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Pengxin's Milk NZ posts 37% slump in 2016 revenue on weak milk price, sharemilking deal

Monday 9th January 2017

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Shanghai Pengxin's Milk New Zealand Holdings unit widened its annual loss in 2016 as revenue sank by more than a third on a lower global milk price and the company's sharemilking agreement with state-owned enterprise Landcorp. 

The Auckland-based farm owner posted a loss of $10.9 million in the 12 months ended June 30, widening from $9.4 million a year earlier, financial statements lodged with the Companies Office show. Revenue dropped 38 percent to $10.7 million, of which milk sales slumped 40 percent to $9 million. At the same time, Milk NZ's cost of sales rose 27 percent to $11.8 million, registering a gross loss of $1 million in the year. 

Pengxin's New Zealand operations also went through a restructure in the 2015 year, with various farm assets previously bundled into Milk NZ shunted out into related parties. Those discontinued operations contributed revenue of $3.4 million in the year-earlier period, and a loss of $1.7 million to the 2015 bottom line. 

"The milk price of $3.90 per kg milk solid and the 50/50 sharemilking model contributed to the low revenue for Milk NZ Holding for the year ended 30 June 2016," chief financial officer Tony Nie said in an emailed statement. 

Global milk prices slumped through the 2015 and into 2016 as an oversupply of dairy products coincided with a reduction in Chinese demand. That put local dairy farmers under pressure as they went through another season of facing farm gate milk prices below what's typically needed to break even, and prompted banks to watch farm balance sheets closely and Fonterra Cooperative Group offered interest free loans to help their supplier-shareholders through the lean period, of which Milk NZ drew down $739,000. 

The Chinese-owned company's five-year sharemilking contract with Landcorp will conclude in May this year, ending a relationship that started when Pengxin bought the 16 Crafar family farms out of receivership in 2012, a deal opposed by local buyers offering less who took their case to the Supreme Court. Milk NZ's payables to Landcorp had accrued to $2.3 million as at June 30 from $959,000 a year earlier

Milk NZ was $1.4 million in overdraft as at the June 30 balance date after facing an operational cash outflow of $2.2 million in the year, and had bank debt of $100.5 million at the end of the 2016 financial year, compared to $94.8 million in 2015. 

In 2015, Pengxin's plans to buy the Lochinver farm near Taupo was rejected by the government against an Overseas Investment Office recommendation, and Pengxin later ditched plans to buy other farms in Taupo and Northland.

Those acquisitions were to be a pre-cursor to Pengxin selling its interest to 55 percent-owned subsidiary Hunan Dakang Pasture Farming Co, a Shenzhen-listed company, and grant Hunan Dakang management rights over its interest in Synlait Farms. The effect would have been to reduce Shanghai Pengxin's interest in Crafar and Lochinver to 55 percent from 100 percent, bringing on board other Chinese investors via the listed entity.

Pengxin went ahead with the restructure despite the deals falling through, receiving OIO approval in August after a 22-month wait.

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