SML - Synlait

[Hectorplains]

Sudden departures seem to be a contagion amongst the Dairy leadership crews. Fonterra's chief financial officer, Neil Beaumont, has resigned after eight months in the job.  No explanation for his abrupt resignation.  Next stop for him... SML  ?

[BlackPeter]

Sudden departures seem to be a contagion amongst the Dairy leadership crews. Fonterra's chief financial officer, Neil Beaumont, has resigned after eight months in the job.  No explanation for his abrupt resignation.  Next stop for him... SML  ?

Ouch.

But yes, sudden departures of CFO's without a reasonable explanation make one wonder. Clearly - somebody who matters was unhappy.

[winner (n)]

Anybody know what the real purpose of Synlait having a Director of On-Farm Excellence?

I can understand a Director of Manufacturing but On-Farm Excellence.

[Hectorplains]

Anybody know what the real purpose of Synlait having a Director of On-Farm Excellence?

I can understand a Director of Manufacturing but On-Farm Excellence.

***Warning the following post contains graphic examples of ESG madness, that may be upsetting to some people***

I believe that the full title is: Director of On-Farm Excellence and Business Sustainability.  It probably takes two business cards to fit all that on it, which isn't very eco friendly.  The irony of that being, that this is the person responsible for kicking all their ESG goals. 

Every winter the highlight of this role comes at the SYNLAIT FARMER SUPPLIER CONFERENCES AND DAIRY HONOURS AWARDS.  These 'awards' include; "For a healthier World " and "Greenhouse Gas."

Possibly the job should be referred to by abbreviation: Director of DoOFE and BS.  Or maybe even shorter still:  Director of BS.


[/quote]

[Hectorplains]

Stocktalk doesn't sound positive about the Dairywork's sale.  Raising more equity versus selling Pokeno or Dunsandel.  That'd put Synlait firmly between the devil and the deep blue sea. 


Synlait Milk's Pokeno site visit for institutional investors this week revealed little but offered a few clues about what might happen next for the cash-strapped dairy processor.

The company's Dairyworks business is for sale. It said the process had been "challenging", according to Forsyth Barr analyst Matt Montgomerie, who attended the event.

"They used the term 'optimistic' in terms of pricing from prospective buyers," Montgomerie said.

"There was an evident change in language from only a few months ago when they sounded quite confident with respect to getting that asset sold," he told Stock Takes.

The company has four options if the sale does not go ahead: raise more equity; sell other assets such as Pokeno or its Dunsandel facility; seek alternative debt arrangements; or bring in a strategic investor.

"The first and second - an equity raise or an asset sale - seem more likely to me than the other two," Montgomerie said.

Market analysts have valued Dairyworks at around $150 million.

Synlait, at its site visit, talked of the opportunities for cream. "The investor day centred around advanced nutrition and alternatives to broaden the portfolio into adult nutrition, and within that trying to leverage their hybrid plant and dairy processing capacity at Pokeno with the idea of further diversifying the customer base and trying to take advantage of the potential halo effect from gaining [US company] Abbott as a customer," Montgomerie said.

"There was also quite a focus on food service and cream opportunities which Fonterra has been very successful at in China and in the broader Asian market," he said.

"Synlait is trying to repeat the Fonterra playbook - to try and get a slice of that pie, but it's early days."

The jewel in Synlait's crown is its Dunsandel plant - which has the licence to make Chinese-label infant formula for its biggest customer and 20 per cent owner, a2Milk.

The company was hit hard by the Covid-19 pandemic, which took it into the red, but its debt woes arose from its desire to lessen its reliance on a2 Milk.

Synlait has expanded aggressively in recent years through acquisitions and by building extensive manufacturing facilities at Pokeno, at the end of Auckland's Southern Motorway.

Late last month, the company announced that Simon Robertson had resigned as chairman and as an independent director. Independent director Paul McGilvary has been elected acting chairman until the position is permanently filled.

