Rural Equities doubles annual profit on record milk production and prices
By Suze Metherell
Sept. 3 (BusinessDesk) - Rural Equities, the farming group controlled by the Cushing family, doubled annual profit and lifted its dividend 17 percent on the back of record dairy production and prices.
Profit rose to $24 million in the 12 months ended June 30, up from $10.9 million a year earlier, the Hastings-based company said in a statement. Operating earnings before interest and tax doubled to $6.43 million from $3.33 million, as its six dairy farms produced a record 1.67 million kilograms of milk solids and the price of dairy products soared.
Production at its three Waikato farms benefited from rising beef, lamb and wool prices, and "contributed materially to increased earnings," the company said.
"The near doubling in operating Ebit, due to productivity gains and strong agricultural commodity prices, was pleasing," said executive chairman David Cushing. "Revaluation gains of approximately $20 million increased total assets to in excess of $220 million."
Valuation of Rural Equities' 25 farms and other assets increased by $19.9 million, compared with a gain of $7.2 million a year earlier. Debt represented 12 percent of its total assets, the company said.
Rural Equities will pay a dividend of 7 cents per share on Oct. 8, up from 6 cents a year earlier. Shares of the company, which trade on the unregistered Unlisted market, rose 3.5 percent to $4.40, giving it a market capitalisation of $157.7 million.
Dairy prices soared in 2013, but an increase in supply has seen prices slump 45 percent since February in Fonterra Cooperative Group's GlobalDairyTrade auctions. Fonterra, the world's largest dairy exporter, has cut its forecast farmgate milk payout for 2015 to $6 a kilogram of milk solids, from an initial $7/kgMS, saying a build-up of inventory in China had cooled demand and weighed on dairy prices.
Rural Equities said it is anticipating lower milk prices in the coming year, but expects stronger beef and sheep meat prices. Directors noted the "overvalued New Zealand dollar appears to be trending downwards to more appropriate levels."
During the past the year, the diversified farming investor acquired a 12.7 percent stake in Australian agricultural company Tandou, which has a portfolio of high security and general security water rights and agricultural land, without putting a dollar figure on the purchase. It also settled the sale of its Blairmore sheep, beef and deer grazing farm in Central Otago to a neighbouring farmer for $3.45 million, or about 7 percent above its June 2012 valuation.
Since balance date the company has begun a $5.1 million conversion of its Ashburton Eiffelton property, which will see 233 hectares of its 396 hectare block converted to a 940 cow dairy farm, with the remaining land to be used for winter grazing and supplementary feed.