SML - Synlait

[Hectorplains]

Sounds like a famous quote and most likely applicable in this case 

It's hard to pick a top five for Synlait's inept management.  These would all be strong contenders: 
1. Holding the SMR license that A2 depend on but getting screwed over by A2 in the supply deal.
2. Purchasing Talbot cheese.
3. The Pokeno covenant debacle and associated costs.
4. The Munchkins muck around.
5. Recycled milk cans.

Of course this may all be eclipsed by Wednesdays big reveal, especially if they've stuffed up the Abbott's deal. 

[mcdongle]

No.2  Didnt they only purchase the crappy bits of Talbot Cheese?

[Basil]

It's hard to pick a top five for Synlait's inept management.  These would all be strong contenders: 
1. Holding the SMR license that A2 depend on but getting screwed over by A2 in the supply deal.
2. Purchasing Talbot cheese.
3. The Pokeno covenant debacle and associated costs.
4. The Munchkins muck around.
5. Recycled milk cans.

Of course this may all be eclipsed by Wednesdays big reveal, especially if they've stuffed up the Abbott's deal. 

Great list but we can't forget too that Leon had the entire executive team working on the Certified B Corp process for months...you know the one where the entire culture of the company is changed such that people and planet are put on exactly the same level as profitability...just look how "wonderfully" that's worked out for them.  Pretty sure the vast use of manpower and resources on excessive ESG obsession has to rate in the top 5 somewhere, maybe in the top 3.

[BlackPeter]

Great list but we can't forget too that Leon had the entire executive team working on the Certified B Corp process for months...you know the one where the entire culture of the company is changed such that people and planet are put on exactly the same level as profitability...just look how "wonderfully" that's worked out for them.  Pretty sure the vast use of manpower and resources on excessive ESG obsession has to rate in the top 5 somewhere, maybe in the top 3.

Wondering what Leon is doing these days?

Synlait board said at his departure that he has been "a transformational leader".

Given that Synlait was before Leons arrival in amazing shape - as demonstrated by Leons own words:

Synlait announcement 26. June 2018:

"The business is in fantastic shape and we will continue to target sustainable growth by leveraging the potential within our organisation, as well as the potential in the markets and customers we partner with," adds Mr Clement.

https://www.synlait.com/news/leon-clement-announced-as-synlait-milks-new-ceo/#:~:text=%E2%80%9CI'm%20passionate%20about%20New,incoming%20CEO%20of%20Synlait%20Milk.

... am I sort of wondering how he applied his transformational leadership?

Or - is the answer really that obvious?

[snapiti]

I think investors (newbies) should take special note at what the TH ann referred to (that it may need to revise guidance) fairly confident what eventuates will be much greater than just that.
History shows us that when a company is having issues, management often spin stories so management appear to have a handle on things and are now steering the ship in the right direction. In these sort of instances it usually is up to individual investors own BS radar.
Reality is often for clarity one has to take a step back and first ask how the company got in this sort of trouble in the first place.
Best of luck to holders tomorrow.......for me this company has failed the sniff test for sometime
 

[winner (n)]

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

F23 not going to be a good year but jeez watch out for F24 with double digit growth blah blah

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

[Left Field]

Not quite the end of the world some were expecting, but doesn't exactly inspire me.

https://www.nzx.com/announcements/410391

Synlait is updating its FY23 net profit after tax (NPAT) guidance range to a net loss of ($5) million to a net profit of $5 million.

There are two components to today's guidance update:

1. Further Advanced Nutrition demand reductions, mostly from one of Synlait's customers, which impact consumer-packaged infant formula volumes and base powder production, are expected to have an NPAT impact of approximately $16.5 million in FY23.

2. The remainder of the NPAT impact (approximately $3.5 million) is attributable to less material factors, including higher financing and supply chain costs.

[winner (n)]

Not quite the end of the world some were expecting, but doesn't exactly inspire me.

https://www.nzx.com/announcements/410391

Leftie ....I'm told this is how cyclical stocks work so no worries ..get inspired

[Left Field]

No worries Winner....... my only exposure is via 5% of my portfolio in freehold ATM.

ps their update on the SML update is interesting.

[winner (n)]

Ha ha ....A2 seem 'surprised' as to the size of the downgrade

Think they a bit pissed off

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/ATM/410403/393144.pdf

[Minimoke]

If I was a SML holdder I'd be super pissed off.

Year ends 31 July

4 weeks ago with just 4 months of the year remaining they said "Synlait's full year 2023 (FY 23) net profit after tax (NPAT) guidance range is $15 million to $25 million."

Today, with just 3 months to go they say "Synlait is updating its FY23 net profit after tax (NPAT) guidance range to a net loss of ($5) million to a net profit of $5 million.

That is a change of $20m.

How can a 3 month change account for essentially 100% of expected full year NPAT.

Something is not right with their customer relationships to have an order book change to such a huge extent in such a short time.

So - how much is this going to change revenue? Very important from a cashflow perspective and then debt servicing.

And if its not A2M coming up with a surprise reduction in their orders (A2 say they have done nothing) then it seems to me they have lost a customer.

I still can't see how a capital raise isn't on the very near horizon.

[Basil]

Maybe the final result for FY23 is a loss of $20-40m after the next couple of downgrades?

[Minimoke]

Synlait say "As previously communicated, Synlait is currently reviewing its capital strategy to ensure it has the appropriate funding for FY24 and beyond. The focus of this review is primarily on its levels of debt. Synlait is not considering an equity capital raising as part of the capital strategy review."

I don't know how they can continue without a capital raise. So I can only conclude they are now such a poisoned chalice no broker would be prepared to underwrite it it and even if there was a cap raise there would be no appetite from major shareholders to participate.

So, in the absence of a cap raise, I'm going to presume their debt facilities are maxed out. This really only leaves a sale of family jewels and lease back arrangement.

They can't sell their Richard Pierce Drive, Auckland premises. Because this has already been flogged off.

So as far as I am aware the only three remaining assets that could be sold are Dairy work, Pokeno or Dunsandle.

Seems to me their would be some synergy if A2 milk used some of its cash to buy Dunsandel. Its a wee way from Mataura but their could be synergies from a port perspective.

Fresh with SAMR certification Dunsandel could be a good choice.

Passing through the cheese counter the other day I see Talbot Cheese is back on the shelves - I can't see that being sold off. Its not worth much and still may be a problem child.

I can't see Dairyworks being flogged. Apparently "Cashflow returned from Dairyworks to Synlait was outstanding" why would they flog off a "cash cow? And EBITDA was only $18m last year.

On a side note I see Westland are investing $70m in lactoferrin. SML have been a bit quiet about this lately.

And I see market has responded with an open today at $2.00 down 6.5%

[KW]

That is a change of $20m.

How can a 3 month change account for essentially 100% of expected full year NPAT.

Something is not right with their customer relationships to have an order book change to such a huge extent in such a short time.

 "a2MC is in discussions with Synlait regarding the allocation of certain one-off production/supply chain and other related costs between the two companies"
It looks like neither of them have booked those costs because they think the other will pay for it.  
 
" IMF deliveries from Synlait to a2MC over an extended period expected to be fulfilled in 4Q23 resulting in a material amount of inventory arriving within a relatively short period"
And then there will be nothing delivered for a long time, and Synlait's FY23  is 1 month after A2's

[Basil]

"Synlait is not considering an equity capital raising as part of the capital strategy review."
I interpret that to mean at this point in time we've had feedback from major shareholders that they are not prepared to support the company in this way.
Reading between the lines you can get an indication of that from the tone of ATM's announcement.