SML - Synlait Milk Ltd

[Ggcc]

It seems Synlait's gross margin dropped significantly the minute Pokeno came online in late 2019, dropping from 16% to 5%, then later recovering to 9% with products being produced at Pokeno, though that has sinced dropped in the half year report to just over 4%. Makes me suspect that Pokeno maybe losing Synlait over $100m a year, especially in maintaining their milk supply contracts while not having the volume they had planned for. Explains why management have always kept hope that bringing in new business would solve the problem, but the new business never materialized. Add in over $40m in financial cost associated with their debt and you have over $140m going out the window from Pokeno and the debt, which if resolved would bring them back to profitability very quickly.

We know Dunsandel and Dairyworks are both very profitable operations, so if they were to get rid of Pokeno or sell off a large part and reduce debt at the same time, they would be profitable again. It never made sense how their margins dropped so heavily since they pay a similar milk price to Fonterra and for a long time was always in the double digits till Pokeno came online, yet Fonterra maintains healthy margins in the teens while Synlaits are in the single digits. A recent interview from the Chair of Synlait makes me suspect that this is the case.

https://www.nzherald.co.nz/business/...NBRSFGXQCXN7E/

“We have a very profitable business in Dunsandel [in Canterbury] - it’s a really strong business.”

Likewise, the consumer-oriented Dairyworks, which Synlait wants to sell to pay down debt, is also very profitable, he adds.

“So we have got two core assets that do very well."

Adams said Synlait needed to address issues of profitability and, clearly, Pōkeno.

“And in reality, if we can get to a point where we can resolve Pōkeno, and I am confident that we will, then the profitability of the other two will not get sucked into Pōkeno, which is the issue,” he said.

“We use the term ‘holding the nose’, but at that stage, if we deal with Pōkeno and we do what we are planning to do in terms of capital raise, then yes, it is positively salvageable.”

Like many people and companies pre Covid, were caught with their pants down on the whole borrow to get wealthy scenario. Currently loads of people starting to sell their houses and businesses to raise money to pay off their debts. SML paid too much for lots of their stuff and now need to sell it in a declining market. Pokeno will be a fire sale, Dairyworks might sell for $55-70 million (or less), but Dunsandel might be a fair price. If the company goes into liquidation I feel Bright and A2 will buy Dunsandel together as a partnership, Bright may even get some shares in A2 as sweetener part of a deal. Again this is just my point of view and as a non shareholder, I don't mind if they keep existing.

[carrom74]

Pokeno is the white elephant-as we all know and selling shouldn’t be that of a problem I guess. As Fonterra is selling its brands and closing down old and tired factories,and since it’s focus has changed to be more “primary “ - they could buy …

https://www.nzherald.co.nz/waikato-n...PZYJWRSHPES24/

[Balance]

Like many people and companies pre Covid, were caught with their pants down on the whole borrow to get wealthy scenario. Currently loads of people starting to sell their houses and businesses to raise money to pay off their debts. SML paid too much for lots of their stuff and now need to sell it in a declining market. Pokeno will be a fire sale, Dairyworks might sell for $55-70 million (or less), but Dunsandel might be a fair price. If the company goes into liquidation I feel Bright and A2 will buy Dunsandel together as a partnership, Bright may even get some shares in A2 as sweetener part of a deal. Again this is just my point of view and as a non shareholder, I don't mind if they keep existing.

Bright is China's second largest food manufacturing & distribution company - I suspect that most NZers (including the media) and some posters have not thought through the implication of that.

[nztx]

Bright is China's second largest food manufacturing & distribution company - I suspect that most NZers (including the media) and some posters have not thought through the implication of that.

Look no further than Silver Fern Farms & a number of other operators in the Meat sector.

Then look at PGW when control (or they think they have strings to pull) heads offshore

All part of foreign desires to secure their supply chains, by acquiring ownership of more of the production & supply chain at source in the target supplier country.

When the boots on the other foot & Kiwi companies try to get a foothold in for example China or elsewhere - how does that sometimes turn out ?

Any Sectors which have not seen 'wholesale foreign based takeovers & buyouts' here left ?

