Landcorp - Crown Ownership Monitoring Unit

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.Landcorp 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 PerformanceLandcorp 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 Landcorp’sexpenses as farm budgets were tightened andinterest costs were cut.In addition to the net operating profit,Landcorp achieved pre-tax gains of $8.7million on farm sales (2008/09: $3.8million). On this basis, Landcorp 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 Landcorp-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.RevenuesLandcorp 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 asLandcorp continued to expand production.Dairy companies supplied by Landcorp haveindicated payout prices between $6.10 and$6.40 per kg of milksolids for the past year(2008/09: $4.45-$5.20). Landcorp’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. Landcorp 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. Landcorp’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.Landcorp’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 Landcorp properties during the year.ExpensesLandcorp’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 Landcorp reduced itsterm borrowings.9