no such issues. They are good for 2 years or more. Being commodities, they have standardised compositions. Hence they also have a variety of uses and many customers, so plenty of sales opportunities. It just may require SML to drop their price to move older stock

There is a wee elefante in the room, though:

The margin on a 50kg bag of standard milk powder is lower that the margin on one 900g tin of A2 Platinum IF.

Sure - not hard for them to get rid of cheap milk powder by further discounting it. Everybody can produce it, and buyers always go for the cheapest stuff. Easy way to empty the stores, but not to fill the coffers.

The money however is in these A2 Platinum tins, and discounting them is (as you said) only something ATM could do - and they won't. Last time (after the sales channel issues following COVID) they preferred to destroy the lot. They want to keep this a premium product - see?

[Balance]

There is a wee elefante in the room, though:

The margin on a 50kg bag of standard milk powder is lower that the margin on one 900g tin of A2 Platinum IF.

Sure - not hard for them to get rid of cheap milk powder by further discounting it. Everybody can produce it, and buyers always go for the cheapest stuff. Easy way to empty the stores, but not to fill the coffers.

The money however is in these A2 Platinum tins, and discounting them is (as you said) only something ATM could do - and they won't. Last time (after the sales channel issues following COVID) they preferred to destroy the lot. They want to keep this a premium product - see?

I believe the point that xafalcon is making is that a high level of inventory in commodities (hence, low margins) is not the huge problem perceived by some as they can be got rid of on the well established commodity market.

Correct me if I am wrong, xafalcon.

[BlackPeter]

I believe the point that xafalcon is making is that a high level of inventory in commodities (hence, low margins) is not the huge problem perceived by some as they can be got rid of on the well established commodity market.

Correct me if I am wrong, xafalcon.

Maybe.

My point however was that I don't think Synlaits problem is too much inventory, it is too little cash. Latter problem is not solved by emptying their storage halls of the easy to get rid of stuff using aggressive discounting (i.e. further reducing their cash intake). They need to sell the hard to get rid off stuff at the only customer they are allowed to sell it to. And this customer just recently started playing hardball.

[Bikeguy]

Scenario 1 - Dairyworks sale/stay public
Scenario 2 - Bright/a2 joint venture/privatization
Scenario 3 - a2 buy License/Dunsandel $$$
Scenario 4 - a2/Synlait merge, Bright left holding a hefty stake, IP integration/BC facility at MVM.
Scenario 5 - Abbott buys stake in a2 and extends pediasure range to a2 opening up markets(haha).

Any I’ve missed?

I’m thinking scenario 2,
China then effectively owns Synlait outright ( let’s be honest, the customer (A2) is a controlled one, it’s needs the production and the access to China)
Bright owns the lot, beats foreign ownership laws and A2 will be paying for the lions share.

[winner69]

Of all those scenarios what’s the best outcome for shareholders ……which has to better than business as usual doesn’t it

[Balance]

I’m thinking scenario 2,
China then effectively owns Synlait outright ( let’s be honest, the customer (A2) is a controlled one, it’s needs the production and the access to China)
Bright owns the lot, beats foreign ownership laws and A2 will be paying for the lions share.

One of the best risk-adjusted fixed interest investments in the market has to be the SML 2024 bonds imo.

I have quietly picked up a parcel in recent times and believe that those who bought the bonds at 3.83% pa yield and sold out at up to 18% pa have not thought through the strategic nature of SML to Bright Foods and ATM.

Both would be very happy to take out the company completely at around current valuations (sp $1.43 vs NTA of $3.21) which could yet happen if SML makes a heavily discounted rights issue, underwritten by the principal shareholders.

Do the bondholders have any idea how long (& geopolitically difficult) it takes for a China company to build up a primary sector player like SML? Have a look at how long it took Singapore's Olam International to build up its multi-billion food empire?

There will be a time to play SML shares - the major risk now being the NZX re-indexing in December.

[Bikeguy]

One of the best risk-adjusted fixed interest investments in the market has to be the SML 2024 bonds imo.

I have quietly picked up a parcel in recent times and believe that those who bought the bonds at 3.83% pa yield and sold out at up to 18% pa have not thought through the strategic nature of SML to Bright Foods and ATM.

Both would be very happy to take out the company completely at around current valuations (sp $1.43 vs NTA of $3.21) which could yet happen if SML makes a heavily discounted rights issue, underwritten by the principal shareholders.

Do the bondholders have any idea how long (& geopolitically difficult) it takes for a China company to build up a primary sector player like SML? Have a look at how long it took Singapore's Olam International to build up its multi-billion food empire?

There will be a time to play SML shares - the major risk now being the NZX re-indexing in December.

So well written, you have summed it up very accurately, thank you.