SML - Synlait

[Buzz]

I'm wondering what makes you think it is investable.

The earlier capital raise didn't get Synait where it wanted to be.

The bond issue didn't get where synlait where it wanted to be

Building Pokeno didn't get where synlait where it wanted to be

Buying Talabot cheese didn't get where synlait where it wanted to be

Introducing recyclable milk bottles didn't get where synlait where it wanted to be

Staying tight with key customer didn't get where synlait where it wanted to be.

Staying tight with Farmers didn't get where synlait where it wanted to be

Lactoferin didn't get where synlait where it wanted to be

Munchkin didn't get where synlait where it wanted to be

Selling dairyworks didn't get where synlait where it wanted to be

Losses are increasing.

Zero sign of it ever paying a dividend

Mired in debt.

Just what is the bright light at the end of the tunnel I am missing?

Nice summary, but you're so invested in SML failing outright that you cannot conceive any outcome that they can continue and will surely miss the opportunity to invest if they do. You're so afraid of Synlait getting through this, you lack any objectivity that they might, and the opportunity for investors if they do.

[Gerald]

You are assuming that the investment is permanently impaired while as they have a different perspective and investment horizon.

Bit like saying Yili managed to lose 60% of their money in Westland after paying the huge 100%+ premium to the then sp and independent valuation to take control of the company.

Many people also forget that in addition to the huge premium for the loss-making, heavily indebted Westland, they also committed to a huge hike in the cost base of the business by at least matching Fonterra's milk price. The status quo was staying afloat by paying significantly less. This has been extended with a commitment to pay a ~10c premium.

Some really dodgy maths on this thread, but if you look at the incentives of all the major parties no one wants to see a bankruptcy. There would seem to be no read into the $130m from bright that isn't incrementally positive (atleast for the bondholders).

Disc: Small long position in the VERY unpopular bonds.

[Minimoke]

Nice summary, but you're so invested in SML failing outright that you cannot conceive any outcome that they can continue and will surely miss the opportunity to invest if they do. You're so afraid of Synlait getting through this, you lack any objectivity that they might, and the opportunity for investors if they do.

I suspect there is no forum member anywhere that has been "invested" in synlait longer than I have. Possibly because I live nearby and I try to invest in local companies if I think there is a value proposition there. I can trace my interest back to when Dunsandel was bare land and rumours were circulating that someone was going to build an adventure park there. I have followed them pretty closely ever since.

I have bought and sold shares in Synlait over the years.

I remember very well attending Leons first AGM. Lets say no more on that!

I remain invested in milk as I still hold A2 shares and I have Fonterra Anchor branded A2 in my fridge.

If you read my posts, you will see I think it pretty clear there is no future for Synlait. That does not mean I don't think there remains a future for Dunsandel, and to a lesser extent Pokeno.

So I ask again - just what is the the light at the end of the tunnel that makes Synlait investable? Because its worth noting that Westland (that I have an interest in due to my interest in the coast) wasn't investible when they were going broke and today you can't invest in them. So I don't see how that can be used as an exemplar.

I look at the current trading in Synlait and I wonder if anyone understands what share dilution means.

[Minimoke]

Many people also forget that in addition to the huge premium for the loss-making, heavily indebted Westland, they also committed to a huge hike in the cost base of the business by at least matching Fonterra's milk price. The status quo was staying afloat by paying significantly less. This has been extended with a commitment to pay a ~10c premium.

Some really dodgy maths on this thread, but if you look at the incentives of all the major parties no one wants to see a bankruptcy. There would seem to be no read into the $130m from bright that isn't incrementally positive (at least for the bondholders).

Disc: Small long position in the VERY unpopular bonds.

NZ Govt dodged a bullet when the Chinese bought out Westland. It is arguably the largest employer on the coast.

If I could have I would have put money into them. In the same way I put money into AirNZ when it was going bust. I couldn't see how a government would let it fail.

You could hear the sighs of relief from parliament from here when the Westland offer came through.

But even today we can't invest in it.

[Teitei]

NZ Govt dodged a bullet when the Chinese bought out Westland. It is arguably the largest employer on the coast.

If I could have I would have put money into them. In the same way I put money into AirNZ when it was going bust. I couldn't see how a government would let it fail.

You could hear the sighs of relief from parliament from here when the Westland offer came through.

But even today we can't invest in it.

And why would the Chinese accord you the privilege of investing in Westland when there was bugger all support to rescue the co-op when it was in trouble?

To those who take the risks, the rewards surely.  Likewise, the losses obviously.

[Minimoke]

And why would the Chinese accord you the privilege of investing in Westland when there was bugger all support to rescue the co-op when it was in trouble?

