SML - Synlait

[Minimoke]

So why is it a positive for Fonterra but a negative for SML?

Where have I said its a positive for Fonterra.

Maybe Fonterra can actually afford to pay farmers more without further stretching their balance sheet.

[Hectorplains]

And you left out inventories of $250m for some reason. Are inventories not working capital?

High pay out to farmers is due to higher milk powder prices. It's good for both farmers and Synlait

[Minimoke]

And you left out inventories of $250m for some reason. Are inventories not working capital?

. Inventory is worth nothing until it gets off the shelf and is turned into cash.A large amount of that inventory is work in progress - and it appears SML have quality issues so may not even get to a warehouse shelf as a finished good

But since you raise it. Total liabilities of 895m. Total assets of 1685m. Excess assets of 790m. Take out $177m for Dairyowrks and talbot that no one seems to want to buy we have $613m. This figure gives us a sense of how much they can realistically expect for the stainless steel they otherwise have put into the books at 993m

Who would pay $613m for residual assets that create a los of 4$m. And even in a good year a miserly profit of $38m. Youde be better putting your cash in the bank on term deposit and save yourself the grief of running a B corp enterprise.

But lets dwell on liabilities for a bit longer. Theres 281m in payables which can be offsett by onnly $83m in recievebles. I'd be very worried if I was a creditor too.

Theres $244m in secured borrowing. Cash on hand to pay that back is only $9m

But this is all moot. The market currently values SML at $209.7m

[Teitei]

. Inventory is worth nothing until it gets off the shelf and is turned into cash.A large amount of that inventory is work in progress - and it appears SML have quality issues so may not even get to a warehouse shelf as a finished good

But since you raise it. Total liabilities of 895m. Total assets of 1685m. Excess assets of 790m. Take out $177m for Dairyowrks and talbot that no one seems to want to buy we have $613m. This figure gives us a sense of how much they can realistically expect for the stainless steel they otherwise have put into the books at 993m

Who would pay $613m for residual assets that create a los of 4$m. And even in a good year a miserly profit of $38m. Youde be better putting your cash in the bank on term deposit and save yourself the grief of running a B corp enterprise.

But lets dwell on liabilities for a bit longer. Theres 281m in payables which can be offsett by onnly $83m in recievebles. I'd be very worried if I was a creditor too.

Theres $244m in secured borrowing. Cash on hand to pay that back is only $9m

But this is all moot. The market currently values SML at $209.7m

Interesting!

[Basil]

I have the unsecured subordinated bonds and am perfectly relaxed.

There's $800m (soon to be $1 billion?) of shareholders' funds ahead of the bonds before bondholders lose money.

And ATM will lose all of its China IF business if SML goes belly up.  ATM shareholders should be very very worried?

Good luck mate. I wouldn't be a buyer even at 50 cents on the dollar.

[Teitei]

Good luck mate. I wouldn't be a buyer even at 50 cents on the dollar.

Thanks Beagle.

I do not rely on luck when making investments so here's to me making the right assessment!

Happy though if Lady Luck decides to smile on me too!

Meanwhile, I do agree with most of what is posted about SML's management.

[Minimoke]

I have the unsecured subordinated bonds and am perfectly relaxed.

There's $800m (soon to be $1 billion?) of shareholders' funds ahead of the bonds before bondholders lose money.

And ATM will lose all of its China IF business if SML goes belly up.  ATM shareholders should be very very worried?

I'm not sure where you get your $800m plus more to come in shareholder funds figure from.

From the last annual report:
Cash on hand = $9.3m
Accounts receivable = $83m

So lets call readily available cash $92m

And lets be generous and say all that inventory of $250m wil shortly turn to cash. So we now have $342m as our best case scenario to give back to bond holders.

However. Trade payables are $281m. So that leaves us a bit of a surplus of $61m

And we know banks want at the very least $130m by the end of march. So that puts me at  -$69m.

Ok. Its the beginning of the week. Lets start it off positively and say Synlait will get the whole $178m they have in their accounts as assets held for sale. That now puts us back in positive territory of $109m

So, if Synlait buck their long term trend of negative numbers and all four winds are actually in their favour at the right time and at the right value best case scenario is them having $109m

From this $109m they owe $180m to bond holders. So short $71m

And lets not forget they will still owe the secured banks $113m

So we are now at all up debt of $184m. And no dairy works, cash or inventory. This is a long way short of yoru $800m and more.

So. How close can we get to $800m.

Well. They do have  remaining shiny stainless steel assets in the books at $993m. This was $253m down on the prior year. So to keep things simple, lets say they take off another $250m off book value. Leaving $743m

If we apply this $743m to the remaining $184 debt the grand total figure best case scenario is potential shareholder funds of $559m.

I'm sorry. But no matter how I cut and dice the numbers every which way they turn out to be ugly.

Which is why I can't see why a capital raise is an attractive option for anyone.

