Landcorp posts 84% decline in annual profit; comfortable with debt levels

Thursday 27th August 2015

Landcorp Farming, New Zealand's largest corporate farmer, posted an 84 percent decline in annual profit as lower milk and lamb prices crimped revenue.

Net profit fell to $4.9 million in the 12 months ended June 30, from $30 million the year earlier, the Wellington based state-owned company said in a statement. That's in line with its forecast for profit of $1 million to $6 million.

Global dairy prices have slumped over the past year amid higher supplies and weak demand, and lamb prices are also weak following a record Australian slaughter and after a mild winter boosted UK production. Landcorp revenue slipped 12 percent to $213.5 million as a 32 percent decline in milk revenue to $88.1 million was partly offset by 13 percent growth in livestock revenue to $111.3 million driven by increased livestock production and higher beef and wool prices.

Landcorp is focused on securing fixed-price supply contracts for its products, to insulate the farming operation from volatile commodity price swings and gain higher prices. It benefited from Fonterra Cooperative Group's guaranteed milk price scheme which saw it secure higher prices than the final payout level, sold more than a third of its 430,000 new season lambs to UK supermarket company Tesco for its Finest programme of premium meat, and has inked multi-year contracts with Danish slipper maker Glerups and kiwi brand Swanndri through its partnership with the New Zealand Merino Company.

"Rather than being dictated to by the fluctuations of commodity price cycles, we’re locking in supply deals with partners who can help us maximise the value of what we produce," said chief executive Steven Carden. “In the medium and long term we intend to expand our portfolio into new, high-value products. Sheep milk, for example, is a premium product opportunity for Asian markets and last week, with our joint venture partners SLC group, we opened our first sheep milking facility on the Central Plateau."

The company's total assets increased 1.5 percent to $1.77 billion, compared with total liabilities of $361.8 million. Its bank borrowings rose 22 percent to $210.7 million.

Prime Minister John Key and Finance Minister Bill English have said the government is in talks with Landcorp over its debt levels, which have increased as the company undertakes a dairy conversion of the 26,000 hectare Wairakei Estate north of Taupo, for private owners.

Carden said the company had a conservative balance sheet, with low levels of debt relative to its assets.

"We're very comfortable with our level of debt," Carden said. "It has moderately increased over the past few years to fund dairy conversions on the Central Plateau and complete conversions in Canterbury, based on long-term views of dairy payout levels."

Landcorp didn't say if it is paying a dividend to the government.

BusinessDesk.co.nz

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