Content supplied by Synlait
Synlait Milk is investing $15 million to upgrade its Special Milks Drier at Dunsandel as it looks to further tap into the $15 billion a year demand for infant formula in China.
The investment will enable Synlait Milk to become one of only two manufacturers in the world to produce lactoferrin as a spray dried powder, and will also allow the Company to manufacture dairy ingredients to a pharmaceutical standard.
Lactoferrin is a bioactive protein extracted from milk that provides significant antibacterial protection and other health benefits for people of all ages.
It is in demand globally for health foods including infant formula and adult nutritional powders.
With the new capability, Synlait Milk expects production to reach 18 metric tonnes within four years of commissioning in late 2013 to early 2014.
Synlait Milk Chief Executive Dr John Penno, says the decision to invest in the high value ingredient has been stimulated by contracts with eight significant customers for infant formula including YinQiao Xi’An, the largest dairy manufacturer in north western China, Synlait Milk’s cornerstone shareholder Bright Dairy and A2 Corporation which will soon launch is own a2 infant formula in China.
“There is a global shortage of lactoferrin driven largely by the demand for infant formula. In China alone total sales of infant formula are worth US$15 billion plus a year and growing by 15 per cent with the addition of 18-20 million new babies annually. As a trusted supplier Synlait Milk is keen to meet its customers’ requirements for an easily soluble lactoferrin manufactured to the same exacting quality assurance standards that Synlait Milk takes pride in attaining for all its products.”
Typically, lactoferrin from New Zealand and Australian sources is freeze dried and milled. This can result in particles that are difficult to dissolve leaving residues when the mother mixes infant formula in the baby feeding bottle.
The finer spray dried powder that Synlait Milk will produce is expected to provide superior solubility properties when used in infant formula.
The market for lactoferrin has grown from 45,000 kilograms in 2001 to 185,000 kg in 2012 and is projected to grow to 262,000 kg in 2017.
On the current market lactoferrin is priced at between US$500 to US$1,000 per kilogram.
Synlait Milk already operates at its Dunsandel site the largest and most sophisticated purpose built infant formula production facility in the southern hemisphere.
“Lactoferrin will add to our range of specialised health and nutritional products, a category identified recently as one of the main contributors to the Government’s target of doubling the value of New Zealand’s export earnings by 2025. To reach that target New Zealand must make more from milk to leverage its position as the world’s leading dairy exporter. Synlait Milk was founded with that ambition and to lead by focussing on excellence to deliver the benefits of high value added products to all our stakeholders,” Dr Penno says.
The Company has also recently received resource consents for the construction of a packaging plant to produce consumer packs for customers and an additional warehouse facility. Tenders for the construction of these facilities will be finalised shortly for work to begin on site subject to all local body regulatory compliance needs being met before the start of the next dairy season, on 1 August 2013.
The lactoferrin project will take nine months to complete.
6 Comments
Annual Report 2012:
Total Assets: $280.6m
Total Equity $88.2m
Total Liabilities: 192.3m
Equity/Total Assets: 31.4%
Gearing: Debt/Equity 218%
(If the cost model had been used, the carrying value of land, buildings, plant and equipment would have been $197.5m, resulting in a revaluation of $11.1m.)
http://www.business.govt.nz/companies/app/ui/pages/companies/1600872/do…
comment re where funding to be sourced from would be interesting.
http://www.unlisted.co.nz/uPublic/unlisted.mt_public.securityDetail?p_p…
How/when will Synlait suppliers recoupe their collective $147,173,340 current investment loss from 2012 production?
The value shift seems greater than the $88,244,000 equity recorded in corporate processor Synlait Milk accounts.
If we err, please advise...
Suppliers having foregone Fonterra shares at $4.52 (which were 100% LVR fundable by banks with div that covered interest cost carry cost), now find those foregone shares worth $7.86.
Across Synlait suppliers of 498m litre of milk (44m kg/MS) this is loss of value of $147,173,340. ($3.34 * 44,063,874 = $147 143,340).
($7.86 less $4.52 = $3.34 per kg/MS).
Workings:
Ex the 2012 Annual Report:
In anticipation of the new processing capacity, milk volumes grew
from 343m litres in FY11 to 498m litres in FY12, with 20 new farms
being contracted for supply. This additional milk processed lifted
manufactured volumes from 54,414MT in FY11 to 81,398MT in FY12.
498,000,000 litres of milk / 11.3 = 44,063,874 kg MS.
Value of Fonterra Shares: $7.86
https://www.nzx.com/markets/NZZX
11.3 litre equals one kg of MS (say)
http://www.lic.co.nz/lic_News_Archive.cfm?nid=434
http://www.teara.govt.nz/en/photograph/15715/from-grass-to-milk
or:
Litres of milk x 1.03 = kg of milk x solids % = kg solids
Henry, a ridiculous, irrelevant calculation. It also works the other way......Most of the original suppliers got out of Fonterra at $7 plus 5 years ago....what is the current share price again? In the meantime they have been recieving a similar / higher Milk Price than Fonterra for the last 5 years, with the capital they took out of Fonterra invested back in their own business at a 10% plus return, makes the dividend return look a little disappointing?
