SML - Synlait

[Minimoke]

And Synlait in to yet another trading halt while it digests A2 cancellation.

[Basil]

Hells bells. It appear synlait have not been manufacturing A2's stages 1 to 3 of a2MC's current infant milk
formula (IMF) products fro China, Australia and NZ Delivery In Full On Time.

How on earth is this possible. Synlait have the farmers, they have the milk, they have the plant, and as I recall they have an excess of inventory.

What the heck have they been doing?

See today's A2M market announcement - SML yet to respond

Beggars belief. 
You have to wonder if their culture with a totally obsessive focus on all things ESG has played a part in this fiasco?  One thing is for sure, the banks will not like this and Synlait's covenants are up for review in mid-October and they have a very weak balance sheet, somewhere about break-even earnings forecasted, to be announced later this month and huge levels of debt.  Gosh you'd have to be very, very brave to be holding SML shares now....

[Minimoke]

Beggars belief.  Its not like they have been busy suppling the new customer either.
You have to wonder if their culture with a totally obsessive focus on all things ESG has played a part in this fiasco?  One thing is for sure, the banks will not like this and Synlait's covenants are up for review in mid-October and they have a very weak balance sheet, somewhere about break-even earnings forecasted, to be announced later this month and huge levels of debt.  Gosh you'd have to be very, very brave to be holding SML shares now....

At half year SML had $350,000,000 in loans and borrowings. And this excludes all other liabilities.

With an exclusive supply agreement in place they made a net profit of $4.8m

So I reckon it is fair to say they have zero chance of paying down debt to a decent level in the short medium term. Certainly not by 2025

We have had no news on the asset sales of Talbot and Dairy Works. So no relief there.

And if SML haven't been supplying A2M to the required DIFOT levels this clearly has to have an impact on SML's income - which must be down.

I reckon they are treading water. Just. And the water on Friday was up to their nostrils and today its up to their eyebrows.

I cannot see there being anything other than very real concern coming from the banks with this announcement.

And what does this potentially do for Bond holders?

[Auto Rower]

Hells bells. It appear synlait have not been manufacturing A2's stages 1 to 3 of a2MC's current infant milk
formula (IMF) products fro China, Australia and NZ Delivery In Full On Time.

How on earth is this possible. Synlait have the farmers, they have the milk, they have the plant, and as I recall they have an excess of inventory.

What the heck have they been doing?

 Apparently they have been struggling with supplies and taking on more farmers since they got this new mystery customer trying to keep both customers happy  ,and a2 and synlait have been seeing this coming with a2 going in to production on their own shiny new plant.
Hopefully we will get more clarity on this new customer now & their expectations 

[Minimoke]

Apparently they have been struggling with supplies and taking on more farmers since they got this new mystery customer trying to keep both customers happy  ,and a2 and synlait have been seeing this coming with a2 going in to production on their own shiny new plant.
Hopefully we will get more clarity on this new customer now & their expectations 

Given the slowdown in dairy conversions I assume they are trying to nick Fonterror suppliers. If so - what extra margin are they having to pay these suppliers?

[winner (n)]

No worries. ....finances all sorted for now .....business as usual

A2 and Synlait still not getting on

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

[Minimoke]

No worries. ....finances all sorted for now .....business as usual

A2 and Synlait still not getting on

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

Holey Smoke
Bankers increasing debt facilty from $350m to $470m.

Where on earth are they going to find $130m by March next year. That can only mean they remain confident on extracting top dollar for Dairy Works and Talbot - which doesn't seem realistic.

Edit. I see Synlait has a market cap of $262m today. And banks  will chuck in $470m. Doesnt make sense to me.

And still no news on the international mystery customer.

[winner (n)]

Holey Smoke
Bankers increasing debt facilty from $350m to $470m.

Where on earth are they going to find $130m by March next year. That can only mean they remain confident on extracting top dollar for Dairy Works and Talbot - which doesn't seem realistic.

Edit. I see Synlait has a market cap of $262m today. And banks  will chuck in $470m. Doesnt make sense to me.

And still no news on the international mystery customer.

Guidance unchanged ...that's good ha ha

[Basil]

A strong response from Synlait.  Their balance sheet looks awfully stretched to me and don't forget its almost certain they get booted out of the NZX50 in the December rebalance.  Holding their shares or bonds is not for the faint hearted that's for sure!

[Minimoke]

Guidance unchanged ...that's good ha ha

Why do they even bother telling us that. Its one week out from results day. Off course the guidance is unchanged. What a bunch of muppets.

[Minimoke]

A strong response from Synlait.  Their balance sheet looks awfully stretched to me and don't forget its almost certain they get booted out of the NZX50 in the December rebalance.  Holding their shares or bonds is not for the faint hearted that's for sure!

You are going to have to help me here. All I see is a potential 35% increase in debt. With debt being twice market cap.

[Basil]

You are going to have to help me here. All I see is a potential 35% increase in debt. With debt being twice market cap.

No argument their balance sheet is VERY badly stretched.  All I am saying is that the way they responded to this morning's earlier announcement by ATM is the strongest response possible.  They have refuted the allegations levelled by ATM, confirmed no change to current guidance and no impact from any potential change to arrangements with ATM in terms of guidance in FY24 and announced new banking facilities.  In regard to the latter matter, I don't think anyone expected confirmation of banking facilities today, certainly I didn't and thought they were a real chance of receivership in the near future.

For the sake of complete clarity, for all the reasons we have discussed before I would not touch the bonds at any price and the shares would need to be well and truly in penny dreadful territory (well under 50 cents), for me to consider a small stake as a highly speculative punt.  I see both the shares and bonds as extremely risky and highly speculative, and I have no respect for the way management and the board have conducted themselves in recent years.  It would be a cheap, nasty and highly speculative very small punt if I ever bother with this company again, (highly unlikely).  Trust that makes my opinion clear for you mate   

[Minimoke]

No argument their balance sheet is VERY badly stretched.  All I am saying is that the way they responded to this morning's earlier announcement by ATM is the strongest response possible.  They have refuted the allegations levelled by ATM, confirmed no change to current guidance and no impact from any potential change to arrangements with ATM in terms of guidance in FY24 and announced new banking facilities.  In regard to the latter matter, I don't think anyone expected confirmation of banking facilities today, certainly I didn't and thought they were a real chance of receivership in the near future.

For the sake of complete clarity, for all the reasons we have discussed before I would not touch the bonds at any price and the shares would need to be well and truly in penny dreadful territory (well under 50 cents), for me to consider a small stake as a highly speculative punt.  I see both the shares and bonds as extremely risky and highly speculative, and I have no respect for the way management and the board have conducted themselves in recent years.  It would be a cheap, nasty and highly speculative very small punt if I ever bother with this company again, (highly unlikely).  Trust that makes my opinion clear for you mate   

Nothing new in today's announcement.
Banking covenants had to be ported by end of July. Since there was no announcement I assumed they had been,

Of course year end results wern't affected. The year ended 30 July and they are reporting next week. And there had been no market announcement on change to guidance. So no news there.

And even reading A2M's announcement its obvious YE24 isn't going to be impacted. So no news there.

The only surprise was the increase int eh debt facility - and that is totally unrelated to today's A2M announcement.

I guess they had to say something. And I'm not sure what else they could have said.

I can't think of any level that would entice me into the bonds or shares at the moment

[Minimoke]

Market reaction today. Down 9.4 % to $1.16

[winner (n)]

Market reaction today. Down 9.4 % to $1.16

Dismal volumes though