[Basil]

Can't help wondering if they try and go down the capital raise route whether there will be any appetite from investors and how those who subscribed to the $200m raise @ $5.10 three years ago would feel about being asked for more money at say $1, after all the promises made last time http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/SML/362927/334702.pdf
Wonder how many might ponder...is there any logic in throwing good money after bad ?
Pretty sure I recall the last time they passed the begging bowl around they emphatically said words to the effect that they are really going to laser focus on making money.  How many mindless new capital intensive ESG initiatives since then ?  What are they going to promise this time?
Will they continue to invest heaps chasing their other B Corp Objectives despite their dire financial position.? Answer,  Is the Pope a Catholic...
Mark my words...one day after Bright Dairy have completely wrecked this company and its balance sheet, they will take it over and steal it for a song.
Anyone investing in this expecting a fair offer from them in due course is very naïve and on a fool's errand.

[Hectorplains]

Can't help wondering if they try and go down the capital raise route whether there will be any appetite from investors and how those who subscribed to the $200m raise @ $5.10 three years ago would feel about being asked for more money at say $1, after all the promises made last time http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/SML/362927/334702.pdf
Wonder how many might ponder...is there any logic in throwing good money after bad ?

Their reticence to go to shareholders suggests they feel the same. 

I thought Dairyworks would be a reasonably easy sale.  That has been the narrative from  Synlait too.  It has been an ok investment (sadly it might be their best performing to date.) 

They've gone to radio silence on the mess that is Talbot.  You'd be hard pressed to find a bunny to stitch that up with at any price.   What happened to all those fighting words about legal action? 

I really can't see them selling Pokeno or Dunsandel which leaves a cash raise for early next year as the most likely bet.  Scary what kind of discount might be needed to get it over the line.  A 50% off sale, would be 1 for 1 at 70c to bring in the $150m needed.  That might avoid the need for furthers sweetener like bonus options. Would A2 or Bright participate or would they prefer the  smell of dilution in the morning? 

Needless to say, none of this is making Synlait look particularly investable. 

[winner (n)]

Even the cap raise at $3.00 in 2017 doesn't look too good now

Doubt directors/management will ever get a standing ovation at the ASM again

[Basil]

The proposed Dairyworks sale thing.  One possible explanation is the cost of capital targets are much higher now with long bonds where they are.  Cost of raising finance also very expensive.  This suggests in the current climate a much lower multiple than Synlait might have been hoping for.

I wouldn't expect the Muppets at Synlait to comprehend these rudimentary capital market changes and their effect on any possible indicative conditional offers that might be forthcoming.  They're probably in la la land expecting to get a really high earnings multiple like when raising debt was almost free.  I think the leadership all have their heads buried so deep in pink ESG nonsense they really haven't got a clue as to the current capital market conditions.

As you say HP, what heavily discounted price to get a capital raise done?...especially after the share price gets smacked around even more after next months NZX50 exit.

[Hectorplains]

The proposed Dairyworks sale thing.  One possible explanation is the cost of capital targets are much higher now with long bonds where they are.  Cost of raising finance also very expensive.  This suggests in the current climate a much lower multiple than Synlait might have been hoping for.

I wouldn't expect the Muppets at Synlait to comprehend these rudimentary capital market changes and their effect on any possible indicative conditional offers that might be forthcoming.  They're probably in la la land expecting to get a really high earnings multiple like when raising debt was almost free.  I think the leadership all have their heads buried so deep in pink ESG nonsense they really haven't got a clue as to the current capital market conditions.

As you say HP, what heavily discounted price to get a capital raise done?...especially after the share price gets smacked around even more after next months NZX50 exit.

Unilever is where Luxon cut his chops flogging underarm deodorant to the great unwashed.  The article articulates the difficulty of re-calibrating a company culture where ESG has run amok...

[Teitei]

Two things to bear in mind (& repeat) when evaluating Synlait :

1.  Almost certain to get kicked out of NZ50 in Dec. So expect sp to continue to be under pressure until that eventuates (or not).

2.  The Chinese investment & ATM investment in Synlait (or Silver Fern Farms) has a different time horizon and definitely a very different strategic focus than the other 40% minority shareholders. Profit comes second imo and it will suit both imo to go through the motions of the asset sales before unleashing a heavily discounted rights issue to increase their shareholdings.

