SML - Synlait Milk Ltd

[RTM]

Excellent question. SML do use Deloitte, and Fonterra got audited last year by pwc (I assume this year as well, but we shall see).

However - here is something frightening ... Deloitte (i.e. SML's auditor) used to audit as well the famous and well loved CBL Insurance. As we all know - they didn't discover for years that CBL was bankrupt while they attested them the correctness of their financial statements without reservation.

I am sure this will give SML shareholders the warm fuzzies that they can trust the judgement of these auditors.

Well....I was sort of joking....but that is really quite concerning.
Auditors are mostly bean counters...right ?

[Beagle]

Well....I was sort of joking....but that is really quite concerning.
Auditors are mostly bean counters...right ?

Yes. I have done a bit of auditing and really hated it but I feel there's an important distinction to make here so will opine on it.
"We are comfortable that our legal exposure is not substantial. Synlait determined, and the auditors agreed, that no provision is required under the accounting standards in its financial statements."

There are two separate sentences here.
1. Dealing with the first one, that is an entirely subjective assessment on management's part and there is no objective way to measure their exposure at this point. They have been wrong before.
2. Because there is no objective way to measure any possible loss there is no way to provision for it nor is any required under generally accepted accounting standards BUT and this is important, this should be misinterpreted in any way whatsoever to read that the auditors agree their exposure is not substantial. Its simply that it cannot be readily and objectively quantified so no provisioning is required.
It probably doesn't create fundamental going concern uncertainty either so they will probably have got a clean audit report, (sorry haven't had time to read it yet).
A clean audit report does not mean that as a result of a possible future worst case scenario, (relocating the factory plus all consequential contractual compensation to customers and suppliers as well as site make-good costs), their balance sheet won't come under real pressure in the future, especially with their current gearing level.
A rights issue in due course wouldn't surprise me in the slightest, in fact I'd be surprised if one didn't happen.
Its quite possible that many years of profits, (total profits for the last 6 years amount to $262.8m, about the same cost as this single facility's construction cost) could be extinguished by write-off's associated with the Pokeno expansion, AKA... they could well end up doing a Fonterror.

I think the most disappointing aspect of all this is that the decision to commence construction in 2018 was made in full knowledge that an aggrieved party was taking appeal action to protect their rights. That decision would have undoubtedly be made at a board level and when the former CEO Penno was in charge so its not gross recklessness or arrogance you can pin on one person such as the new CEO (huge pink font and all). As a result of this I have very serious reservations about the governance of this company.

The accountability at board level will be interesting to see if this apparent mess turns into a huge cluster ****.

[winner69]

Market didn’t like the report ....down 10%

Outlook not that flash and Pokeno doubts still there

[Beagle]

Fair value in my opinion is a historical PE of 20 given the slower growth rate which suggests $9.18, (less whatever the cost is to fix the Pokeno fiasco).
There's 179 million shares on issue so a worst case scenario at Pokeno of say $400m would destroy $2.23 of value from there, (net value about $7) along with the reputation of the board and management. Pokeno needs to be resolved and accountability for the mess created at board level actioned before I'd consider investing again.

[dreamcatcher]

Fair value in my opinion is a historical PE of 20 given the slower growth rate which suggests $9.18, (less whatever the cost is to fix the Pokeno fiasco).
There's 179 million shares on issue so a worst case scenario at Pokeno of say $400m would destroy $2.23 of value from there, (net value about $7) along with the reputation of the board and management. Pokeno needs to be resolved and accountability for the mess created at board level actioned before I'd consider investing again.

My investing goal of 2-5 yrs has served me well to date (for me)nothings changed.

Positives are $2.23 increase in value if Synlait wins and what value would the the two brands waiting on SAMR approval be worth once approved........... Interestingly GS latest Buy rated TP $11.60

"the company feels “comfortable” it can commission given a court would look at the potential loss or benefit to both sides and he noted there isn’t any significant development on the neighbouring land.

He said Synlait has made a “reasonable offer that we think reflects the other party’s best-case outcome if they were to win in court or we run it through the courts.”


"In late January 2015, Synlait acquired a 25 percent shareholding in New Hope Nutritionals for $2.2 million, which owns and distributes the Akara and e-Akara infant formula brands in China.
“The Akara formulation registration has been accepted subject to a site audit and we continue to work through the registration process for e-Akara,” it said."


http://www.sharechat.co.nz/article/c...bstantial.html


http://www.sharechat.co.nz/article/e...-problems.html

[Leftfield]

IMO SML are hoping for a 'reasonable' settlement and it is likely that if they can't negotiate a 'reasonable' settlement then they will ask the courts to decide what is "reasonable."

