Kauri Dairy Holdings Ltd: What do you do with this request?

// DRILLS / ISSUE 03 / KAURI DAIRY

IN HIGHBANK ISSUE 03 · 2026-07-08 · 6 MIN READTHE SENIOR READ — MICHAEL

Kauri Dairy Holdings

THE SUCCESSION CONSENT

AGRIBUSINESS · SUCCESSION · DIFFICULTY 2/5

// THE REQUEST

ExistingNZ$13.0m term + NZ$1.2m seasonal

ProposedSplit across two successor entities

Also askedPG release + NZ$2.0m seasonal

Arrived viaThe accountant

Decision byBefore calving (August)

You have ten minutes. What do you do?

Read the file

// ONE FILE, FOUR CHAIRS

// THE LENDING CHAIR · ISSUE 03

Kauri Dairy Holdings

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// THE PATRIARCH'S CHAIR

The Last Signature

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// THE DAUGHTER'S CHAIR

A Landlord With Debt

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// THE ACCOUNTANT'S CHAIR

The Round Number

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// THE SETUP

Kauri Dairy Holdings is a third-generation Waikato dairy operation — two farms, 620,000 kgMS combined, run as one business by the 68-year-old patriarch for the past thirty years. Term debt of NZ$13.0m plus a NZ$1.2m seasonal line. Conduct spotless. The payout is at a cycle high and the season just ended was the best in a decade.

On Tuesday, the family's accountant emails the relationship manager a fully drafted succession restructure: the home farm to a new entity owned by the elder son — a strong operator with a sharemilking record of his own; the second farm to an entity owned by the daughter, an Auckland professional who will keep her career and engage a sharemilker; the land into a family trust leasing back to both. The bank is asked to consent to the security reshuffle, release the patriarch's personal guarantee, and provide an additional NZ$2.0m seasonal facility for the son's entity — all before calving in August.

The patriarch has not called. The relationship manager notes, a little uneasily, that owner drawings have risen 65% over the past two years. You're on the credit committee when the consent request lands.

You have the financials. You have ten minutes. What do you do?

// FY25 SNAPSHOT

SOURCE: COMPANY-PREPARED · UNAUDITED · COMPOSITE CASE — FICTIONAL

MILK SOLIDS

620k kgMS

two farms, combined

PAYOUT (FY25)

NZ$8.60/kgMS

▲ cycle high

DEBT / kgMS

NZ$21.0

▼ from NZ$22.3 in FY23

INTEREST COVER

2.4×

▼ at 6.5% avg rate

OWNER DRAWINGS

+65%

▲ over two years

How a lender reads it: dairy debt is tested at a payout well below the season just paid, against each farm's own breakeven — costs, interest, repayments and drawings per kgMS.

// THE FILE

THREE YEARS OF ACCOUNTS · NZ$000 · FY23–FY25

Dairy seasons, FY25 the one just ended — the best in a decade. Milk income is kilograms of milk solids times the payout; the home farm is family-run, the second farm staff-run. Figures in NZ$000. Operating cash flow is after interest and tax paid; debtor days are on revenue, stock and creditor days on cost of sales. A composite borrower: the accounts belong to no real company.

THE FACILITIES

Term debtFirst mortgage over both farms and the herd; the patriarch's personal guarantee over all of it.: NOWNZ$13.0m; REQUESTEDSplit between the two successors' entities
Seasonal linePeaks before calving; low at the season's end.: NOWNZ$1.2m limit; REQUESTEDPlus NZ$2.0m for the son's new entity
The successionAsked through the accountant, before calving in August.: NOWOne business, run by the patriarch for thirty years; REQUESTEDLand into a family trust, leased back; guarantee released at signing

