Allied Farmers posts first half profit, says uncertain dairy sales may weigh on second half

Allied Farmers [NZX: ALF], which is rebuilding after taking over the failed Hanover and United Finance loan books, turned to a profit in the first-half as its livestock division exceeded expectations but flagged second half sales may be weaker because of uncertainty around the dairy payout.

The Hawera-based company posted a profit of $907,000 in the six months ended Dec. 31, from a loss of $468,000 a year earlier, it said in statement. Sales rose 11 percent to $10.1 million.

Its livestock division boosted profit before tax 97 percent to $750,000 in the period, while overall livestock sales were 14 percent ahead of the same period last year. Allied flagged that second half sales, which are normally stronger than first, may decline as dairy farmers wait to see what they will be paid for milk production.

Last year the global dairy price more than halved from a record high, but have since begun to show signs of recovery, throwing up the possibility of milk collectors and exporters raising the payout to farmers to reflect the recovery in prices. Yesterday, Fonterra Cooperative Group, the world's largest dairy exporter, held its forecast payout at $4.70 per kilogram of milk solids, down from a record $8.40/kgMS last season.

"Traditionally the livestock division makes most of its earnings in the second six months and depending on the level of herd sale contracts this year we would expect the second half profits for the livestock division to exceed the first half," Allied said. "Due to the uncertainty caused by the reduced dairy payout, forward herd sales are lower than at the same time last year but we would expect herd sale activity to increase over the next few months."

Last September, Allied cut a deal with Crown Asset Management Ltd to repay $2 million by selling down its stake in subsidiary company NZ Farmers Livestock and issuing a three-year bond. It avoided liquidation in 2013, raising $600,000 in a bond issue, almost half of which was bought by interests associated with chairman Garry Bluett, and as a series of asset sales helped reduce its debt with Crown Asset Management.

"For the next six months Allied has some obligations to further repay secured debt and will focus on options to repay this," the company said. "The focus for the livestock division will be to continue to grow NZ Farmers Livestock's business activities and the company is currently exploring several options."

The asset management unit, which housed the former Hanover assets, reported a profit of $120,000 in the six month period, down from $170,000 a year earlier largely due to the write-back of a loan that was repaid, Allied said. The value of the assets to be realised is less than $100,000.

Shares of Allied rose 4.5 percent to 7 cents valuing the company at $7.5 million.


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