INFORMED FARMINGCHIEF EXECUTIVE'S REPORTLANDCORP FARMING HAS MADESOLID PROGRESS THROUGHANOTHER YEAR OF MIXED FORTUNESFOR NEW ZEALAND AGRICULTURE.Chris KellyCHIEF EXECUTIVE8
LANDCORP FARMING LIMITED AND SUBSIDIARIESFINANCIAL PERFORMANCEDollars in millions unless otherwise stated 2009/10 2008/09Dairying has improvedwith milk prices upfrom their sharp fall in2008/09, while sheepmeat,venison, beef and woolhave once again beensubject to depressed orvolatile market conditions.Drought or unseasonalcold hit production insome regions through thepast season.For all producers, the persistently-high valueof the New Zealand Dollar and domestic costpressures continue to pull down returns. In themeat industry, the need is ever more pressingfor a major transformation that enablesfarmers to secure greater value from producingmore closely to consumer market demand.<strong>Landcorp</strong> has, nonetheless, continued to securethe benefits of long-term diversification inits production, of tight control on operatingexpenses and of initiatives for increasedproductivity, for better linkage to markets,and for sustainability and environmentalprotection.Financial Performance<strong>Landcorp</strong> made a net operating profit for theyear ended 30 June 2010 of $10.0 million, upfrom $6.9 million in 2008/09. The increasewas due largely to an industry-wide recoveryin dairying, and to reduction in <strong>Landcorp</strong>’sexpenses as farm budgets were tightened andinterest costs were cut.In addition to the net operating profit,<strong>Landcorp</strong> achieved pre-tax gains of $8.7million on farm sales (2008/09: $3.8million). On this basis, <strong>Landcorp</strong> will paythe shareholders total dividends for 2009/10of $18.0 million, with $9 million of thisbeing special dividend funded from farmsale proceeds.Total shareholder return for 2009/10 was aloss of $112.5 million (2008/09: $76.0 millionTotal operating income 169.9 174.1Net operating profit 10.0 6.9Total shareholders’ return (112.5) (76.0)Net profit on equity investment 4.5% 3.2%(share capital and retained earnings)Total shareholders’ return on average shareholders’ funds (8.1%) (5.9%)(including redeemable preference shares)loss) due largely to unrealised reductions inthe value of <strong>Landcorp</strong>-owned farms. Thesereductions amounted to $120.5 million(2008/09: $97.9 million reduction) after dairyand drystock (sheep and beef) farms fell invalue by 14 and 10 per cent respectively.Revenues<strong>Landcorp</strong> revenues from dairy, livestock andforestry operations during 2009/10 were$163.0 million, up 1.6 per cent from theprevious year ($160.3 million). The increasereflected a 29.5 per cent jump in milk revenueto $70.2 million (2008/09: $54.2 million),more than offsetting income reductions fromsheep and deer farming.Milk revenue was restored almost to its2007/08 level as prices recovered and as<strong>Landcorp</strong> continued to expand production.Dairy companies supplied by <strong>Landcorp</strong> haveindicated payout prices between $6.10 and$6.40 per kg of milksolids for the past year(2008/09: $4.45-$5.20). <strong>Landcorp</strong>’s milksolidsproduction reached 11,504 tonnes, up 2.6 percent on 2008/09 despite summer drought onNorthland dairy properties. At 30 June 2010the company had 33,091 dairy cows on 41dairy units throughout New Zealand.Sheepmeat revenue declined to $37.6 million(2008/09: $43.7 million), due mainly to alower level of lamb prices through the year.Indicator schedule prices were down around12 per cent in June 2010 compared withJune 2009. <strong>Landcorp</strong> also reduced sheepmeatproduction to 9,639 tonnes for the year(2008/09: 10,130 tonnes) as commercial flockscontinued to recover from drought in previousyears. Lambing rates were overall slightly downin 2009/10 although the South Island rate wasa record 139 per cent. Wool revenue for theyear was virtually unchanged at $5.9 million(2008/09: $6.0 million).Deer revenue was down sharply to $14.5million (2008/09: $24.1 million) in responseto lower venison prices through the year.Indicator schedule prices were down around21 per cent in June 2010 compared withJune 2009. <strong>Landcorp</strong>’s venison productionalso declined to 2,060 tonnes, continuing acontraction in the previous years.Beef revenue increased to $31.3 million(2008/09: $30.7 million) on production of10,268 tonnes (2008/09: 11,162 tonnes).Beef schedule prices improved through thesecond half of the year. Forestry revenue morethan doubled to $2.7 million (2008/09: $1.1million) due to increased forest sales and anallocation of carbon emission credits.<strong>Landcorp</strong>’s total income for 2009/10 (includingdairy, livestock and forestry revenues) wasdown to $169.9 million (2008/09: $174.1million). The decline reflected largely a lowerlevel of subdivided land sales, and reduction inthe value of silage, hay and balage producedon <strong>Landcorp</strong> properties during the year.Expenses<strong>Landcorp</strong>’s operating expenses for 2009/10were down 3.9 per cent to $148.5 million(2008/09: $154.5 million), largely due to areduction in farm working expenses by8.8 per cent to $62.9 million. This reflects astrong focus on cost management by farmmanagers, resulting in operating expensesbeing $2.4 million below budget. Thecompany’s improved net operating profit for2009/10 was a reflection of this reduction, andof a 10.8 per cent fall in interest expenses to$11.4 million (2008/09: $12.8 million). Interestexpenses came down as <strong>Landcorp</strong> reduced itsterm borrowings.9
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