Drought dissolves Landcorp profit

Rural News

State owned farmer Landcorp says it won't now post an annual profit and won't be paying a full-year dividend

9th Apr 13, 10:16am by Gareth Vaughan

<a href="http://www.shutterstock.com/">Image sourced from Shutterstock.com</a>

State owned farmer Landcorp says, thanks to the drought, it doesn't expect to record an annual profit and is therefore unlikely to pay the Government a full-year dividend.

In releasing its interim report, Landcorp said when the report went to the printer it had expected an operating profit of between NZ$6 million and NZ$8 million for its 2012/13 year, down from NZ$27 million last year when it paid a NZ$20 million dividend.

"Since then Landcorp has experienced the worst widespread drought in many years," Landcorp says. "As a result, it is unlikely that the Company will report an operating profit for the year and consequently it is not likely to pay a full-year dividend."

This comes after Landcorp said on March 25 it was expecting to break-even for the full-year to June 30. It had originally budgeted for annual net operating profit of NZ$12.7 million.

Landcorp says dairy and meat producers will generally have lower returns in 2012/13 due to lower international market prices and the relatively high New Zealand dollar.

For the first half-year, to December 31, Landcorp's operating profit fell NZ$8.5 million, or 77%, to NZ$2.5 million. The company said the first half of its last financial year was a period of "much higher product prices and excellent climatic conditions." Half-year revenue dropped NZ$7.6 million, or 7%, to NZ$95.4 million.

Meanwhile, Landcorp said it had invested NZ$21.4 million on livestock for the 16 former Crafar farms through its partnership with China's Shanghai Pengxin for their development and management.

"Current share milker arrangements continue through the current transition period, till commencement of the 2013.14 dairy season. Plans for the farms, encompassing a total of 5,689 effective hectares, include further substantial investment by Shanghai Pengxin to lift productivity and the establishment of a Landcorp-led farm training programme from 2014/15 onward."

See Landcorp's press release here and its full half-year report here.

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19 Comments

by Henry_Tull | 9th Apr 13, 11:31am 1365463875

and at the same time.....

Boosting the number of listed agricultural firms is one of the NZX's main priorities and there are about 20 firms in the Waikato alone that could potentially float on the local bourse, says exchange chief executive Tim Bennett.

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=108…

Bennett said he saw the lack of listed agricultural companies as a problem and an opportunity.

"As a country that's got a significant export presence in agriculture, we clearly need to provide capital to that sector and at the moment there's a relatively small number of companies involved in the agricultural sector on the NZX," Bennett said.

Many businesses in the sector operate under a co-operative structure and it was a medium- to long-term objective to see more co-ops come to market in a similar fashion to Fonterra, Bennett added.

MyFarm, a firm that organises syndicates of high net-worth individuals who purchase farms, is planning to launch an offer on the Unlisted trading platform this year. The Feilding-based firm said MyFarm Trading would allow any investor to buy an interest in a syndicate.

Couple of things going on here. We think:

1. Listing a business does not make it profitable in an earnings sense.

2. Listing provides a crystal clear view of what amount/value of equity there really is..

http://www.unlisted.co.nz/uPublic/unlisted.mt_public.quotesheet Re SNLF. Is that what the bankers/RBNZ rally want.

and doesn't make debt go away...

3. Why would people go on the NZX, when the rule free unlisted bulletin board is there.

- refer above example where the directors have a veto over some shares transfers ...

4. Does Tim think we want more NZ Farming Systems Uruguay http://www.nzfsu.co.nz/?

5. Does anyone understand the Landcorp accounts? (who gets the say so on all the asset revaluations etc).

6. Syndication, thats another conversation thread..

Bennett said the current market environment - in which recent offers, such as craft beer maker Moa and the Mad Butcher, have been heavily oversubscribed - was attractive to firms looking to float and the NZX was investing time and effort into visiting agricultural companies and explaining the benefits of listing.

Many firms operating in the agricultural space were successful, privately owned businesses that had never considered listing, he said.

GV, do you think Tim would be able to share the list of benefits with readers here?

by Gareth Vaughan | 9th Apr 13, 2:23pm 1365474234

I don't see why not Henry. I'll put 'interview with Tim Bennett' on the to do list. Cheers.

by rastus1 | 9th Apr 13, 4:38pm 1365482303

.........profit down from $27 Mill to zilch. If this is indicative of the NZ wide result caused by the drought and price changes, then seems that things in rural NZ are much more severe than we are currenlty being led to believe. Any farmers out there who can enlighten us??

by dinky | 9th Apr 13, 8:43pm 1365497003

Yet again, Landcorp the most under performing farm in New Zealand. Expecting a net profit of between 6 and 8 million on 1.5 million Stock units, thats only between $4 and $5.33 per stock unit. Lets not forget they have special deals with SFF that pay more than the average farmer gets for lamb and beef. This outfit should be disbanded over the next 10 years and sold off to young and willing NZers.

by Casual Observer | 10th Apr 13, 7:42pm 1365579725

dinky - they are unlikely to ever be sold - they are 'kept in waiting' for treaty settlements ;-)

by Donker | 10th Apr 13, 10:44am 1365547440

Crafar farms will flourish under landcorp. They have the best innovative science and managers in the country

by Belle | 10th Apr 13, 11:27am 1365550033

Landcorp cant make a profit is no surprise. Blame the dry weather, blame this, blame that. There will always be an excuse, but the govt is playing at being a farmer, and not succeeding.

