Landcorp posts weaker 1H earnings as adverse climate crimps production, hikes costs
By Tina Morrison
March 5 (BusinessDesk) - Landcorp Farming, the state-owned farmer, reported weaker earnings in the first half of its financial year as adverse weather crimped milk production and lifted the amount spent on extra feed for livestock.
The Wellington-based company posted a $6 million loss in earnings before interest, tax, depreciation amortisation and revaluations in the six months ended Dec. 31, 2017, from a profit of $6.9 million in the year earlier period, it said in a statement. It forecast ebitdar of between $33 million and $38 million for the full year, down from an earlier forecast of $38 million due to adverse climatic conditions. That compares with ebitdar last year of $35.6 million.
"The wet spring and then the drought meant we had an increase in on-farm costs, primarily related to the need to purchase additional feed for stock," chief executive Steven Carden said. "These conditions had a flow on impact on milk production which saw an 8.5 percent decrease in milk revenue compared to the first six months of last year."
Still, Landcorp said a 9.4 percent rise in red meat revenue offset the declines in milk revenue with overall farm operating revenue falling by 2.3 percent.
"An increase in revenue from red meat has been pleasing and helped offset less revenue from dairy and the climatically driven increase in farm costs," Carden said.
Net profit in the first half fell 42 percent to $21.9 million. Profit on that measure was bolstered in the first half by a $39 million valuation gain on livestock, and a $2.5 million gain from its financial instruments. Revenue fell 3 percent to $106.4 million.
Landcorp was created out of the Department of Lands and Survey in 1987 and farms 140 properties, producing sheep, beef, venison, milk, deer velvet and wool. The country's largest corporate farmer wants to move away from being a commodity supplier of agricultural products by developing higher value products, inking long-term contracts with customers, and investing in its Pāmu brand to boost the value of its products.
Carden said today that the current climatic and commodity price variation confirms the overall strategy of ensuring it is growing shareholder returns by adding value right along the food production chain.
"While farming remains at the core of what we do, we are also taking a cautious approach to finding high value niche markets for our high quality product, with credible, experienced partners," he said. "We are committed to only exporting under the Pāmu brand after thorough testing and where a suitable return on investment can be assured."