SML - Synlait

[Minimoke]

Ahh, well - net losses and net debts up. Things going up is good, isn't it?

But apart from that - nobody seems to appreciate the amazing design of the reports and presentations. All in pretty pink colour (so appropriate) - and did anybody notice the beautifully shaped picture of a death spiral made from pouring milk they spread all over their presentations? I think the photographer deserves credits!

Rarely seen more telling illustrations to a financial report ....

Be positive, people ... I am sure this spectacle will keep us entertained for some time to go.

Call me a sensitive wee snowflake. But seems to me the opening line in the Chair and CEO address in the half year review is so far out of touch. This was an issue I raised way back in Leons first opening address at the AGM.

But all good on the walking the B Corp walk - but  personally, I'd like to see a bit more sensitivity to the Chinese owners who are on the cusp of bailing SML out.

[Breezy]

This train wreck nor the angst between SML and A2M seems to be affecting the increasing A2 sp, perhaps the market is looking through to the eventual decoupling from this derelict train or perhaps a total T/O in conjunction with Bright.

[Basil]

So much baggage on that train Breezy, I reckon decouple all the carriages carrying endless ESG nonsense, remove the entire (mis)management structure, sell Dairy foods to the highest bidder, Bright Dairy gets Pokeno and ATM gets Dunsandel, banks get their money back and minority shareholders and all bondholders get hung out to dry.

[winner (n)]

LOL here it is http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/SML/428830/415920.pdfYeap agreed.  Don't think I can recall such a spectacular train wreck that's played out in such super slow motion for many years.

Doesn't seem that long ago you sold your SML for more than 10 bucks .....after I told you cash flows were indicating this was a dog

[Basil]

Doesn't seem that long ago you sold your SML for more than 10 bucks .....after I told you cash flows were indicating this was a dog

Time fly's as you get older.  Was quite a few years ago mate but no question about it, I am forever in your debt.  That's the real value of forums.  The ability to share ideas and point out things that might otherwise slip under another one's radar.   Think my average sale price was about $11. 

[Minimoke]

Well. I can't figure out the market. Trades at $0.72

[BlackPeter]

Doesn't seem that long ago you sold your SML for more than 10 bucks .....after I told you cash flows were indicating this was a dog

Yes, good point, though - to be honest, I think cash flows just have been a consequence of them ignoring for many years some of the basic principles of doing business:

1) Do not put all eggs into one basket (like ATM, China IF)!
2) While diversifying your business is good (see (1), it is crucial that the options you add increase your earnings rather than your losses.
3) Understand your companies abilities as well as the abilities of your opponents (from Zhu's "the art of  war") - relying only on one major customer who does not even understand their own sales channel is not clever!
4) Never hire CEO's who consider it as their main contribution to change the companies logo or colour schema
5) Due diligence is not a 4 letter word! Never ever invest large amounts of money without a sound business case (like for buying Talbot cheese)?) or without understanding of the legal framework you invest in (like Pokeno). 
6) If you ignored points 1 to 5 ... as a minimum - DO NOT BITE THE HAND WHICH IS STILL FEEDING YOU!

I probably could go on with that for some more time, but hey - Synlait clearly turned out to be an amazing example for how not to do business ... I expect that they will compete in years to come with Ford's Edsel for the largest business flop in history, and no matter the numbers, Synlait is will undoubtedly be the  pinkest failure in business history!

[Minimoke]

Delving into the notes, I am wondering why Bright is the potential White Knight.

According to segment revenue, 6% comes from china (down from 15% last year). I presume this is Bright.
55% comes from New Zealand. I presume this is mainly A2 and Foodstuffs.
Then you have 24% rest of Asia (what is Brights interest here?), 8% Middle east / Africa, 5% Australia and 2% rest of world.

We should remember that one of the reasons cited for building Pokeno, and subsequently buying the Blending / Canning plant was to de-risk single site manufacture for Bright. They also invested for Munchkin (and that didn't turn out so well) as well as Chinese New Hope Nutritional

(I haven't heard how the a2 herd conversations are going up north - so not sure how much A2 is being processed out of Pokeno / auckland.

[BlackPeter]

Delving into the notes, I am wondering why Bright is the potential White Knight.

According to segment revenue, 6% comes from china (down from 15% last year). I presume this is Bright.
55% comes from New Zealand. I presume this is mainly A2 and Foodstuffs.
Then you have 24% rest of Asia (what is Brights interest here?), 8% Middle east / Africa, 5% Australia and 2% rest of world.

We should remember that one of the reasons cited for building Pokeno, and subsequently buying the Blending / Canning plant was to de-risk single site manufacture for Bright. They also invested for Munchkin (and that didn't turn out so well) as well as Chinese New Hope Nutritional

(I haven't heard how the a2 herd conversations are going up north - so not sure how much A2 is being processed out of Pokeno / auckland.

Just a couple of observations:

You will find that they create a lot of revenue without making a lot of money. Bulk milk powder falls into this category, and their interferon business used to be highly cyclical. I think it only was really profitable before Synlait started producing it. Which means - source of revenue is not a very good criterium to assess how they might improve their bottom line.