[JimmyTrade]

Pokeno is the white elephant-as we all know and selling shouldn’t be that of a problem I guess. As Fonterra is selling its brands and closing down old and tired factories,and since it’s focus has changed to be more “primary “ - they could buy …

https://www.nzherald.co.nz/waikato-n...PZYJWRSHPES24/

Fonterra has the capability to make more ingredients (dryer capacity) than milk supply and milk distribution issue with such large dryers being built in the recent decade and arguably have reached "peak milk".

Moving towards only ingredients and foodservice to give the business more stable reliable flows of revenue seems a bit short-sighted when higher margins and pricing power is coming from the consumer goods but is something Fonterra hasn't executed very well. Products like Anmum come to mind, just aren't marketing as well as other brands in the same categories.

[Balance]

Look no further than Silver Fern Farms & a number of other operators in the Meat sector.

Then look at PGW when control (or they think they have strings to pull) heads offshore

All part of foreign desires to secure their supply chains, by acquiring ownership of more of the production & supply chain at source in the target supplier country.

When the boots on the other foot & Kiwi companies try to get a foothold in for example China or elsewhere - how does that sometimes turn out ?

Any Sectors which have not seen 'wholesale foreign based takeovers & buyouts' here left ?

Try telecommunications.

Try power generation.

Try airlines.

Try horticultural industry.

Try dairy industry.

Not the fault of other countries that many NZ companies have no idea how to invest successfully overseas. They should learn from Graeme Hart and Zuru perhaps?

[whatsup]

Pokeno is the white elephant-as we all know and selling shouldn’t be that of a problem I guess. As Fonterra is selling its brands and closing down old and tired factories,and since it’s focus has changed to be more “primary “ - they could buy …

https://www.nzherald.co.nz/waikato-n...PZYJWRSHPES24/

So with the biggest employer at Pokeno struggling to survive where does that leave, the business owners, home owners and the banks in Pokeno , Im betting that there are lots of answers needed !

[Perky]

I’m not sure there are Banks in Pokeno.

Pookeno or as it is called by majority Pokeno…Po means night and Keno means underworld or night of death…oh dear synlait
Pookeno is world famous for Large ice creams, Bacon and sausages.
The town changed its name to jenniferAnn.com for 1 year in 2000.
Possum Bourne is buried in the Pookeno cementry and the famous pie stealing scene from goodbye pork pie movie was filmed there.
Pookeno also has it own whiskey distillery Pokeno Whiskey

so really the ****show at the milk factory is just another chapter in Pokeno world famous history.

[carrom74]

Fonterra has the capability to make more ingredients (dryer capacity) than milk supply and milk distribution issue with such large dryers being built in the recent decade and arguably have reached "peak milk".

Moving towards only ingredients and foodservice to give the business more stable reliable flows of revenue seems a bit short-sighted when higher margins and pricing power is coming from the consumer goods but is something Fonterra hasn't executed very well. Products like Anmum come to mind, just aren't marketing as well as other brands in the same categories.

In the early 2000”s Fonterra had about 133 brands and the then CEO was entrusted to reduce them. Now fast forward, they are still selling their brands and closing old factories. Also if pokeno does get sold to them, the farmers could come back… which is also a challenge to Synlait ( cessation notices).

https://www.nzherald.co.nz/business/...THSME2BBTJJPI/

Agree with the “peak milk” theory. Good point.

I am of the opinion that Fonterra would be watching keenly on how things unfold.

[whatsup]

I’m not sure there are Banks in Pokeno.

Pookeno or as it is called by majority Pokeno…Po means night and Keno means underworld or night of death…oh dear synlait
Pookeno is world famous for Large ice creams, Bacon and sausages.
The town changed its name to jenniferAnn.com for 1 year in 2000.
Possum Bourne is buried in the Pookeno cementry and the famous pie stealing scene from goodbye pork pie movie was filmed there.
Pookeno also has it own whiskey distillery Pokeno Whiskey

so really the ****show at the milk factory is just another chapter in Pokeno world famous history.

DAAAAH, the banks have lent the money to the home owners via a mortgage !
If the factory closes who will employ all of the citizens of Pokeno and if no employers who will buy the houses ?