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Pamu profit steady despite pandemic impact

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Falling deer herd and dairy property values have taken some of the gloss off Pamu’s (Landcorp) latest financial results, but chief executive Steve Carden is pleased with the state-owned-enterprise’s performance, given the circumstances posed by covid-19 and drought across much of the North Island.
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Steve Carden | September 08, 2020 from GlobalHQ on Vimeo.

Operating profit, that is earnings before interest, taxes, depreciation and amortisation (Ebitda), was $65 million, a 91% improvement on 2019.

Carden says that’s one of the best results the state-owned enterprise has had.

Revenue for the year ended June 30 increased by $10 million to $251m, compared to the previous 12 months, driven by a rise in milk and livestock income.

The pre-tax operating surplus for the year was $14m, excluding the impact of fair value losses on financial instruments, biological assets and property, plant and equipment. 

However, covid-19 affected year-end values for the company’s livestock, particularly its 86,000 deer, reflecting the deer industry’s high reliance on the food service sector, while dairy land values were moderated in line with national trends. 

After taking the asset revaluations into account, there was a $24m loss after tax, although there was a $5m dividend declared.

Carden says the Ebitda result is down to strong milk production and prices, along with keeping costs flat.

The increased revenue came from a combination of factors.

The move towards high-value products, including A2, winter milk and colostrum, and the premiums received, is paying off, but it was also a good year production-wise across the company’s dairy operation with farms ahead of targets, despite difficulties in parts of the North Island due to drought.

The organic dairy side of the business is going from strength to strength.

With six farms recently converted to organic, Pamu is the largest organic farmer in the country, and Carden says the plan is to convert another two or three of its farms a year over the next few years.

It received a premium of about $2.50 for its organic milk last year, along with significant cost savings resulting from the organic properties having a lighter environmental footprint.

He says Pamu’s diversification into non-cow milks, such as sheep milk and deer milk, will help underpin the company’s performance in the future.

It’s expected the completion of the Melody Dairies milk drying facility in Hamilton this year, of which Pamu owns 35%, will increase processing capacity for specialty milks and offer a real land-use diversification option for farmers, while the ongoing growth of the Spring Sheep milk business, half-owned by Pamu, is providing alternative sources of revenue.

At present, Pamu’s deer milk business relies on production from a single Southland farm, but in the next year it’s hoped to have another operating in the North Island.

The deer milk is principally for powders used in the food service industry, along with pharmaceutical products made by South Korean company Yuhan.

Carden says the NZ deer industry has taken a hit by covid-19, with much of the venison produced, along with the company’s deer milk powder, destined for the international food service industry, which is expected to take some time to recover.

That’s reflected in the valuation of its deer herd.

Pamu has continued its focus on alternative land use, with its initial avocado orchard on one of its Northland farms on track for harvest in 2022.

Carden says if that goes well, further expansion into avocados is possible but for now it’s a step-by-step approach as the company has never before farmed horticultural crops.

Meeting the new freshwater regulations while maintaining profitability will be a challenge but he says that’s no surprise, as the Government has talked about what it wanted to achieve for a few years and Pamu has been working towards ways to meet those goals.

That’s included a significant focus on winter grazing in Southland and South Otago, particularly on reducing its reliance on winter cropping, which will likely involve changing the set-up of farms.

To do that, the company has trialled ways to reduce the amount of winter cropping on its farms, including through all-grass wintering on a Southland drystock farm and the construction of a pilot composting barn near Balclutha to keep cows off sensitive soils and provide shelter for them leading up to calving.

There’s still a lot of work to be done to make the transition but Carden says the pressures on the environment are not going to go away and the sooner they are faced the sooner solutions can be found.

He says it is difficult to predict how the current financial year will play out for the company, but the agriculture sector’s ongoing strength through the initial phase of covid-19 provides some confidence for the future, despite the economic uncertainty.

Pamu’s annual report will be published at the end of September.

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