Ah yes, and their profitable China business was all going through ATM (and so potentially all counted as NZ business) in form of these aptly called Platinum tins. Not sure, what else they sold to China, but the 6% revenue you found won't have a lot to do with their only Cashcow (A2 Platinum, which is sold by - you might guess it, ATM). Not sure, whether they (Synlait) sell at all to Bright Dairy, but if yes, it will be probably boring bulk milk powder - lots of volume and meagre earnings.

[Minimoke]

Just a couple of observations:

You will find that they create a lot of revenue without making a lot of money. Bulk milk powder falls into this category, and their interferon business used to be highly cyclical. I think it only was really profitable before Synlait started producing it. Which means - source of revenue is not a very good criterium to assess how they might improve their bottom line.

Ah yes, and their profitable China business was all going through ATM (and so potentially all counted as NZ business) in form of these aptly called Platinum tins. Not sure, what else they sold to China, but the 6% revenue you found won't have a lot to do with their only Cashcow (A2 Platinum, which is sold by - you might guess it, ATM). Not sure, whether they (Synlait) sell at all to Bright Dairy, but if yes, it will be probably boring bulk milk powder - lots of volume and meagre earnings.

I was just looking at the Gross revenue lines. Really doesn't seem to be much gross revenue that could be attributed to Bright.

And if we assume most revenue comes from A2, then I find it interesting A2 haven't been included in the recapitalisation plans. Which suggests to me the relationship between the two must be extraordinarily strained.

[Basil]

I think this company and its whole B Corp nonsense will make for a fabulous case study at Investment analysis courses at universities around N.Z.  Professors must be rubbing their hands with glee as to what a marvelous debate the whole B Corp concept of placing people and planet on the same level as shareholders provides.

Final exam question.  Was Gordon Gekko in the famous Movie Wall Street right when he said "Greed is good, Greed is right, greed cuts through and clarifies..."....or is there real merit in this B Corp process of elevating people and the planet to the same level as shareholders?  Debate both sides with a good recent case study example that illustrates your point.  Oh my gosh...I could write pages and pages...might get an A+ pass this time lol

[Minimoke]

I think this company and its whole B Corp nonsense will make for a fabulous case study at Investment analysis courses at universities around N.Z.  Professors must be rubbing their hands with glee as to what a marvelous debate the whole B Corp concept of placing people and planet on the same level as shareholders provides.

Final exam question.  Was Gordon Gekko in the famous Movie Wall Street right when he said "Greed is good, Greed is right, greed cuts through and clarifies..."....or is there real merit in this B Corp process of elevating people and the planet to the same level as shareholders?  Debate both sides with a good recent case study example that illustrates your point.  Oh my gosh...I could write pages and pages...might get an A+ pass this time lol

A case in point. In today's announcement they mention the increased costs of running their ESG boilers. Shoulda stuck with coal!

[BlackPeter]

I was just looking at the Gross revenue lines. Really doesn't seem to be much gross revenue that could be attributed to Bright.

And if we assume most revenue comes from A2, then I find it interesting A2 haven't been included in the recapitalisation plans. Which suggests to me the relationship between the two must be extraordinarily strained.

I didn't say most of their revenue comes from A2, but I did some years ago a more in depth analysis and found that most of their earnings came from A2. Had at that stage as well a discussion with one of the previous CFO's (Nigel Greenwood) ... and he didn't disagree with my findings ;Given that since than none of the other products they tried really took off (like Munchkin, Interferon, grassfed, night milk, unknown white knight, plant based, ....), I assume this is still the case, which is bad for anybody who wants to see them survive. Talk about being a captive of your sole (and hostile) customer.

So yes, ATM pays their bills - and they are certainly not in a trustful and friendly client - supplier relationship. Agree, it doesn't look good that ATM isn't even mentioned in the recent announcement (as major shareholder and customer) - but then this just confirms what we already knew.

Two companies, both basically controlled by Chinese stakeholders - and washing their dirty laundry out in the open for anybody to see.

Quite unusual for Chinese to act that way in public ... unless they want everybody to know, that they want to kill each other.

[Minimoke]

I didn't say most of their revenue comes from A2, but I did some years ago a more in depth analysis and found that most of their earnings came from A2. Had at that stage as well a discussion with one of the previous CFO's (Nigel Greenwood) ... and he didn't disagree with my findings ;Given that since than none of the other products they tried really took off (like Munchkin, Interferon, grassfed, night milk, unknown white knight, plant based, ....), I assume this is still the case, which is bad for anybody who wants to see them survive. Talk about being a captive of your sole (and hostile) customer.

So yes, ATM pays their bills - and they are certainly not in a trustful and friendly client - supplier relationship. Agree, it doesn't look good that ATM isn't even mentioned in the recent announcement (as major shareholder and customer) - but then this just confirms what we already knew.

Two companies, both basically controlled by Chinese stakeholders - and washing their dirty laundry out in the open for anybody to see.

Quite unusual for Chinese to act that way in public ... unless they want everybody to know, that they want to kill each other.

i think then we can assume A2 will do everything possible to protect their interests. Which does not mean looking after synlait.

[Buzz]

i think then we can assume A2 will do everything possible to protect their interests. Which does not mean looking after synlait.

Seriously? A2 would be destroyed if Synlait folded. Despite not being mentioned in the announcements, I think it's safe to say A2 will be doing everything they can to "look after Synlait", in whatever form that takes.