SML - Synlait Milk Ltd

[Fisherking]

NZ Herald, 29th January 2014:

"Penno said the changes were causing "considerable disruption" to Synlait in the short-term - as some Chinese infant formula customers were holding back on orders while the new measures were rolled out - and the company may not achieve its forecast target of 10,000 metric tonnes of infant formula and nutritional sales this financial year."


"Penno said the regulatory changes were "largely sensible" and Synlait was confident they would help the company meet long-term targets through expected volume growth from key customers in the Chinese market."

http://www.nzherald.co.nz/business/n...ectid=11193307

Some may interpret 'short term' like me as six to twelve months, but I can understand how for traders six to twelve minutes can be a long time, comes from too many energy drinks and having never got a second cookie as a child.

It's not one for me due to the escrow overhang and capacity ceiling concerns but I would agree that if you are looking for an entry point it may be a good dip to buy at the right time, in a couple of months perhaps.

many regards, Mac

....And from the same post:

“Our forecast FY2014 financial performance continues to improve and we expect the Company will benefit from both earnings growth in our value added categories and a favourable product mix for the remainder of this financial year. Assuming current market conditions prevail our FY2014 net profit after tax will be significantly ahead of the prospectus forecast of $19.8 million, and is forecast to be in the range of $30.0 to $35.0 million,” said Mr Milne.

Pretty difficult for investors to know either way really.

[BlackPeter]

Just looking through SML's latest report and see that their "Lactoferrin Extraction and Purification Facility" was due to be commissioned by March 2014. Can't find any related announcement - did I miss some update or are they overdue?

[K1W1G0LD]

Just looking through SML's latest report and see that their "Lactoferrin Extraction and Purification Facility" was due to be commissioned by March 2014. Can't find any related announcement - did I miss some update or are they overdue?

Blackpeter , see the last paragraph from Interim report below

The three growth initiatives under development during the six month period,
including the lactoferrin plant, drystore extension and blending and canning
plant are on track for commissioning on, or close to, their planned dates.
End CA:00248768 For:SML Type:HALFYR Time:2014-03-27 08:33:18

Might pay to email the company for more precise info.

[BlackPeter]

cheers - missed that. Might follow up with an email.

[Fisherking]

So the unaudited 2014 report is out, not sure if anyone has had a chance to review or has taken something different from what I did:

1. Picked up two new key 'customers', but have managed to sell minimal additional volume.
2. Milk supply for 2015 is sewn up; which can't be too difficult given the lack of volume growth
3. Continue to invest heavily in building/ plant/ equipment/ systems; which seems odd given lack of volume growth.
4. 2014 Net profit revised down (as announced earlier)
5. Missed almost every growth initiative target both in terms of time-frame and cost.
6. Considerable increase in revenue; due to commodity prices being high; the one thing that is mostly out of their hands.

It seems many of the cost blowouts have been due to a late decision to increase the initial scope. Not sure why this would occur so frequently or why scoping should be so far out in the first instance. Also have to ask why the focus on growing capacity when they are not managing to sell increased volume.

I'm aware of the (often mentioned) regulatory requirement changes in China, but the last I heard from Fonterra comment was they could not ever hope to keep up with demand.

does anyone take anything more positive from the report?

[forest]

So the unaudited 2014 report is out, not sure if anyone has had a chance to review or has taken something different from what I did:

1. Picked up two new key 'customers', but have managed to sell minimal additional volume.
2. Milk supply for 2015 is sewn up; which can't be too difficult given the lack of volume growth
3. Continue to invest heavily in building/ plant/ equipment/ systems; which seems odd given lack of volume growth.
4. 2014 Net profit revised down (as announced earlier)
5. Missed almost every growth initiative target both in terms of time-frame and cost.
6. Considerable increase in revenue; due to commodity prices being high; the one thing that is mostly out of their hands.

It seems many of the cost blowouts have been due to a late decision to increase the initial scope. Not sure why this would occur so frequently or why scoping should be so far out in the first instance. Also have to ask why the focus on growing capacity when they are not managing to sell increased volume.

I'm aware of the (often mentioned) regulatory requirement changes in China, but the last I heard from Fonterra comment was they could not ever hope to keep up with demand.

does anyone take anything more positive from the report?

I think its possible that present facilities are close to fully utilised. Management sees future growth potential accelerating faster then before. Management talked to bank(s) supplying funding and gets funding support for extra capital expenditure. Does this sound more positive to you?

[Fisherking]

I think its possible that present facilities are close to fully utilised. Management sees future growth potential accelerating faster then before. Management talked to bank(s) supplying funding and gets funding support for extra capital expenditure. Does this sound more positive to you?

Yes, much more positive, but is it correct?

From pg6: 'China will remain an important market to us due to growing consumer demand; however the policy changes have proved more disruptive than we had been expecting. For this reason we now forecast that our infant formula volumes this year will be similar to those achieved last year'.

[forest]

Fisherking I just read the HY14 report. I think the Chairman and John Penno MD in their report are trying to portray the above version. Thats the way I read it anyway. I do not know either of them so I find it hard to judge.
The fact that the funding seem to be in place for the extra capital expenditure makes me think that there is much positive growth to come after the capital expenditure is completed.

[K1W1G0LD]

Synlait Milk well positioned for China's regulation changes

9:21am, 28 Apr 2014 | GENERAL

The Ministry for Primary Industries expects Synlait Milk to receive registration by the Certification and Accreditation Administration of the People's Republic of China (CNCA) as an exporter of finished infant formula into China.

Regulation changes governing China’s infant formula industry come into force on 1 May 2014, aimed at lifting the quality standards required of manufacturers supplying that market.

Synlait Milk has been fully engaged in the process, choosing to position the Company around CNCA’s desire for international manufacturers exporting infant formula product to China to have committed milk supply, wet blending and spray drying, dry blending and consumer packaging on site.

Synlait Milk has also been working with its three brand partners Bright Dairy & Food Co, Ltd., New Hope Nutritional Foods Co., Ltd and The a2 Milk Company in anticipation Chinese officials would require a close association between the brand owner and the manufacturer.

Synlait Milk is now part of a group of New Zealand dairy manufacturing companies working through a process to achieve registration.

Synlait Milk’s recent interim report outlined the regulation changes were likely to result in a short term reduction on sales of finished infant formula and nutritional products into China, however it expects long term objectives to be achieved.

China is an important market for Synlait Milk with its finished infant formula business expected to be a significant earner in future.

Synlait Milk continues to work with its first tier multinational customers for the supply of infant formula ingredients and finished products outside of China

It's going to happen, just has'nt happened yet. lets see if any market reaction!!

[Xerof]

Synlait Milk well positioned for China's regulation changes

percy, have you got yourself another job? Spin doctor?