State owned farming business Landcorp sees profits shrink 83.5% in the face of plummeting milk prices and lower lamb returns

State-owned Landcorp Farming has seen annual operating profits plunge over 83.5% to $4.9 million in the face of sharply declining milk prices and lower returns on lamb.

No dividend will be paid.

The company's total revenues in the year to June slipped 9.2% $224.3 million, while within this, income from farm products dropped 11.7% to $213.5 million.

However, total liabilities increased to $361.8 million from $320.2 million, with bank borrowings rising to $210.7 million from $172.4 million in 2013/14.

Total assets have risen by $26.2 million to $1.77 billion.

The actual result compared with a targeted operating profit of $31.7 million for the year.

Under International Financial Reporting Standards (IFRS) Landcorp’s "total comprehensive income" position was actually an $8.4 million loss, compared with a $115.9 million profit in the previous year.

This included an unrealised loss on the market value of Landcorp’s livestock of $21.6 million (2013/14: $36.7million gain), an unrealised gain on land, improvements and other property of $11.7 million (2013/14: $69.4 million gain) an unrealised loss on other assets of $7.8 million (2013/14 $3.9 million loss) and tax income of $4.4 million (2104/15 $16.4 million tax expense).

Landcorp said that "as has been previously outlined",  it doesn't consider net profit after tax and total comprehensive income under NZ IFRS as a meaningful indicator of Landcorp’s operating results "as it incorporates a number of unrealised revaluations on livestock, derivatives and land". 

Recently Prime Minister John Key, Finance Minister Bill English and State Owned Enterprises Minister Todd McClay raised concerns about Landcorp's ability to finance dairy conversion commitments in the years ahead.

SOE Minister Todd McClay said he was having an ongoing discussion with the board of Landcorp.

"I want to make sure that with changes some of the pricing around dairy and other things that it doesn't become an issue for them. Landcorp buy and sell farms all the time. It is fair to say a few years ago they purchased a lot more farms and that created some debt," McClay said.

"They are also working through some issues in as far as a contract they entered into in 2004 around land conversions which means that they will have expenditure in the next few years going forward. It's important we get the right balance. It's a sustainable business, we want to make sure the debt doesn't get ahead of them," he said.

Landcorp chief executive Steven Carden said today that record-low dairy prices and tough growing conditions had driven overall financial performance down. However, a "constructive" response to challenging conditions had helped buffer Landcorp from major impact.

“It’s been tough for Landcorp and the entire dairy sector, so our result is solid in that context.

“Things might have proved even more challenging had we not secured a significant volume of supply to Fonterra under their Guaranteed Milk Price scheme at prices that were above the final payout level.”

Lower milk revenue of $88.1 million ($129 million in 2013/14) was partly offset by growth in livestock revenues to $111.3 million ($98.7 million in 2013/14), driven by growth in livestock production and higher beef prices. Lamb production had also increased despite an unusually dry summer.

More than one third of the 430,000 finished new season lambs were supplied on an exclusive fixed price contract to United Kingdom supermarket giant Tesco for its Finest programme of premium meat.

Carden said Landcorp’s drive toward fixed price supply contacts, particularly for higher value niche products, was gaining positive traction.

“For example, our wool revenue increased to $10.7 million for the year ($9.1 million in 2013/14) based on higher demand from overseas. Our partnership with the New Zealand Merino Company in the past 12 months has secured multi-year, fixed-price contracts with brands such as Danish footwear-maker Glerups, and Swanndri.

“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.

“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,” he said.

Carden believed that Landcorp had run a conservative balance sheet, with low levels of debt relative to its assets.

“We have purposely taken a long-term outlook on our operating environment, rather than seek riskier, short-term gains.

“We’ve worked hard to remove risk from the business and the diversified nature of our operations and income from dairy, red meat, wool and forestry further reduces risk. Our solid results in very challenging conditions reflect this.

“We’re very comfortable with our level of debt. 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.

“We’ve kept costs flat while continuing to work on initiatives across the five core areas of our strategy. Tight cost controls, precision application of fertiliser and aligning our farming systems to a lower milk price have all yielded savings. A flat cost structure is a pleasing result, given we had an additional five farms come into production during this period. ”

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32 Comments

I must have my calcs wrong:

Total assets have risen by $26.2 million to $1.77 billion

borrowings rising to $210.7 million from $172.4 million

That's a 1.48% rise in asset value whilst taking on 22% more debt?

That land lease conversion was always a bad investment - regardless what the milk/meat price was. Lurking in the back of my mind is a sweet deal for some old boy mates - convert the land on the government dime over a 40 year period and on sell it for huge profits once converted. Absolute landowner win;

http://www.wairakeiestate.co.nz/history.html

I wonder how the value of their asset has grown since the partnership was formed?