PROFIT AND LOSS

Profit and loss, NZ$000, by year.
Line	FY23	FY24	FY25
Milk income and stock sales	5,300	5,026	5,732
Farm working expenses	(2,820)	(2,900)	(2,961)
Gross profit	2,480	2,126	2,771
Overheads	(280)	(290)	(300)
EBITDA	2,200	1,836	2,471
Depreciation	(310)	(320)	(330)
EBIT	1,890	1,516	2,141
Interest	(870)	(880)	(892)
Profit before tax	1,020	636	1,249
Tax	(286)	(178)	(350)
Net profit after tax	734	458	899

BALANCE SHEET AT YEAR-END

Balance sheet at each year-end, NZ$000.
Line	FY23	FY24	FY25
Cash	484	312	321
Receivables	450	430	490
Inventory	290	300	310
Current assets	1,224	1,042	1,121
Land, buildings, herd and co-op shares	26,040	26,020	25,990
Total assets	27,264	27,062	27,111
Trade payables	340	350	360
Seasonal line (drawn)	600	700	600
Term debt	13,350	13,100	13,000
Total liabilities	14,290	14,150	13,960
Shareholders' equity	12,974	12,912	13,151

CASH FLOW

Cash flow, NZ$000, by year.
Line	FY23	FY24	FY25
EBITDA	2,200	1,836	2,471
Increase in working capital	(10)	20	(60)
Interest paid	(870)	(880)	(892)
Tax paid	(286)	(178)	(350)
Operating cash flow	1,034	798	1,169
Capital expenditure	(350)	(300)	(300)
Family drawings	(400)	(520)	(660)
Term debt drawn / (repaid)	(200)	(250)	(100)
Seasonal line drawn / (repaid)	100	100	(100)
Net change in cash	184	(172)	9

RATIOS FROM THE STATEMENTS ABOVE

Ratios computed from the three statements, by year.
Ratio	FY23	FY24	FY25
Revenue growth	—	-5.2%	14.0%
EBITDA margin	41.5%	36.5%	43.1%
Operating cash flow ÷ EBITDA	47.0%	43.5%	47.3%
Debtor days (on revenue)	31	31	31
Stock days (on cost of sales)	38	38	38
Creditor days (on cost of sales)	44	44	44
Cash conversion cycle, days	25	25	25
Total debt ÷ EBITDA	6.3×	7.5×	5.5×

THE REST OF THE FILE · SECURITY · COVENANTS · CONDUCT · BUDGET

As the file stood when the accountant's email arrived: the FY25 season closed and its accounts prepared, the budget for the season ahead in hand. What a bank has on file beyond the accounts — enough to write a full credit paper on. A composite borrower: none of it belongs to a real company.

OWNERSHIP, PEOPLE, LAND

100% The patriarch — Every share in Kauri Dairy Holdings Ltd, and its sole director

The patriarch.: 68. Third generation; has run the business for thirty years and farms the home farm himself. The guarantor.
The elder son.: Sharemilks on his own account, off the family's farms. Not a shareholder, director or employee of the company.
The daughter.: Lives and works in Auckland. Not a shareholder, director or employee of the company.
The second farm's manager.: Employed by the company; eight seasons in the role, with two assistants.
The accountant.: Prepares the season accounts and the budget, and sent the succession restructure to the bank.

Both farms are freehold and both titles are in the company's name: the home farm, farmed by the family for three generations, and the second farm, the block next door but one, bought in 2011 for NZ$3.4m. The two share machinery and are run as one business. Both supply one co-operative on its standard terms and hold the co-operative shares that supply requires; milk is paid monthly on an advance rate that steps up through the season, with the balance after the season closes.

FACILITIES AND PRICING

Term loans — three tranches: NZ$13.0m at the FY25 year-end; NZ$13.1m a season earlierTranche A NZ$6.5m fixed at 6.20% until 2027; tranche B NZ$4.5m fixed at 6.60% until 2028; tranche C NZ$2.0m floating, 7.10% through FY25 — 6.5% across the threeInterest only, with a principal reduction agreed at each annual review and taken from tranche C: NZ$0.20m in FY23, NZ$0.25m in FY24, NZ$0.10m in FY25. Each tranche is rolled when it expires.
Seasonal line: Limit NZ$1.2m; NZ$0.60m drawn at the FY25 year-endFloating; 7.6% on drawings through FY25; line fee 0.40% on the limitReviewed each season. Peaks before calving; lowest late in the season.

