SML - Synlait Milk Ltd

[aperitif]

Notice the China banks in the syndicate?

Yeah, Bright and a2 will steal this in JV. Would love to see in detail financing rates/terms

[aperitif]

I note MVMs new boiler to be commissioned in October in time to start producing English Label off Synlait.

[Muse]

I can't imagine the financing syndicate is too pleased with ATM's notice of cancellation of exclusivity. ATM only notified SML after hours on Friday, and banks completed the refinancing today (if I'm reading the announcement right, the refi was transacted today, and likely signed/documented some weeks ago). I suppose SML management would have notified the syndicate over the weekend of the news (and there would have been a lot of weekend discussion), as MAC (material adverse change) clauses are par for the course leading up to signing a financing deal, and in many cases remain in effect after. Speculation only, but not hard to guess the refi has a MAC clause, and not unreasonable to guess the notification would qualify. As an aside, lets say this did trigger a MAC clause, that wouldn't automatically mean anything untoward, just probably another big set of work for SML in explaining its position and workstreams to its bankers while the banks set out all their rights in relation to the financing docs. Uninformed speculation from the sideline, here. On a glass half full/optimistic perspective, you'd assume if SML notified the banks over the weekend and they still completed today, they waived the MAC or at least reserved their position in respect of it (or don't have a MAC clause but I wouldn't have thought that the case).

[aperitif]

I can't imagine the financing syndicate is too pleased with ATM's notice of cancellation of exclusivity. ATM only notified SML after hours on Friday, and banks completed the refinancing today (if I'm reading the announcement right, the refi was transacted today, and likely signed/documented some weeks ago). I suppose SML management would have notified the syndicate over the weekend of the news (and there would have been a lot of weekend discussion), as MAC (material adverse change) clauses are par for the course leading up to signing a financing deal, and in many cases remain in effect after.

Synlait wouldn’t want a lender withdrawing finance now….. I’m sure on of the five aren’t happy and expecting news soon

[silverblizzard888]

The financing should be fine, don't expect the banks to back out now since it will be reassessed next year at maturity. The $130m prepayment sounds like the money they will get from the asset sale goes straight to the bank. Assuming their large multi national customer comes onboard in a timely manner it will help mitigate the loss in the English label formula. Chinese Label formula is expected to remain for years to come since they have the SAMR license, they still have some leverage. Not as doom and gloom as feared, but still a lot of uncertainty for the company.

[BlackPeter]

The financing should be fine, don't expect the banks to back out now since it will reassessed next year at maturity. The $130m prepayment sounds like the money they will get from the asset sale goes straight to the bank. Assuming their large multi national customer comes onboard in a timely manner it will help mitigate the loss in the English label formula. Chinese Label formula is expected to remain for years to come since they have the SAMR license, they still have some leverage. Not as doom and gloom as feared, but still a lot of uncertainty for the company.

Financing is fine - short term, but it is clear the banks want out. If you just look at the extended credit facilities, they are tailored so that the auditors can assume the company stays an ongoing concern ... but I am wondering whether we can still assume that the year after next. At that stage the credit facilities will be signficantly reduced / gone ...

Agree however with balance (and some others) that Chinese banks might be happy to provide future funding ... but doubt that this will be of any benefit to current retail shareholders.

[bull....]

very much a distressed company and no word still on asset sales

[Sideshow Bob]

Not really getting any prettier.....

https://www.nzx.com/announcements/418751

Key financial highlights:

• Total Group revenue down 3% to $1.60 billion
• Total Group NPAT down 111% to loss of ($4.3) million
• Total Group EBITDA down 31% to $90.7 million
• Total Group gross profit down 2% to $144.0 million
• Operating cashflow down 83% to $39.0 million
• Capital expenditure down 32% to $65.1 million
• Net debt up 21% to $413.5 million

Final 2022 / 2023 milk price:

• The final average base milk price is $8.22 per kgMS for the 2022 / 2023 season. In addition, an average of $0.27 per kgMS was paid for incentives, taking the total average milk payment to $8.49 per kgMS.

• The base milk price forecast for the 2023 / 2024 season remains unchanged at $7.00 per kgMS.

Key takeaways from today:

• Joyhana (UHT cream) launched, commercial sales underway.
• State Administration for Market Regulation (SAMR) re-registration achieved.
• TRIFR reduced more than 30% since Synlait Safe launch in November 2022.
• ELT renewal completed.
• Strategy refresh completed, creation of a more focused Synlait.

Full year 2024 outlook:

FY 23 was highly challenging for Synlait with material reductions in customer demand, CO2 shortages, extreme weather events, the COVID-19 pandemic, inflationary impacts, ongoing investments in new product workstreams (i.e., UHT cream and Advanced Nutrition customer growth), and the launch and stabilisation of the company’s new enterprise resource planning (ERP) system.

Looking ahead to the 2024 financial year, Synlait could still face challenging China market dynamics, softening global conditions more generally, and continued inflationary pressures across its cost base, which could impact future customer demand and the company’s overall profitability. Synlait does, however, expect Advanced Nutrition volumes to continue to grow at the Pokeno site in FY 24, and the company’s overall EBITDA performance is also expected to improve in FY 24, compared to FY 23.

The a2 Milk Company’s purported cancellation of the exclusivity arrangements under the Nutritional Powders Manufacturing and Supply Agreement (NPMSA) for the a2 Platinum® and other nutritional products is not expected to impact Synlait’s FY 24 results. Synlait disputes that The a2 Milk Company has the right to cancel the exclusivity arrangements.

While Synlait is confident in its strategy to right-size its cost base to current activities and its near-term Advanced Nutrition and Foodservice growth opportunities, the uncertainty of broader macroeconomic factors means the company will not provide guidance at this time.

Synlait is committed to its refreshed strategy to create a more focused company and remains largely on track to meet its five-year (FY 28) strategic ambitions.

[winner69]

$42m profit if you count the other income stuff …mainly cash flow hedges

That’s pretty good result

[JSwan]

So what’s happening with that new multi national customer?