To those who take the risks, the rewards surely.  Likewise, the losses obviously.

Westland was a co-op. It was for the co-op member to get themselves out of trouble. They are the ones that capitalised their profits and didnt expect to socialise their losses.

They had choices. They could either continue with the co-op model (so we were excluded from investing), they could have sought a cornerstone  investor (so we were excluded from investing), they could have merged, with say Fonterra (So we were excluded from investing - and Synlait wasn't in a position then to help) or they could have sold (so we were excluded from investing).

Westland basically needed a lot more capital - and they had the support of Farmers. Synlait Farmers are threatening to leave.

And what did the chinese do when they took over Westland. Basically they improved quality (it appears there are quality issues with A2 and who knows who else). And they cut waste and they cut costs - something Synlait management are totally inept at doing. There was also a coincidental increase in commodity prices.

With this strategy Westland managed to turn a loss in 2022 into a profit in 2023 and a larger profit in 2024.  Synlait on the other hand made a loss in 2023 after making a profit in 2022 and will make a larger loss in 2024.

Westland also focussed on high value products. What did synlait do  - set up a liquid milk processing plant for bargain basement "pams" milk at your local supermarket. (Fonterra gets the high value A2 liquid milk)

Milk is milk. That Westland can make profits and Synlait can't isn't a reflection on milk. Its a reflection on poor management. Unless you change management (and not just debt levels) then I don't think anything will change.

So, on what basis could someone be tempted to take a risk on Synlait. No one seems keen on posting just what that encouraging light actually is.

[Teitei]

Westland was a co-op. It was for the co-op member to get themselves out of trouble. They are the ones that capitalised their profits and didnt expect to socialise their losses.

They had choices. They could either continue with the co-op model (so we were excluded from investing), they could have sought a cornerstone  investor (so we were excluded from investing), they could have merged, with say Fonterra (So we were excluded from investing - and Synlait wasn't in a position then to help) or they could have sold (so we were excluded from investing).

Westland basically needed a lot more capital - and they had the support of Farmers. Synlait Farmers are threatening to leave.

And what did the chinese do when they took over Westland. Basically they improved quality (it appears there are quality issues with A2 and who knows who else). And they cut waste and they cut costs - something Synlait management are totally inept at doing. There was also a coincidental increase in commodity prices.

With this strategy Westland managed to turn a loss in 2022 into a profit in 2023 and a larger profit in 2024.  Synlait on the other hand made a loss in 2023 after making a profit in 2022 and will make a larger loss in 2024.

Westland also focussed on high value products. What did synlait do  - set up a liquid milk processing plant for bargain basement "pams" milk at your local supermarket. (Fonterra gets the high value A2 liquid milk)

Milk is milk. That Westland can make profits and Synlait can't isn't a reflection on milk. Its a reflection on poor management. Unless you change management (and not just debt levels) then I don't think anything will change.

So, on what basis could someone be tempted to take a risk on Synlait. No one seems keen on posting just what that encouraging light actually is.

The encouraging light is precisely what happened with Westland - a recapitalisation supported by Bright and the opening of distribution channels and markets via Bright, just as was the case with Westland/Yili.

But as has been mentioned enough times before, wait for the CR to come before making any investment decision.

Meanwhile, you have yet to comment on why new directors would join a company heading into (in your opinion) receivership?  Are they really that dumb and foolhardy to risk reputation and incur personal liability?

[Left Field]

Mini-M and Balance-Teitei, I've been enjoying reading your SML posts.

Good discussions  of differing viewpoints ....thank you!

[Minimoke]

The encouraging light is precisely what happened with Westland - a recapitalisation supported by Bright and the opening of distribution channels and markets via Bright, just as was the case with Westland/Yili.

But as has been mentioned enough times before, wait for the CR to come before making any investment decision.

Meanwhile, you have yet to comment on why new directors would join a company heading into (in your opinion) receivership?  Are they really that dumb and foolhardy to risk reputation and incur personal liability?

How can Westland be a positive light - its a dark stain for investors. Farmers were shareholders. Now they arent.Profits go to Yili. Farmers get paid.

And if people insist on using Westland as the exemplar it only serves to confirm that Synlait is univestible. Current shareholders will not be future shareholders.

Any smart buy out (as I have said before) will look after the banks so there is no challenge from them. It will also look after farmers by making sure they are paid. Bond holders know they are unsecured so nothing is owed to them and nothing is gained by paying them off because they don't have voting rights.  And if bond holders aren't paid shareholders get  zip.

