Landcorp lifts profit to $3.2m for first half

State-owned farmer Landcorp made a net operating profit of $3.2 million (2010: $6.4m loss) for the first half of the 2011 financial year.

Company chairman Jim Sutton said the turnaround reflected the strength of the company's dairy, sheep and beef operations in the half year to December 31, 2010, which saw both increased product prices and the financial impact of extreme weather events.

Mr Sutton said today that Landcorp was on track for a full-year net operating profit better than the 2010 result of $10.0m, as long as key regions were not hit by extreme weather, commodity prices did not drop, and exchange rates did not deteriorate.

The half year's net profit was driven by a 32 percent jump in dairying income (to $51.7m) from higher prices and milk volumes. Payouts from dairy companies for 2010/11 are forecast to be above $7/kg of milksolids, compared with $6.10/kg - $6.40/kg for the previous year. Fonterra has promised its farmers a record payout of up to $8/kg.

Landcorp revenues from all farm products, including milk, increased to $91.7m for the half year (2010: $74.6m) with beef, lamb and wool also contributing. Average indicator prices paid to farmers for beef in the half year were up 16 percent and lamb rose 7 percent compared with the first half of 2010. The crossbred wool indicator rose around 30 percent over half year.

These revenues lifted even though storms in August and September hit new-born lambs in both North and South Islands, and set back weight-gain in sheep and deer across all ages.

The South Island lambing rate fell to 132 per cent from a 2009 record of 140 percent, while the North Island's fell to 126 percent. Early storms were followed by low rainfall and high temperatures during October and November across the upper North Island, and western and central parts of the South. The big dry hurt pastures at a time when grass growth would normally be peaking.

Landcorp bought in supplementary feed to counter dry conditions, and at mid December, its milk volume for the season was 8 percent higher than in November 2009. Rain fell across much of the country late in December and January.

Operating expenses were $80.5m, up 12 percent compared with the corresponding period in 2009/10, largely because of the increased cost of supplementary feed and other costs related to the extreme weather. But the higher expenses were more than offset by the half year's revenue gains.

The net operating profit of $3.2m also reflected a 16 percent drop in net interest costs, down to $5.4m as the company continued its policy of debt reduction. Bank loans at December 31, 2010, were well below budget at $174.5m. There were no farmland sales in the half year, although two farm blocks were the subject of negotiations.

Landcorp's total shareholder return of $41.4m for the half year (2010: $22.3m) included a $51.9m revaluation gain on livestock as increased demand for replacement animals in many regions pushed up sheep and cattle prices.