The complication being worked on imo is how to increase their shareholdings within the takeover provisions at the cheapest price possible.

Article well worthwhile reading for perspective :

https://www.stuff.co.nz/business/farming/agribusiness/72181202/silver-fern-farms-looked-at-synlait-milk-before-choosing-bright-food

[Hectorplains]

Two things to bear in mind (& repeat) when evaluating Synlait :

1.  Almost certain to get kicked out of NZ50 in Dec. So expect sp to continue to be under pressure until that eventuates (or not).

2.  The Chinese investment & ATM investment in Synlait (or Silver Fern Farms) has a different time horizon and definitely a very different strategic focus than the other 40% minority shareholders. Profit comes second imo and it will suit both imo to go through the motions of the asset sales before unleashing a heavily discounted rights issue to increase their shareholdings.

The complication being worked on imo is how to increase their shareholdings within the takeover provisions at the cheapest price possible.

Article well worthwhile reading for perspective :

https://www.stuff.co.nz/business/farming/agribusiness/72181202/silver-fern-farms-looked-at-synlait-milk-before-choosing-bright-food

AFR Street Talk article tonight

#Bids for Dairyworks were due last week.

#Private equity funds:  Adamantem Capital, Allegro Funds, Anchorage Capital Partners and CPE Capital put in offers. However,  indicative bids failed to meet the vendor's price expectations.

#Bloomberg sources reckon the asset is likely to be acquired by one of the smaller strategic buyers, with the likes of Bega understood to have swerved the auction.

#New Zealand dairy giant Fonterra is a key supplier to Dairyworks which makes $25 million to $30 million EBITDA. Local supermarkets Countdown (Woolworths NZ) and Foodstuffs are key customers. Dairyworks has also entered the Australian market, imported from NZ via Woolworths. The business is understood to be in discussions with Bega for additional contracts.

#Jarden was brought on earlier this year to advise on the sale of Synlait's consumer foods businesses Dairyworks and Talbot Forest Cheese. At the time, Dairyworks was expected to fetch up to $130 million. Sources told Street Talk that if Synlait can't sell Dairyworks – considered a strong business – the company may have to raise capital.

Looks for all money like a CR incoming now...

[Basil]

Looks for all money like a CR incoming now...

It's going to be to late to save them from the humiliation of getting booted out of the NZX50 next month as the measurement process is average free float market cap in the preceding 6 months.  Synlait board having unrealistic price expectations, gosh, there's a big surprise lol

[Minimoke]

3 bids. Between them I'd think they would have a reasonable idea of fair market value of Dairyworks. Seems Synlait have an overinflated view of the value. Probably figure the B Corp has to be worth at least $20m.

So, they probably had an idea they could collect $130m. For the sake of 10% I would have thought a deal could have been done at $117. So clearly bids were less than this.

So now lets say they can get $100m. That's a $30m shortfall


Last time they tried this they tried for $200m by putting out $180m at $5.10. SP today is $1.38. Gee - that wasn't such a great deal for punters!

[BlackPeter]

3 bids. Between them I'd think they would have a reasonable idea of fair market value of Dairyworks. Seems Synlait have an overinflated view of the value. Probably figure the B Corp has to be worth at least $20m.

So, they probably had an idea they could collect $130m. For the sake of 10% I would have thought a deal could have been done at $117. So clearly bids were less than this.

So now lets say they can get $100m. That's a $30m shortfall


Last time they tried this they tried for $200m by putting out $180m at $5.10. SP today is $1.38. Gee - that wasn't such a great deal for punters!

You need to look at it from a different perspective. Hey - this used to be a $10 share ... and if you can buy into it now at say 1 new shares for 80 cents each for every two shares you hold, than, clearly -  this must be the deal of the century, isn't it?

... and would give them something like $80m (well, say $70m after fees and underwriter costs) to cover for the shortfall and the next (similarly sized) screw up.

Discl:
Irony off;
Don't hold ...

Ah yes, and without irony - I guess there is in my view a remote chance that they might rise again, if they find another customer like A2 used to be. Just not sure I like the odds ;