[Teitei]

How can Westland be a positive light - its a dark stain for investors. Farmers were shareholders. Now they arent.Profits go to Yili. Farmers get paid.

And if people insist on using Westland as the exemplar it only serves to confirm that Synlait is univestible. Current shareholders will not be future shareholders.

Any smart buy out (as I have said before) will look after the banks so there is no challenge from them. It will also look after farmers by making sure they are paid. Bond holders know they are unsecured so nothing is owed to them and nothing is gained by paying them off because they don't have voting rights.  And if bond holders aren't paid shareholders get  zip.

Westland's shareholders were paid very handsomely for their worthless shares (according to many) and they go back into what they are good at - farming. What is wrong with that?

But back to the new directors risking their reputations and incurring personal liabilities to 'screw everyone else." How so?

Buzz rightly highlights just how invested & obsessed you are in SML falling over that you cannot perceive of any outcome other than receivership for SML. The new directors and Bright obviously have a different view from you and they are the ones at the coldface.

[Minimoke]

Back to the new directors risking their reputations and incurring personal liabilities to 'screw everyone else."

I don't know where that notion has come from but it certainly isn't me.

But since you raise it lets look at the board from the last Annual report
Simon Robertson Independent Chair. Gone. Resigned with Immediate effect
Ryan Reubing Gone Resigned with immediate effect
John Penno. Gone Resigned with immediate effect
Ruth Richardson Gone (retired)

That's 5 out of 8 gone.

Leaving long termers Independents Paul Mcgilvary and Paul Washer. I'm quite sure they have read the fine print in their Directors insurance

Buzz rightly highlights just how invested & obsessed you are in SML falling over that you cannot perceive of any outcome other than receivership for SML. The new directors and Bright obviously have a different view from you and they are the ones at the coldface.

I' have explained  my "investment" and I am not obsessed with SML falling over. I am just stating the facts as I see them based on the current evidence. I'm still waiting for reason from forum members on what convinces them there are other possible out comes. The westalnd argument has obviously been torpedoed.

We don't know what the new direcotres and Brights views are. They clearly have responsibilities to shareholders. But that does not mean they arent considering receivership and pondering how to extract as much value as they can for creditors. Because if creditors don't get paid shareholders get nothing.

It seems timely to remind oursleves of wha tteh directors said in the last 1/2 year Reports
"Although the Directors have concluded that it is appropriate to prepare these interim financial statements on a going concern basis, they have concluded that there are material uncertainties which may cast significant doubt over the Group's ability to continue trading as a going concern"

and

"At 31 January 2024, the Group's current liabilities exceed current assets by $204.9m, driven by the classification of $514.1m of the Group's total net debt of $559m as repayable within 12 months of balance date" Since then there has been a further down grade.

[Minimoke]

Westland's shareholders were paid very handsomely for their worthless shares (according to many) and they go back into what they are good at - farming. What is wrong with that?

Absolutely nothing. Good on them. Saved the tax payer from bailing them out.

But its a completely different ownership model to Synlait so you are trying to compare apples with sausages to support your position. But fact remains - they are no longer owners.

[Minimoke]

Lets face it. What do I know. Just some random on an internet forum. Perhaps we should rely on the greater wisdom of the Mr Market to inform us.

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[Teitei]

I don't know where that notion has come from but it certainly isn't me.

But since you raise it lets look at the board from the last Annual report
Simon Robertson Independent Chair. Gone. Resigned with Immediate effect
Ryan Reubing Gone Resigned with immediate effect
John Penno. Gone Resigned with immediate effect
Ruth Richardson Gone (retired)

That's 5 out of 8 gone.

Leaving long termers Independents Paul Mcgilvary and Paul Washer. I'm quite sure they have read the fine print in their Directors insurance

What has that got to do with the new directors taking on the responsibility of turning around SML?

The retiring and fired directors surely deserved their 'fate' but why would new directors risk reputations and incur personal liabilities to take up their positions?

[Minimoke]

What has that got to do with the new directors taking on the responsibility of turning around SML?

The retiring and fired directors surely deserved their 'fate' but why would new directors risk reputations and incur personal liabilities to take up their positions?

You keep asking the question so it must be important to you. I can't answer on behalf of the directors. But my observation would be:

Risk reputations: - there is no risk. Everyone knows SML is a total and utter basket case. It says so in the reports. No one is going to say "Oh you are the director that drove Synlait into the ground". They will say "Gee you took the hospital pass and did the best you can for a terminal cancer patient"

Personal Liabilities: - I am sure they will have fully paid up comprehensive director insurance. It becomes moot if they can be liable for the actions of prior Board members.