SECURITY

First registered mortgages, both titles: The home farm and the second farm. Independent valuations for the bank at the FY25 year-end, land and buildings: NZ$13.1m and NZ$8.7m.
General security agreement: Over all the company's present and after-acquired property: the herd of 1,390 cows, the plant and machinery, and the co-operative shares.
The patriarch's personal guarantee: Unlimited, covering everything the company owes the bank. On the file with the mortgages since the second farm was bought.

COVENANTS, TESTED ON THE SEASON ACCOUNTS

Each covenant, its level, and the result in each of the three years.
Covenant	FY23	FY24	FY25
Interest cover (EBIT to interest) At least 1.5×, on the season accounts	2.2×	1.7×	2.4×

Season accounts from the accountant within four months of the season's end, with a certificate of interest cover. FY25's are in the file.
The accountant's budget for each season, before it begins.
The land revalued for the bank every three years; last at the FY25 year-end.
Nothing monthly or quarterly is required.
Every interest payment and every principal reduction on its date, and the seasonal line inside its limit at every month-end on the file.

THE SEASONAL LINE, MONTH-END BY MONTH-END · LIMIT NZ$1.20m

JunNZ$0.88m
JulNZ$1.13m
AugNZ$1.06m
SepNZ$0.88m
OctNZ$0.69m
NovNZ$0.50m
DecNZ$0.38m
JanNZ$0.30m
FebNZ$0.25m
MarNZ$0.22m
AprNZ$0.20m
MayNZ$0.60m

The FY25 season. Highest at the end of July, before calving; lowest at the end of April; up again in May as winter grazing and feed are paid ahead of the dry months. No excess and no dishonoured payment in the season.

THE TWO FARMS, FY25 SEASON

Home farmFamily-run: the patriarch, a herd manager and two farm assistants: LAND236 ha, 214 effective; COWS790; kgMS350,000
Second farmStaff-run: the farm manager and two assistants: LAND158 ha, 142 effective; COWS600; kgMS270,000
Both farms: LAND394 ha, 356 effective; COWS1,390; kgMS620,000

Young stock are grazed off both farms under contract.

MILK SOLIDS BY FARM, THREE SEASONS

Home farm: FY23340,000; FY24345,000; FY25350,000
Second farm: FY23260,000; FY24265,000; FY25270,000
Both farms, kgMS: FY23600,000; FY24610,000; FY25620,000

Paid at NZ$8.20, NZ$7.60 and NZ$8.60 a kilogram in the three seasons.

THE FAMILY'S DRAWINGS

Drawn in the season: FY23NZ$0.40m; FY24NZ$0.52m; FY25NZ$0.66m
Per kilogram of milk solids: FY23NZ$0.67; FY24NZ$0.85; FY25NZ$1.06

Taken by the patriarch. The season accounts record them as one line.

THE ACCOUNTANT'S DRAFT, AS RECEIVED

The land: THE DRAFT PROPOSESBoth titles to the family trust, leased back to the two companies
The home farm: THE DRAFT PROPOSESFarmed by a new company owned by the elder son
The second farm: THE DRAFT PROPOSESA new company owned by the daughter, which will engage a sharemilker, not yet chosen
Herd, plant and co-operative shares: THE DRAFT PROPOSESFollow each farm to its company
The NZ$13.0m of term debt: THE DRAFT PROPOSESSplit between the two companies by production, 350:270; the trust's land mortgaged to the bank for both
Seasonal lending: THE DRAFT PROPOSESA further NZ$2.0m line for the son's company
The personal guarantee: THE DRAFT PROPOSESReleased at signing
Timing: THE DRAFT PROPOSESBefore calving, in August

Sent to the relationship manager by email. The leases and the trust deed are referred to, not attached.