.. I wonder how they got water rights for irrigation (assuming they have)? MRP has to maintain mimimum flow in the Waikato. A reduce flow has a financial cost due to limits on power generation.... this water has a value which can be expressed in $$$...will irrigators pay anything? If not, why not?

"Mighty River Power - whose fortunes rest on the river - pressed its case to have priority in the water allocation stakes with its view that the proposed RPS "lack of recognition" of the Waikato Hydro Scheme was a "profound and inexplicable shortcoming" ".

Perhaps there have been further developrs...or are the lawyers tooling up?

http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10884397

No irrigation/water rights from the Waikato;

No irrigation allocation is available from the Waikato River so all the farms have a dry-land programme even though they border the river.

http://www.dairyexporter.co.nz/article/28923.html

...thanks Kate, so they'll just grab it before it hits the river! I hope the dairy price keeps on dropping, with tourism growing and based largely on the enviroment, maybe then the corporate clowns will start to appreciate what we stand to loose.

The rise of dairy in the South Waikato. Iwi are big players also in converting forest to dairy - just don't hear about them. I spoke to a chap involved with the iwi farms - they have an integrated operation - irrigation, dairy farms, and land for all their grazing and grass supplement needs.

Over the last decade dairy farming has expanded significantly (from 27% to 38%) while land in forestry has declined (from 62% to 52%) and pastoral farming has declined (from 9% to 7%.

http://www.southwaikato.govt.nz/our-council/strategies-plans-policies-by...

FED FARMERS is to discuss with Landcorp the possibility that as many as 60 dairy farmers in the Upper Waikato River catchment may not have enough water to wash down their dairy sheds.
This is because the land owner, Wairakei Pastoral, now converting large tracts of former forestry land into dairy farms, has been allocated most of the available water in the Upper Waikato catchment. Landcorp is doing the conversions for Wairakei.
http://www.ruralnewsgroup.co.nz/dairy-news/dairy-general-news/feds-fear-...

TAKING THE WATERS DAILY CONSENT ALLOWANCE IN LITRES

Hamilton City: 165,615,000 (Hamilton City) Wairakei Pastoral: 152,587,000 (dairy conversion) Watercare Services: 150,000,000 (Auckland City) Waikato Regional Council: 136,000,000 (flood protection) Kinleith Mill: 120,500,000 (timber processing) Contact Energy: 71,000,000 (geothermal power) Waipa District: 41,000,000 (Cambridge) Winstone Aggregates: 38,770,000 (quarrying) Rotokawa JV: 34,000,000 (geothermal power) NZ Steel: 33,000,000 (ironsand mine) AFFCO: 29,000,000 (meat processing) Fonterra Te Rapa: 28,000,000 (milk processing) SOURCE: Waikato Regional Council
http://www.stuff.co.nz/business/farming/dairy/69646296/landcorp-to-stick...
http://nzfirst.org.nz/news/national-government-outed-secret-water-negoti...

Sheesh - so things have moved on since the article I read. And they're irrigating 14% of the land? So much for the environmentally conscientious approach. It's an absolute government owned scandal.

Don't miss this link.
The National Government has been outed with Environment Minister, Nick Smith, confirming negotiations with many Iwi on demands for water ownership. This of course has been in the past denied by National.

“Sir Mark Soloman on The Nation this morning also admitted as much without saying it outright,” Mr Peters said.
.
http://nzfirst.org.nz/news/national-government-outed-secret-water-negoti...

oh boy...

Clandestine - wheels within wheels
Wairakei Pastoral is a $100 company
Owned by Tramco which is a $400 company

https://www.business.govt.nz/companies/app/ui/pages/companies/1759490/sh...

Who are the ultimate owners?

Click on the Directors tab.

Who are the ultimate owners?

Wairakei Pastoral, which is owned by Trevor Farmer, Mark Wyborn, Adrian Burr and Ross Green.

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=3589549

FFS are they that incompetent?

clearly, yes.

For wash down, they can consider green-water filtration systems, followed by a secondary treatment system. Use a "dungbuster" style "wipe'n'wash" - working on larger hole and more volume (as we're re-using the water), then do some primary filtering, using low pressure spray on a rotating grid (think wide weave conveyor belt). That removes stones and larger objects, then multi-stage centrifigal drum-tower (pump water in, spin and draw off at the top. wash it over a mesh plate w/ auto cleaner based on overflow detection (by weight or float in a drained collection tank). should give liquid separation enough for standard auto-backflush filters AND then use conveyor mesh for remove solids , press (drain back into earlier stages) and you have solid separation for digestors AND solid removal for low loss wash down systems.

Also they can use water recycling, use the hot water for heat recovery into a preheater system, then use that (now cold treated) hot wash water for the primary flush (as that's the most contaminated with milk (pipe it into the green wash for the yard). That reduces plant wash by 30%, If they have the space, the final residue rinse is done with high quality potable water, which has zero milk or minerals or pathogen in it, which is good to catch and use as the input water into the water heater system - giving plant wash reduction of around 50-60% total when combined with other step.