Here's their recent statement again...."We acknowledge this issue has created uncertainty for shareholders and milk suppliers but are committed to ensuring a reasonable outcome is reached. Synlait has made a reasonable settlement offer and we are working towards one of two outcomes which we believe are in the best interests of all, a reasonable settlement offer, or a court outcome. (Hearing set for Supreme Court 21 Oct 19)

What is 'reasonable' is the question.

(Disc - don't hold )

[sb9]

My investing goal of 2-5 yrs has served me well to date (for me)nothings changed.

Positives are $2.23 increase in value if Synlait wins and what value would the the two brands waiting on SAMR approval be worth once approved........... Interestingly GS latest Buy rated TP $11.60

"the company feels “comfortable” it can commission given a court would look at the potential loss or benefit to both sides and he noted there isn’t any significant development on the neighbouring land.

He said Synlait has made a “reasonable offer that we think reflects the other party’s best-case outcome if they were to win in court or we run it through the courts.”


"In late January 2015, Synlait acquired a 25 percent shareholding in New Hope Nutritionals for $2.2 million, which owns and distributes the Akara and e-Akara infant formula brands in China.
“The Akara formulation registration has been accepted subject to a site audit and we continue to work through the registration process for e-Akara,” it said."


http://www.sharechat.co.nz/article/c...bstantial.html


http://www.sharechat.co.nz/article/e...-problems.html

Very aptly put, couldn't agree more.

[Beagle]

IMO SML are hoping for a 'reasonable' settlement and it is likely that if they can't negotiate a 'reasonable' settlement then they will ask the courts to decide what is "reasonable."

Here's their recent statement again...."We acknowledge this issue has created uncertainty for shareholders and milk suppliers but are committed to ensuring a reasonable outcome is reached. Synlait has made a reasonable settlement offer and we are working towards one of two outcomes which we believe are in the best interests of all, a reasonable settlement offer, or a court outcome. (Hearing set for Supreme Court 21 Oct 19)

What is 'reasonable' is the question.

(Disc - don't hold )

Indeed. They may think its reasonable but there's always two points of view. Interesting that Synlait management put the resolution of this as an either its a reasonable settlement or we go to court.
Obviously the Supreme court is only hearing oral submissions on whether a formal appeal of the high court's decision will be allowed so a formal appeal at the Supreme court is certainly not a fait accompli. Even if the Supreme court allow a formal appeal there is no guarantee Synlait will win.
The possibly of the aggrieved party seeking an injunction to prevent commissioning should not be dismissed as a commercial risk either.
All along Synlait management have taken a sanguine approach to assuming this can be resolved in a reasonable amicable way and are simply hoping the other party plays fair and reasonable. What if they don't ?

[RTM]

Indeed. They may think its reasonable but there's always two points of view. Interesting that Synlait management put the resolution of this as an either its a reasonable settlement or we go to court.
Obviously the Supreme court is only hearing oral submissions on whether a formal appeal of the high court's decision will be allowed so a formal appeal at the Supreme court is certainly not a fait accompli. Even if the Supreme court allow a formal appeal there is no guarantee Synlait will win.
The possibly of the aggrieved party seeking an injunction to prevent commissioning should not be dismissed as a commercial risk either.
All along Synlait management have taken a sanguine approach to assuming this can be resolved in a reasonable amicable way and are simply hoping the other party plays fair and reasonable. What if they don't ?

I am out so am watching on with interest from the sidelines.
However....I can not believe that Synlait will have acted as irresponsibly/arrogantly as some on here think. Surely not. It's not as tho its built in the middle of a housing area. Surely someone at some stage will ask the question "Does the covenant still make sense in 2019 onwards ?" And if the answer is no, a reasonable amount of money will change hands and life will go on.

[Beagle]

I am out so am watching on with interest from the sidelines.
However....I can not believe that Synlait will have acted as irresponsibly/arrogantly as some on here think. Surely not. It's not as tho its built in the middle of a housing area. Surely someone at some stage will ask the question "Does the covenant still make sense in 2019 onwards ?" And if the answer is no, a reasonable amount of money will change hands and life will go on.

I've been out for a while too and keep watching thinking at some point this will be a buy again. Yes its an industrial area and Synlait management would like to think common sense will prevail but covenant rights are deeply enshrined in law. Fascinating process to watch from the sidelines.