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Rural Equities posts 27% decline in FY earnings

Rural Equities posts 27% decline in annual earnings after milk prices slumped

By Tina Morrison

Sept. 1 (BusinessDesk) - Rural Equities, the farming group majority-owned by the Cushing family, posted a 27 percent decline in annual earnings as milk prices plummeted.

The Hastings-based company said operating earnings before interest and tax fell to $4.67 million in the year ended June 30, from $6.43 million a year earlier as Fonterra Cooperative Group slashed its milk price payout to $4.40 per kilogram of milk solids from $8.40/kgMS the previous year. While that impacted its seven dairy farms, the company said its Waikato Puketotara sheep and beef property had a record year and it had steady income from leasing 15 of its 25 farms.

"Operating earnings were satisfactory given the substantial reduction in milk price," said executive chairman David Cushing. "The company’s portfolio, with a mixture of directly operated and leased farms and diversity by property type and geography, helped provide balance."

Since the company's June 30 balance date, Fonterra has further reduced its forecast for the upcoming 2015/16 season to $3.85/kgMS amid global milk supply and weak demand. However there are tentative signs of a pick up after dairy product prices jumped in the last GlobalDairyTrade auction a fortnight ago, rising for the first time in nearly six months on reduced volume of whole milk powder on offer. Prices are expected to increase again at tonight's auction.

"The low milk price forecast will inevitably result in reduced supply as farmers limit input costs, divest livestock and consider alternatives to maximise economic returns," Cushing said. "We expect dairy prices to improve by the end of 2016."

Rural Equities will pay a dividend of 5 cents a share on Oct. 7, down from 7 cents a year earlier, as it invests in existing farms.

The company is considering irrigation development on three Hawke's Bay properties within the confines of the proposed Ruataniwha water storage scheme, which it says could be developed to operate intensive mixed cropping and livestock. That follows on from its purchase of shares in the Barrhill Chertsey Irrigation Scheme, allowing it to purchase irrigation water for its Canterbury arable properties Flimby and Wentworth.

Including changes in the valuation of its properties, Rural Equities' total comprehensive income fell to $9.5 million from $24 million a year earlier.

Bank debt fell to $17.3 million from $27.1 million a year earlier, and represents 7.8 percent of the company's total assets of more than $220 million.

Its shares last traded at $4.10 on the Unlisted market, valuing the company at $146.9 million.


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