As for making a success of Crafars, they are off to a marvellous start. They are not employing any of the current workers, managers. Hell they had two vets managing a block not far from here. They didnt even do them the courtesy of replying to their application to stay. All the workers are walking they are so f'd off with Landcorps attitude. They sacked all the local contractors. The guy that does the silage, got the biffo, the helicopter pilot ditto, the fencing contractor wasnt even invited to tender for work, so an ex bankrupt times 2, and currently in bankruptcy got the contract. Yip Donker the Crafar farms will flourish under landcorp they have the best and greatest now.

by Casual Observer | 10th Apr 13, 7:39pm 1365579548

Belle, I have heard that there is going to be/has been a massive stock relocation from Landcorp farms in the north to the South Island for winter grazing. Have you heard/seen anything of this? The cost would have to be a serious dent in cashflow.

by Belle | 11th Apr 13, 7:04am 1365620641

No I do not know C0. Perhaps it could be called a green drought now. Its green and growing a bit but not enough. A thorough drenching is required. Nowhere is growing winter tucker. If landcorps cows are heading south for winter, yes the cost mindboggling.

by Henry_Tull | 11th Apr 13, 9:44am 1365630240

Its a big crew:

Close to 40 per cent of North Island dairy farmers will not be able to meet their working expenses and interest costs this season, because of the drought, DairyNZ says.

Economist Matthew Newman confirmed speculation that many farmers would make a loss this season, though he noted some farmers would have off-farm income, including from partners who worked outside the farm, to offset some of the drought's impact.

The North Island had 9000 of the country's 12,000 dairy herds, hence the high proportion expected to record a loss, Newman said. The Waikato has 4000 dairy farms and contributes 40 per cent of New Zealand's milk production.

http://www.stuff.co.nz/business/farming/8527208/High-debt-farms-hardest…

by Casual Observer | 11th Apr 13, 1:24pm 1365643486

Belle, I heard CTL have the contract and they have had to buy two new big rigs (trucks and trailers) to cope with the shift.

by Belle | 10th Apr 13, 11:42am 1365550973

So when it comes time for me to kill my bulls, Landcorp will be the ones getting the favours from the meat company. Who made money this year and will be paying tax. Me. Who didnt make money despite all the innovation, science, technology, and free pass at the meat works during the drought, ah that would be landcorp. Fat cats in suits in offices, playing at farming and wasting our precious resources. No more, no less.

by Donker | 10th Apr 13, 4:52pm 1365569579

I understand why they sacked the sharemilkers, they don't want dogs that they can't teach new tricks and they would have to get rid of a lot of bad habits etc.....best to bring in a fresh new management team....new ideas and innovation and no arguments

by Belle | 10th Apr 13, 5:24pm 1365571453

Oh yes, you wouldnt be able to teach a vet anything. Might as well dump them. Yup veterinarians are dogs, with bad habits.

by Donker | 10th Apr 13, 5:29pm 1365571740

They don't owe them anything, they're allowed to do what they want, just like when you take over a new farm, you don't inherit the consultant

by Belle | 10th Apr 13, 5:45pm 1365572701

Yes once again Donker they can do what they want. It doesnt have to make sense of course. But because they can they will and they have. And they will tell themselves they are doing such a marvellous job. In the meantime they dont even know how to make a profit. And they cant make a profit even when the land came to them free.....................

by Casual Observer | 10th Apr 13, 7:51pm 1365580263

If you spend $21m on stock there is a very good chance that you will create a taxable loss that could be carried forward for more than one year.

It would be interesting to know how the dairy farms are going - Fonterra v corporate processors - as they supply both.

Who will be trained in the on farm training facilities - Chinese or kiwis?

by ITYS | 11th Apr 13, 10:24am 1365632667

One thing to consider is the overhead that Landcorp carries in its Wellington office - my understanding is that there are well over 50 people, outside of on farm staff, located there. These include Senior Executives, Regional Managers and Area Managers, Agronomists and other well-titled hangers-on. Would be interesting to understand the cost of this to the business.

by Omnologo | 11th Apr 13, 12:50pm 1365641432

The farms landcorp are developing on behalf of Wairakei Pastoral are a real eye opener. No expenses speared open checkbook out their my friends. Top of the line infrastructure, and if it doesn't perform to expectations or breaks or run out of oil or anything, just upgrade. Wairakei Pastoral laughing all the way to the bank. Wonder if Shangai Pengxin will get the same royal treatment? I visited Achilles north of Taupo back in Feburary and the rank grass was blowing in the wind, I think it's more a dairy farm/silage/topping block. Couldn't see much innovation Donker, just a heck of alot of waste. Don't suppose you've applied for a managers position out their?