Synlait should do like AirNZ ought to have done. Pull the plug, call in the receivers and flog off the assets so a new owner can start afresh with a clean slate.

[BlackPeter]

They will retain their % share of the company. But a company that becomes worth less and less as time goes on.

As I recall they originally bought in at $2.20 a share. Then increased there shareholding to at $3.275.in 2016. Then in 2018 paid $10.90 a share. In 2020 they participated in the cap raise at $4.95.

A2 now hold 19.9%. 

Synlait keep raising money which allows the executive team to continue working on their ESG vanity projects while failing to control debt or return a even semi meaningful profit.

So at what point do A2M stop throwing good moment after bad.

Not sure ATM is even a meaningful player in this game. Essential is the City of Shanghai (aka Bright Dairy) with their more than 40% stake ... and Chinas ability to influence ATM's actions via a quite significant Chinese stake in ATM. ATM itself is just a puppet.

The real question is - what is the most effective way for China to get their hands on this for them material part of the foodchain for their people. I don't think that anybody of the power players worries about whether the outcome will be based on Synlaits or ATM's success - otherwise they wouldn't perform this stupid wrestling match between the two companies on the public stage. Remember - it all started with ATM crashing Synlaits shareprice by undermining their market postion as supplier. Clearly not good for ATM, i.e. they are just the puppets of somebody who will benefit.

The only thing which matters for the puppet masters will be whether China manages to get full control of this part of their food supply, no matter how Synlait or ATM get out of this spectacle.

[Minimoke]

Not sure ATM is even a meaningful player in this game. Essential is the City of Shanghai (aka Bright Dairy) with their more than 40% stake ... and Chinas ability to influence ATM's actions via a quite significant Chinese stake in ATM. ATM itself is just a puppet.

The real question is - what is the most effective way for China to get their hands on this for them material part of the foodchain for their people. I don't think that anybody of the power players worries about whether the outcome will be based on Synlaits or ATM's success - otherwise they wouldn't perform this stupid wrestling match between the two companies on the public stage. Remember - it all started with ATM crashing Synlaits shareprice by undermining their market postion as supplier. Clearly not good for ATM, i.e. they are just the puppets of somebody who will benefit.

The only thing which matters for the puppet masters will be whether China manages to get full control of this part of their food supply, no matter how Synlait or ATM get out of this spectacle.

i have no doubt bright dairy are the puppet masters. A2 has a blocking stake but no real influence  - otherwise they would have been on the board.

No doubt there is some play between Bright (Synlait) and China State Farms (A2) (With Yili watching closely form the sidelines)

[Minimoke]

Some brave person closed the day out at $0.81

[Basil]

Looks extremely ugly on the chart.  Where's the bottom ?  Zero ?

[Minimoke]

Looks extremely ugly on the chart.  Where's the bottom ?  Zero ?

Do we need reminding its another month gone by and no Dairy works sale (announced intention to sell 2 June 2023) and a month closer to the banks deadline. I think it is fair to say the clock on the time bomb in now ticking. Tomorrow they will know their half year performance and so will their bankers. They have until 28 March (now less than 2 months) to find at least $130m and they essentially have no cash to do so.

So the obvious question is "What is the shortest possible time to do a capital raise?".

[snapiti]

Do we need reminding its another month gone by and no Dairy works sale (announced intention to sell 2 June 2023) and a month closer to the banks deadline. I think it is fair to say the clock on the time bomb in now ticking. Tomorrow they will know their half year performance and so will their bankers. They have until 28 March (now less than 2 months) to find at least $130m and they essentially have no cash to do so.

So the obvious question is "What is the shortest possible time to do a capital raise?".

IMO the shortest time to do a capital raise is not overly relevant, of more relevance is at what price? companies performance is not going to inspire, then you have to deal with the reason for a cap raise, which is as simple as swapping new SHER funds to satisfy the bankers who want their money out of this risky beast.
I suspect the 2 major shers are probably going to set the price of any cap raise as the brokers will want to announce that both are on board the cap raise when they do the promotion. 

[Minimoke]

IMO the shortest time to do a capital raise is not overly relevant, of more relevance is at what price? companies performance is not going to inspire, then you have to deal with the reason for a cap raise, which is as simple as swapping new SHER funds to satisfy the bankers who want their money out of this risky beast.
I suspect the 2 major shers are probably going to set the price of any cap raise as the brokers will want to announce that both are on board the cap raise when they do the promotion. 

I'm not so sure price is relevant.

I think it safe to assume Bright and A2 will take up 60 % forcing minority shareholders to participate to ensure their holdings arent diluted to nothing.

So the only question is how much are Bright and A2 prepared to chuck in the pot.

[Sideshow Bob]

Big box of popcorn required here.

Lots of water to go under the bridge yet, time pressures starting and games to be played out.

The good old slow motion trainwreck.....