SML - Synlait Milk Ltd

[silverblizzard888]

This is merely normal NZ dairy industry seasonal inventory levels, and will repeat ad infinitum

It does not indicate any material improvement in inventory management

In fact, carrying $250M inventory at the seasonal low point is terrible. It should be much lower

I have worked in NZ dairy industry (management) for over 30 years. I even used to contact SML to manufacture IF, but we could not live with their poor quality and terrible DIFOT, so we exited Dunsandel production

Yes you are right inventory levels will change over the seasons and will continue to do so, but on top of that Synlait have said they ran up extra inventory for A2's sake due to waiting on the SAMR renewal, so based on what they've said and the dramatic drop in inventory it would be a sign of improvement. Due to A2 ordering less than expected which was part of the reason for the last downgrade in financials it is a sure sign they still hold considerable inventory for A2, but should continue to improve over time. A good question to ask at the AGM how their inventory management is going now that they have their SAMR renewal complete.

The reason you have stated about poor quality and terrible DIFOT is what A2 is using to get out of their exclusivity clause in their contract, so it sounds fairly accurate, Synlait sounds a bit tardy with their deliveries and could lose their exclusivity with A2.

[BlackPeter]

... 3 out of 8 of the board are Chinese and represent Bright, as long as 1 is proficient in English then that should help at least the other 2 translating if they aren't as proficient.

...

Hardly. First - if everyting needs to be translated, it takes twice the time (and I am pretty sure, they don't do that) ... and if they translate only on demand ... well, you don't ask for translation if you don't realise that you missed an important bit.

Suppose however that the Chinese directors do in boardmeetings what they typically do in Synlaits AGM's. Admittedly - I haven't been the last two years (so I don't know for these), but before that, they mainly played with their flash cell phones.

Their contribution in AGM's is mainly to take space and to avoid contact with shareholders (well, shareholders who try to speak with them in English) ...

[Balance]

Hardly. First - if everyting needs to be translated, it takes twice the time (and I am pretty sure, they don't do that) ... and if they translate only on demand ... well, you don't ask for translation if you don't realise that you missed an important bit.

Suppose however that the Chinese directors do in boardmeetings what they typically do in Synlaits AGM's. Admittedly - I haven't been the last two years (so I don't know for these), but before that, they mainly played with their flash cell phones.

Their contribution in AGM's is mainly to take space and to avoid contact with shareholders (well, shareholders who try to speak with them in English) ...

In my experience, directors seconded by Asian companies, be them Chinese, Japan or Koreans, to represent their parent companies all understand and speak English. They certainly speak English much better than the NZers seconded to represent Fonterra & other NZ companies in Asia in the Asian languages! And that is a fact!

As to them avoiding shareholders, hardly surprising as they represent Bright Foods. And that is indeed something that minority shareholders do need to be very very mindful of.

[BlackPeter]

In my experience, directors seconded by Asian companies, be them Chinese, Japan or Koreans, to represent their parent companies all understand and speak English. They certainly speak English much better than the NZers seconded to represent Fonterra & other NZ companies in Asia in the Asian languages! And that is a fact!

As to them avoiding shareholders, hardly surprising as they represent Bright Foods. And that is indeed something that minority shareholders do need to be very very mindful of.

OK - I didn't do a full English test on all Chinese Synlait directors, but I tried twice after AGM's, and both, while speaking English, had problems to understand my questions and respond.

Sure - you could say, it might be my bad English, but I never had similar communication problems with directors who were speaking English as their first language. But maybe I drew a bad sample ;

And of course - maybe they just didn't wanted to talk with me and considered it easier to pretend bad communication skills instead of just telling me that they are not interested in talking with me.

Otherwise (and for other companies) I agree with your observation.

[Balance]

I have zero doubts about your English skills, BP.

The key point I am trying to make is that minority shareholders have to be very mindful indeed about who the Chinese directors represent and they are not exactly very forthcoming with their intentions, are they?

There’s definitely more to the recent spat between ATM & Synlait/Bright Foods than disclosed to the market imo. I cannot quite figure it out yet but we may wake up one morning and find that Synlait has been broken up and taken over.

[silverblizzard888]

Took sometime this morning to compile the gross margin, revenue and NPAT of the company over the last 10 years. They've triple revenue over that time, but taken massive hit on the margin side. Before 2021 they were doing pretty well on the margin side.

2013 GM: 16% NPAT $11.5m REV: $420m
2014 GM: 13% NPAT $19.6m REV: $600m
2015 GM: 16% NPAT $10.5m REV: $448m
2016 GM: 18% NPAT $34.3m REV: $546m
2017 GM: 15% NPAT $38.2m REV: $758m
2018 GM: 19% NPAT $74.5m REV: $879m
2019 GM: 18% NPAT $82.2m REV: $1.02b
2020 GM: 16% NPAT $74.3m REV: $1.30b
2021 GM: 5% NPAT (-$28.4m) REV: $1.36b
2022 GM: 9% NPAT $38.5m REV: $1.39b
2023 GM: 9% NPAT (-$4.2m) REV: $1.32b

[winner69]

Those GM % numbers interesting

If comparable Fonterra GM% last 2 years has been 14% and 17.6%

Seems mid to high teens is where they should be

[silverblizzard888]

Those GM % numbers interesting

If comparable Fonterra GM% last 2 years has been 14% and 17.6%

Seems mid to high teens is where they should be

If SML had higher margins in the teens they would be fairly profitable rather than making losses past few years.

At 12% margins NPAT would be:
2023 : $14.6m
2022 : $65.2m
2021 : $41.1m

At 14% margins NPAT would be:
2023 : $33.6m
2022 : $85.3m
2021 : $61.1m

At 17% margins NPAT would be:
2023 : $62.4m
2022 : $115.5m
2021 : $90.7m

[aperitif]

Scenario 1 - Dairyworks sale/stay public
Scenario 2 - Bright/a2 joint venture/privatization
Scenario 3 - a2 buy License/Dunsandel $$$
Scenario 4 - a2/Synlait merge, Bright left holding a hefty stake, IP integration/BC facility at MVM.
Scenario 5 - Abbott buys stake in a2 and extends pediasure range to a2 opening up markets(haha).

Any I’ve missed?

[silverblizzard888]

If A2 and Synlait merged it would solve A2's MVM problem because Synlait could take it over and use it as their extra facility and Synlaits debt and loss of exclusivity is no longer a problem.

In the longer term if Synlait become a critical supplier of Abbott it would be in their interest to take a shareholding. Potentially Synlait could do a capital raise with Abbott, that way they secure a stronger partnership.