Landcorp turnaround delivers interim profit but SOE farmer cautions land value rise needed to meet NZ$10m dividend target

Landcorp turnaround delivers interim profit but SOE farmer cautions land value rise needed to meet NZ$10m dividend target

Landcorp Farming returned to profit in the first-half of its 2010/11 financial year and expects to exceed its annual profit forecast but warns the chances of its government shareholder getting its target NZ$10 million dividend will depend on an increase in land values.

Landcorp posted a net operating profit of NZ$3.2 million in the six months to December compared with a loss of NZ$6.3 million in the same period of 2009. The state owned farming group said the turnaround reflected a 32% rise in dairying income to NZ$51.7 million as it benefited from higher prices and increased volume. The company said payouts from dairy companies for 2010/11 are forecast to be above NZ$7 per kilogramme of milksolids compared with NZ$6.10 to NZ$6.40 last year.

Fonterra last week announced an increase in its forecast payout range (before retentions) for the 2010/11 season from NZ$7.30 to NZ$7.40 to NZ$7.90 to NZ$8.00.

Revenue from the sale of all farm products, including milk, beef, lamb and wool, rose 23% to NZ$91.7 million from NZ$74.6 million. Operating expenses climbed 12% to NZ$80.5 million through increased supplementary feed costs and other spending related to storms in August and September in both the North and South Islands and then low rainfall and high temperatures in parts of both islands during October and November.

The state owned enterprise said it reduced net interest costs by 16% to NZ$5.4 million and had bank loans of NZ$174.5 million at December 31, which was "well below budget."

"Continued strength in product prices, especially dairy and sheep, mean that Landcorp expects its 2010/11 full-year operating profit to be around NZ$20 million, compared to an original budget of NZ$3 million," Landcorp said.

This would, however, be contingent on the continued strength of product prices and climatic conditions. Prices for commodities such as skim milk powder, whole milk powder, wool and beef have recorded strong rises in recent months leaving the ANZ Commodity Price Index at its highest level since the series began in 1986.

Meanwhile, Landcorp's annual dividend target is to pay the Government NZ$10 million at the end of the financial year. Of this Landcorp said: "The ability of Landcorp to achieve its shareholder return will require an increase in land values that may not arise."

Landcorp doesn't revalue land and buildings at the half-year, only doing so in its full-year financial statements.

The latest Real Estate Institute of New Zealand (REINZ) monthly figures, for January, showed the national median farm price for the three months to the end of January 13.5% higher - at NZ$1,135,000 - from NZ$1,000,000 in the three months to January 2010. However, the REINZ figures showed just 52 farm sales in January, up on 46 in January last year but well down on 73 in January 2009 and the 114 average for the past four January's. The seven January dairy farm sales matched January 2010 but was less than the 12 in January 2009 and 48 in January 2008.

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Ok, so operating expenses are up %12, wow thats got to be good news, then this 

 

"The ability of Landcorp to achieve its shareholder return will require an increase in land values that may not arise."

 

Just another day at the office ha.

No mentionof the primary growth partnership funding landcorp got in conjunction with others.