THE ACCOUNTANT'S BUDGET FOR THE SEASON AHEAD, ONE BUSINESS

Milk solids: FY25 ACTUAL620,000 kgMS; FY26 BUDGET625,000 kgMS
Payout: FY25 ACTUALNZ$8.60; FY26 BUDGETNZ$8.40, the accountant's assumption
Milk income and stock sales: FY25 ACTUALNZ$5.73m; FY26 BUDGETNZ$5.65m
Farm working expenses: FY25 ACTUALNZ$2.96m · NZ$4.78/kgMS; FY26 BUDGETNZ$3.01m · NZ$4.82/kgMS
EBITDA: FY25 ACTUALNZ$2.47m; FY26 BUDGETNZ$2.33m
Interest: FY25 ACTUALNZ$0.89m; FY26 BUDGETNZ$0.89m
Family drawings: FY25 ACTUALNZ$0.66m; FY26 BUDGETNZ$0.68m
Term debt principal: FY25 ACTUALNZ$0.10m; FY26 BUDGETNZ$0.10m
Capital spending: FY25 ACTUALNZ$0.30m; FY26 BUDGETNZ$0.32m
Seasonal line at the season's end: FY25 ACTUALNZ$0.60m; FY26 BUDGETNZ$0.57m, peaking near NZ$1.15m before calving

LAST YEAR'S BUDGET, AGAINST WHAT ARRIVED

Last year's budget against the actual result, line by line.
Line	BUDGET	ACTUAL
Payout	NZ$7.90	NZ$8.60
Milk solids, kgMS	615,000	620,000
Farm working expenses	NZ$2.94m	NZ$2.96m
Family drawings	NZ$0.60m	NZ$0.66m

WHAT IS STILL NOT IN THE FILE

A real file would also hold these. A paper that says which of them it needs before approving, and why, is reading the file properly.

The family trust's deed: its trustees, its beneficiaries, and what it says about the land.
The two leases the draft refers to: the rent, the term, and who maintains what.
A sharemilking agreement for the second farm. The sharemilker has not been chosen.
A current statement of the guarantor's own assets and liabilities, outside the company.
Both farms' resource consents for effluent and water, and when each comes up for renewal.

DOWNLOAD THE FILE · XLSX

With the rest of the file above, this one is complete enough for a full credit paper. Write one, and the first three sent in are read free, the way the senior reads here are written — how the pilot works.

// YOUR JUDGMENT

What do you do with this request?

[A]Consent as proposed — clean history, professionally drafted structure, long relationship[B]Consent in principle, but re-underwrite each successor entity standalone before any release — and meet both successors on-farm[C]Decline to engage through the accountant — the patriarch brings the proposal himself first[D]Support the restructure only with deleveraging — one farm sold or equity injected first

This drill needs JavaScript: the options above cannot be selected without it, and the senior banker's reading stays hidden. Turn JavaScript on and reload the page to take the drill.

// THE READING

Start by naming what the request actually is. It is dressed as a consent — a security reshuffle inside a thirty-year relationship — but a succession restructure is two brand-new lending decisions wearing an old relationship's clothes. After the split, the bank will not have one borrower with two farms and three decades of history. It will have two first-time borrowers with one season of history each, and the diversification that two farms, shared machinery, and one experienced operator provided will have been quietly dismantled by a document. The question is not "do we consent?" The question is "would we write each of these two loans today, on its own file?"

