Strong sales boost Allied Farmers profits
Rural services firm Allied Farmers reported a 60 per cent lift in net profit on an improved result from its livestock division, particularly in the second half, and further cost reduction.
The Hawera-based company said net profit was $2.2 million in the year ended June 30 versus $1.4 million in the prior year. Pretax earnings were up 52 per cent to $2.4 million, ahead of the 40 per cent gain forecast in June.
Its livestock division reported a 20 per cent increase in earnings before tax to $2.7 million. Livestock sales performed strongly and commissions were up 25 per cent on the prior year, particularly in the second half due to higher levels of dairy herd sales.
The recovery in global dairy prices had renewed optimism about the sector, after a period where cash-strapped farmers had culled herds to cut costs and stay on top of debt, Allied Farmers chairman Garry Bluett said.
Buoyant cattle prices, favourable seasonal conditions, firm sheep prices and high dairy livestock sale tallies had driven performance above expectations, he said.
Livestock trading had been stronger than the previous year and benefited from strong farmer support, the growth of the livestock team, and the establishment of the MyLivestock website and mobile app.
However, returns from the meat processing business were lower than the previous period. Volumes were consistent but turnover was 20 per cent down due to lower international prices for veal and skins.
Allied Farmers has been focusing on its livestock division, having largely wound down the residual assets from its acquisition of the Hanover and United Finance loan books in 2009. That unit performed better than expected last year after a soft 2015 result when the downturn in dairy and uncertain farmgate payout caused farmers to put off buying livestock.
During the year, the company’s livestock division established a livestock financing unit, initially focused on financing service bulls and later expanding into other livestock financing. The business was already profitable, Bluett said.
The company cut corporate costs by 46 per cent to $45,000 from $83,000 and reduced debt costs, replacing $600,000 of maturing bonds with a $550,000 three-year bond at a reduced interest rate. Holders of $1 million of bonds due to mature had also agreed to roll them over for a further four-year term at a reduced interest rate.
‘‘We are delighted at this vote of confidence from the bondholders,’’ Bluett said. He noted the strong result for the 2017 financial year made it possible to negotiate improved terms.
Expectations for the current year were for ‘‘careful growth’’ in the livestock business, tempered with a flat outlook for the meat processing business as overseas prices remained low.
‘‘NZ Farmers Livestock is seeking to add experienced livestock agents as well as introducing and training younger agents and is actively looking to further expand the livestock financing business,’’ he said.
‘‘Although the meat processing business can be difficult due to the impact of pricing set by international markets, continued focus will be on opportunities to improve its profitability.’’