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Ballance Increases Farmer Payout To $20 A Tonne

27th July, 2005

Ballance Increases Farmer Payout To $20 A Tonne

Sales volume and revenue increase

Statement made by David Graham, Chairman, Ballance Agri-Nutrients Co-operative Limited

Ballance Agri-Nutrients increased its payout to paid up shareholders to the equivalent of $20 for every tonne of fertiliser purchased, up 8%, on the back of a strong financial performance for the year ending 31 May 2005.

The payout is made up of a rebate of $16.42 average a tonne, up $1.42, and a fully imputed dividend of 8 cents a share, the same as last year.

The total combined rebate and dividend being paid to farmers for the year is $20.8 million, up 13%.

The key to our year's performance was higher volume sales of fertiliser, which at 1.5 million tonnes was up 5% in a market experiencing limited growth. The sales volume achieved reflects the production targets our farmers set for themselves, and the degree of confidence there is within the farming sector.

Across every region of New Zealand we achieved the same or better sales tonnage than last year, generating revenues of $458 million, up 10%.

The operating surplus, at $40.9 million, is down 17%. A major contributing factor to the decline in profit was the strategic decision we made in the first six months of the year to absorb additional shipping, fuel and international raw material costs by holding fertiliser prices down.

In effect, we gave farmers the benefit of lower fertiliser prices at a time when heavy demands were being made on their cash flow.

Our result can be seen as maintaining the critical balance that farmer shareholders expect of a co-operative in terms of producing a strong financial result, reinvesting significantly in the business to sustain future development and growth, and pricing our products at an acceptable economic cost.

During the year we channeled in excess of $20 million into capital investment to grow our operations.

The lion's share of this went towards expanding our national distribution network of services centres and distribution stores, and on our advanced information technology systems.

Some $8 million was invested in fine tuning the operational capability of our four manufacturing facilities in Whangarei, Mt Maunganui, Kapuni and Invercargill.

Our Kapuni plant manufactured some 260,000 tonnes of urea from its 24/7 operations, providing the country with nearly half its total urea requirements. Obtaining long-term gas supply contracts at reasonable prices remain a challenge for Kapuni, but we are more optimistic of achieving this than we were at this time last year.

Our subsidiary, Super Air, continued to make efficiency gains while setting new standards for aerial top dressing, and it made a sound contribution to the co-operative's overall performance.

During the year the co-operative purchased for $48.1 million the 20% shareholding of Ballance held by Yara, returning Ballance to 100% farmer shareholder ownership. This purchase was financed through a combination of internal funding and lines of bank credit. The benefit to farmer shareholders of returning to 100% ownership is highlighted by farmers receiving the full distribution, with the cash payout, up 14 % off a reduced surplus.

Coinciding with the investment, all property, plant and equipment was revalued at "fair values" as at 31 December 2004.

The net effect of the revaluation of our assets and investments was to increase their value by $50 million inclusive of a $13.6m write down of goodwill on prior acquisitions. At year end shareholders' equity stood at $232.7 million, up 24%.

Total assets at year end were $360 million, up 10%.

The equity ratio at 65% gives us an extremely strong balance sheet and the versatility to continue to invest significantly in future growth.

Fertiliser sales are anticipated to remain static in the current financial year, with the major change being farmers switching to blends, specialty products and strategic nitrogen use to achieve production targets.

>From our current sound position, anticipated growth from strategies already in place, and the continuing positive outlook for farmers, Ballance can look forward to yet another solid year.


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