Open Country Dairy, the milk processor controlled by the Talley family, tripled its full-year loss on the soaring price of raw milk and a strong kiwi dollar, and said it was forced to seek a waiver from its bank, the BNZ.
The loss widened to $29.5 million in the year ended July 31, from a loss of $8.1 million in the same period a year earlier, according to its 2011 annual report. Sales rose to $679 million from $497.3 million, while the cost of sales increased to $685.5 million from $497.7 million.
The Auckland-based company has faced a kiwi dollar trading near a five-month high against the greenback in volatile global markets while global demand for commodities have helped drive up the price of milk, putting pressure on processing margins.
“It is clear that when this high degree of volatility is coupled with the commitment we have to produce competitive returns to our supply base we will have considerable more variance in our year to year trading results than desirable,” chief executive Steven Smith and chairman Laurie Margrain said in the annual report.
Open Country paid $8.5 million in interest costs in the year, up from $7.6 million a year earlier, having increased its bank debt to $130.5 million from $130 million.
The company was forced to seek a waiver from the Bank of New Zealand after it failed to meet its banking covenants relating to stock, debt cover and minimum equity. A new facility agreement was signed on Dec. 20 and the company has committed to funding facilities from the BNZ through to October this year, according to the report.
The dairy processor paid an average $7.56 per kilogram of milk solids to its farmer suppliers, a 24 percent increase from a year earlier. That’s short of the $7.60 per kg and 65 cents per share distributable Fonterra paid to its farmer shareholders.
Open Country completed an upgrade of its Waharoa plant prior to the start of the 2012 season, resulting in a greater capacity to produce skim milk and pricing shifts, it said in its annual report.
It plans to continue to take advantage of robust dairy demand by strengthening relationships with the world’s major dairy ingredient customers and widening its sales base, the company said.
Open Country’s second biggest shareholder is Singapore’s Olam International, which took control of NZ Farming Systems Uruguay in 2010. Olam spent $97.9 million buying Open Country product, down from $102.4 million a year earlier.