^ was working on the effluent filtration steps when the government demanded I spend my money on other crap.

200 cow herringbone, clean & wash in 1 cu m of water. (target was 0.6, preferrable from a couple of 25,000l tanks connected to the roof collection).

But world didn't want me having a real production line of work. In Landlording (yay NZ) although a straight TD would pay better. And youse wonder why your society is falling apart

then there is looking forward

Barring a volcanic eruption wiping out the land, Landcorp is contractually bound to continue development. For example, there is no opt-out clause in case the company runs into financial difficulties.

Costs relating to the conversions are about $35m over the period to 2019 but after that they jump to $229m, as Landcorp begins to pay for the leases. At the same time, income from these farms will offset these costs.

http://www.stuff.co.nz/business/farming/agribusiness/71447050/landcorp-h...

note the on/off balance sheet elements

Eeeeeks .. hospital pass to whomever the next government is?

I spoke a relevant MP about this issue in 2007 and got ignored, a cohort and I presented all the facts.

...why does that not surprise me? Blinded by ideology this lot.

I recall talking to a builder friend who lives in the area and walked around the development - might have done some work up there too. He said it was beyond a stupid idea from the get go.

A Hawkes Bay MP? I sat in front of one minister from that region an thought he was the best I had seen from National. Sad if we are talking the same man and he is the best they have.

The government and public and OIO were informed about these things, objectors were told they were being racist, and that through NZ's rock star white gold economy the Chinese demand was going to take everything and make everyone super rich. guess the experts didn't read the fine print on the guarantee given to them by the street vending lawyers they used.
But don't worry TPPA will fix everything the government says to trust them.

I don't understand how this deal works for Landcorp either.
I have heard that they pay 5% of land value as rental, so their rents are presumably increasing with the capital improvement. You would think there would be a side deal where Landcorp gets a return on its capital investment at the end of the lease, but there has been no mention of one.

Kate, Landcorp in early 2000's got into the deer industry big time, they purchased (from memory and talk at the pub) nearly a million hinds at $800 a head. A few years later those hinds were worth $150, but not a word from Landcorp, did they make a loss, hell no. I got into deer after the price collapsed but it fell even further on me, I sold them for a loss a year later, but I didn't pay anything like $800 a head for them. I think Landcorp still have a sizable deer herd. They also have very good farm managers, its the guy's above that need to go.

The whole thing should be broken into family size farms and a qualifying bidder register set up. Locals only with a sound resume in farm work/management, share milking etc. Aim the bidder approvals at young farmers wanting to get onto their first landholding with a business plan for de-intensification and borrowing based on realistic operational profitability projections. The madness has to end.

Yes, split it up if it is to be sold, with NO dairying allowed on this land, it is not suitable. If nothing else happens with dairy prices so low, I hope we see farms in unsuitable places stop dairying, should never have been allowed.

wot? Hire kiwis in their own small business to work nz businesses? It's against govmental policy innit.

This may be a very flattering asset valuation in prevailing operating conditions.

Todd McClay's nervous assertion that 'it's a sustainable business...' is presumably addressed to the banks.

Trade me
http://www.trademe.co.nz/Community/MessageBoard/Messages.aspx?id=1572443...
what would you do
I'm not exactly farmer of the year so try not to be too judgmental but one of my neighbours is showing some shocking neglect to his cows.

I'm new to the area and from all accounts the farmer has a history with MPI over animal welfare issues.

Their dry cows have been starved all winter and nothing has changed since they started calving. A rough condition score of the herd would put them at 3.5 at best. Cows are down all over the place, every time they move their springers there are dead cows that are left for days in the paddock, calved cows and calves are left for days in the paddock with no feed and today I saw a cow down with 1 foot out, she hasn't moved since 5.30pm last night and hasn't been given any assistance. There's a big drain between our farms so I can't exactly jump the fence.

I've seen some bad farming practices in my time but this takes the cake.

If MPI won't shut them down then maybe their processor will?? It's not a Fonterra supply farm.

Now that Campbell Live is no more? Social media? Poor old cows didn't knowingly push the milk price down.

cows didn't push the milk price down, but government did push the labour cost and extra workload up.
there's three things - pick the two you're willing to pay for.

call the local vet, then when they promise and pass the buck; try MPI. theoretically local council animal control should be involved but the stock aren't threat to the public so it's hard for them to get involved. If you call the RSPCA they'll try and turn it into a media opportunity.

i need help....
http://www.trademe.co.nz/Community/MessageBoard/Messages.aspx?id=1564765...
so due to obvious reasons and first year 50-50 may be pushing to be able to pay the bills come next month or September. what options are out there. asking bank is really out of the question. probley around 50k short. what are the options. may be a very short 50-50 career

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hoodini1 (136 136 positive feedback) 9:03 pm, Sat 18 Jul #1