Monday, February 26, 2024

Conservative decisions from fertiliser co-ops

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Ballance, Ravensdown hold on to soaring profits in face of global uncertainty
The big shift in policy has been accepted by farmers given the uncertain times, Ballance chair Duncan Coull says.
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The two big fertiliser co-operatives have taken similar conservative financial decisions in their 2022 annual results to safeguard farmers’ fertiliser needs and bolster balance sheets.

They have done so because of very high world prices for their source nutrients resulting from the war in Ukraine and what was described as “immense international uncertainty”.

The co-ops increased profit by 80% compared with FY21 but opted to retain the lion’s share and reduce their rebates to farmer-shareholders.

Ballance rebated $30/tonne compared with $50 the previous year; Ravensdown paid $25, down from $30 in FY21.

Ballance retained 66% of net profit and Ravensdown 73% whereas in 2021 they paid out 95% and 63% of profits respectively.

The big shift in policy has been accepted by farmers who regard retentions as funding for the future in uncertain times, Ballance chair Duncan Coull said.

Co-operatives have a limited number of ways to raise capital – retentions, borrowing and new memberships.

“We have long held the view that if the co-op doesn’t have a need for capital then it is best in the hands of shareholders,” he said.

But carbon emission reductions at the Kapuni site will require large capital inputs.

Working capital requirements have increased because of the high fertiliser prices and shipping disruptions.

For Ballance, debt increased from $74m to $226m.

For Ravensdown, debt went up from $9m to $118m.

Coull also pointed to capital expenditure of $95m last financial year, a large portion of which has been spent on the new Whangarei depot.

Ravensdown chair Bruce Wills said the combination of high input costs and global uncertainties has prompted the directors to be very conservative with the rebate and the retention.

Equity has increased 24% to $609m although the equity ratio has fallen from 78% to 62% reflecting the higher inventories and greater need for working capital.

Finished goods and raw material inventories have increased by almost three times from $132m to $347m.

Likewise, Ballance reported a near doubling of inventories, from $169m up to $318m.

Total equity for Ballance is now $547m, compared with $476m 12 months before.

The two co-operatives differ in share structure; Ballance has a nominal value of $8.10, unchanged for five years, whereas Ravensdown has a standard $1 share.

Ravensdown had 336 million shares at balance date while Ballance had 46m across 17,000 shareholders.

The Ravensdown shares have a net asset backing of $1.80 whereas the higher-value, less numerous Ballance shares have a net asset backing of $11.74.

Coull said the net asset backing has been steady at about $10 for the past five years as profits were paid out in rebates.

Now that $74m of profit has been prudently retained, shareholders can expect a higher nominal share value in future when business uncertainties quieten down.

Both co-operatives have deferred payment schemes for new shareholders and five-year exit delays for “dry” shareholders who are leaving farming.

Both companies also claimed to have absorbed some of the impact of rapidly increasing world fertiliser prices on their farmers. 

Ballance chief executive Mark Wynne said the buffering cost was $54m.

Ravensdown said it has reduced product margins and returned a group margin percentage lower than FY21, in order to leave more cash in the hands of farmers.

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