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Milk NZ Holding surprised by Fonterra's $7 payout for 2019 given outlook for global demand

Tuesday 29th May 2018

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Milk New Zealand Holding, which owns and manages dairy operations controlled by Shanghai Pengxin, says it didn't expect such a bullish forecast from Fonterra Cooperative Group for its 2019 milk payout.

Last week Fonterra raised its forecast milk price for 2019 of $7 per kilogram of milk solids from the $6.75 /kgMS projected for the current season, while cutting its projected dividends for 2018, saying rising global dairy prices were squeezing margins.

"The $7 payout forecast is stronger than we expected," said Tony Nie, a spokesman for the company. "We understand it will be challenging to hold that level for the next season because the global supply could increase with high payout prospects. The NZD/USD exchange rate is also unpredictable which can contribute to the final payout for the next season."

Milk New Zealand was created after Chinese billionaire Jiang Zhaobai's Shanghai Pengxin bought the 16 Crafar farms in 2012. In 2014 he added a controlling stake in what was then called Synlait Farms, renaming that business as Purata and increasing Milk New Zealand's operations to 29 farms milking and producing about 10 million kgMS a year. It is now one of New Zealand's biggest dairy groups and exports UHT and fresh milk to China under the Theland brand.

The group has a new structure in 2018, reflecting a reorganisation of assets. Alibaba founder Jack Ma provided fresh capital via his e-commerce, retail, internet and technology company and his venture capital arm Yunfeng Capital in December, taking a 57 percent holding in Milk New Zealand Dairy, the group's export arm. The remaining 33 percent is owned by Hunan Dakang International Food and Agriculture Co, which trades on the Shenzhen Stock Exchange and is 55 percent owned by Shanghai Pengxin.

Hunan Dakang separately owns Milk New Zealand Holding, made up of Theland Tahi Farm Group (the Crafar farms) and Milk New Zealand Management, while Shanghai Pengxin directly owns New Zealand Milk Capital, which in turns owns Theland Purata Farm Group (the Synlait farms). The group exports UHT, fresh milk and adult milk powder, working with manufacturers including Miraka, Westland Milk Products, Fonterra, Synergy and Green Valley.

Nie declined to comment in detail on restructuring in the group. Notes to the accounts of Milk NZ Holding show it had 26,944 cattle as at Dec. 31, up from just 1,376 a year earlier. The bulk of that is the purchase of 24,759 livestock valued at $35 million.

In calendar 2017, sales were $27 million versus $8.5 million in the year-earlier six month period, Milk New Zealand Holding's annual report shows. Profit in the latest year was $6.5 million from $1.2 million in the previous six months.

Milk NZ Holding owns and manages the former Crafar and Synlait farms.

Milk New Zealand Dairy reported its 2017 results in March, showing a jump in sales to $72.5 million from $42.5 million although increased costs resulted in a drop in full-year profit to $2.99 million from $3.26 million. The spokesman for that arm of the group, managing director Terry Lee, told the Herald that its products are now sold in 25 Chinese provinces and carried in 4,700 stores.

Partnering with Chinese supermarkets had made Theland the fastest-growing New Zealand brand in China, he said at the time. The Alibaba relationship was helping Milk NZ increase sales in the competitive China consumer market, he said.

(BusinessDesk)

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