Now the numbers, split the way the family proposes to split them. Combined, NZ$21.0 per kgMS of debt at an $8.60 payout services comfortably — that is what a cycle high is for. But this operation breaks even at a little over $6.20 before the family's drawings and nearer $7.30 after them, and the two successor entities do not inherit the combined position equally. The son's entity gets an operator's economics. The daughter's entity is a landlord with debt: her margin lives in the gap between a sharemilking agreement, a lease obligation to the family trust, and whatever the payout does — three numbers she controls none of. And the drawings line deserves its own sentence: up 65% in two years means the family has already started consuming the succession before documenting it. That is not a scandal. It is a signal about how much resilience will be left inside each entity when the payout turns.

The reader's favourite answer here is C — insist the patriarch come and present the plan himself. It feels like respect, and it scratches an instinct that says relationships deserve ceremony. But read the arrival honestly: families rehearse their hardest conversations through intermediaries, and the accountant-first email is information about the family, not an insult to the bank. The plan exists; the direction is decided. Demanding ceremony delays the real work and teaches the family that the bank's contribution to the biggest event in the business's life is protocol. A is worse: consenting as drafted spends the only leverage moment a lender gets in a generational hand-off. A personal guarantee release is a one-way door — it does not come back when the season does.

The senior banker's read is B. Respond inside the week — the season is real and respecting it is part of the job — but respond by converting the consent into what it already is: two standalone underwrites. Each entity stress-tested at a $6.50 payout. An on-farm meeting with each successor, because the bank is choosing which operator it will hold for the next decade, and files do not milk cows. The guarantee released in stages against two demonstrated seasons, not at signing. The NZ$2.0m seasonal sized to the son's actual calving cash curve rather than the accountant's round number. If the plan is as sound as it is tidy, none of this changes the outcome — it only changes what the bank knows. And if any leg of it cannot pass a standalone read, better every party finds out now, at a cycle high, than in the first weak season of a new generation's watch.

One more thing, because succession files invite sentiment in both directions. The staged guarantee is not distrust of the patriarch, and it is not a hedge against the children. It is a bridge — it comes off when the next generation's file can hold the weight on its own. You are not lending to thirty years of history. You are lending to the next decade of management, and the kindest thing a bank can do for a family in transition is to underwrite the future as carefully as it honoured the past.

THE NUMBERS THE READING USED

Milk solids and payoutP&L · FY25: 620,000 kgMS × NZ$8.60; NZ$5.33m of milk income at a cycle-high payout, in the best season in a decade.
Term debt per kilogramBALANCE SHEET ÷ PRODUCTION: NZ$21.0; Down from NZ$22.3 two seasons earlier, as the debt amortised and production grew — serviceable combined at NZ$8.60; the question is each half at a lower payout.
Interest coverEBIT ÷ INTEREST · FY25: 2.4×; At a 6.5% average rate, in the good year. FY24, at a NZ$7.60 payout, was 1.7×.
Breakeven payout, before drawingsCOSTS + INTEREST + PRINCIPAL − OTHER INCOME, ÷ kgMS: NZ$6.21; Just under the NZ$6.50 stress the senior read applies to each successor — which is why each entity has to be tested alone, and why drawings are what a bad season cuts first.
Family drawingsCASH FLOW: NZ$0.40m → NZ$0.66m; Up 65% in two years, recorded as one line: the combined business is already carrying part of the succession, and the file does not say which part.

Every figure above is in the file appendix before the question — open THE FILE and redo it.

A succession is not an amendment. It is two new borrowers.

// THE SAME FILE, FROM THREE OTHER CHAIRS

The same file, read by the three people with the most riding on it. Each has one decision to make, and none of them has the bank's lever.

// THE PATRIARCH'S CHAIR

The Last Signature

Thirty years, spotless conduct, and the bank wants your name on the paper for two more seasons. What do you tell the accountant?

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// THE DAUGHTER'S CHAIR

A Landlord With Debt

You keep your career and get the second farm — a landlord with debt, a sharemilker you did not choose, and a payout you cannot set. What do you say yes to?

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// THE ACCOUNTANT'S CHAIR