If Synlait further expands with Fonterra farmers exiting at $7 plus, what will your calculation look like then? Also, you havent taken into account that the share value has lifted but the dividend has remained remarkably similar. Means that if Synlait continues to pay around the Fonterra Milk Price then the farmers that entered when the Fonterra share was at $4.52 will still be better off, you do the maths, I cant even be bothered getting out my calculator because the answer is obvious. You will probably come back saying something about Fonterra farmers having increased equity due to the higher share price.....doesnt work that way, bank I deal with is still valuing them at $5.60....makes it hard work when you need to buy a heap more.
As a Fonterra supplier I usually dont comment on this stuff but your calculations were so irrelevant I had to throw my two cents in. There are good reasons for staying with Fonterra, but your argument is most definetely not one of them.
I thought Henrys analysis was as lucid and illuminating as usual, but as for yours sheeprule, wellll...
You mentioned some reasons for cashing up shares and supplying an investor owned processor, but what are the 'good reasons for staying with Fonterra', considering they are if anything more corporatised and investor orientated than the 'independent' investor owned processors?
You think we are harsh?
We are thinking that in total from an assets position the suppliers to Synlait/corporate processors would have been better off being suppliers to Fonterra. We are looking back over the last couple of years. We are not trying to predict the future, just see what has really happened - then compare that to what people we saying at the time…. Synlait provides a neat reasonably tight example-set of data..
We remember about 60 suppliers being there at day one. We figure the 2012 result accounts for about 135 for that year.
(xcheck 44m kg, divided by (700 hd herds @ 450kg/hd) – say 140 suppliers)…
So take the $147m, exclude the 60 suppliers (60/135), then add back the $7.86 less $6.59 for the 60. Brings us to $102m, but we think that not all proceeds of cross to share sales was invested back in on-farms (we understand some used the $ to repay debt) – how much do we add back? So $147m becomes $110m-130m? A uni researcher could just ring them up. (Also interesting to know what the historical share cost had been).
Look at it another way, February we were shown 2 Canterbury farms for sale at $30 to $33 fully shared up to Fonterra. Supplying Synlait they would be same less the share.
Thats the issue we see, farmgate $ price (aside from any credit risk/pmt risk thoughts) is not enough, corporates like Synlait need pay extra $ if they want to be equal to co-op farmgate and share benefits to a supplier.
If they don’t, they are not and the farm has a different price/value path to that of a Fonterra supplier…. (in this case we think lower)..
What are your thoughts on
- Synlait Processor, or other corporate processors
- Synlait Farms
Notes:
Shares:
2010 $4.52 , 2009 $5.57, 2008 $6.79, 2007 $6.56/$5.80, 2006 $5.44, 2005 $4.69, 2004 $4.38
Manufacturing began in August, 2008. At an official launch in February, 2009 the company announced plans to attract new equity, to support a $70 million expansion of processing capacity and product range by 2011.
Synlait now owns 14 farms running 15,000 cows. Sixty independent suppliers provide about two thirds of its milk. (Reported April 2009)
http://www.ruraldelivery.net.nz/2009/04/synlait/
http://www.sharetrader.co.nz/showthread.php?9109-Synlait-Farms-Limited-%28SNLF%29/page3
http://www.synlaitfarms.co.nz/Shareholders
Synlait Farms look to improve returns - Worldnews.com article.wn.com/view/2013/03/.../Synlait_Farms_look_to_improve_return...Mar 25, 2013 – Canterbury corporate dairy farmer Synlait Farms has told investors it plans to raise ... The company, with 135 dedicated Cantabrian farmer suppliers, is focussing its ... The speed in which the waters rose took many by surprise.
Synlait Ltd will distribute the shares it holds in Synlait Milk to its shareholders on a pro-rate basis before any listing. Synlait Milk will then offer those shareholders the opportunity to sell some or all of those shares.
Bright Dairy is expected to retain its full investment in Synlait Milk
The offer price will be set by a bookbuild process. First NZ Capital and Goldman Sachs have been appointed to manage the IPO.
Synlait Milk said the capital raised will be used to support growth, including construction of a new packaging plant, and to refinance debt.
http://www.stuff.co.nz/business/farming/agribusiness/8669273/Synlait-pl…
Bright Dairy gave no details about the potential size of an IPO in a statement to the Shanghai Stock Exchange, Bloomberg News reported.
A spokesman for Synlait Milk said the company will make a statement shortly.
http://www.scoop.co.nz/stories/BU1305/S00489/bright-dairys-synlait-milk…
Chinese food giant Bright Dairy & Food will give up its controlling stake when local dairy processor Synlait Milk is listing on the stock exchange, retaining its stake without participating in the share sale.
Shanghai-based Bright Dairy is expected to keep its investment, diluting its 51 per cent stake into the 40s. Other shareholders will have the opportunity to sell some or all of their shares into the initial public offer, with any remaining stake subject to escrow arrangements.
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=108…
http://www.bloomberg.com/news/2013-05-13/bright-dairy-unit-synlait-milk…
Any thoughts on valuation...
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