Saturday, April 13, 2024

Reduced valuations eat Pāmu profit and dividend

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Net loss after tax of $9m, compared with a profit in the previous year of $59m.
Pāmu CEO Mark Leslie says the state-owned farmer aims to achieve certification on all 110 of its farms by 2024.
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Government farmer Pāmu has declared a net operating profit 50% higher than the previous financial year, rising from $22 million to $33m.

In the year to June 30, 2023, income was $290m, down $7m, while underlying operating expenses were up 7.4% to $232m.

The net loss after tax was $9m, compared with a profit in the previous year of $59m, reflecting the $26m downwards revaluation of biological assets because of lower sheep and cattle prices.

FY2022 also included a one-off gain from the sale of four farms ($12m), the reversal of historical revaluation losses ($18m) and fair value gains of $7m on financial instruments ($1m in 2023).

A fair value gain on milk futures of $20m (recorded in income) reflected a significant turnaround from the fair value loss of $22m (recorded as an expense) in 2022.

This gain arose because the bulk of the futures were purchased early in the season, prior to the significant decline caused by weak demand in key markets.

Pāmu dairy operations earned milk revenue of $120m, down $10m, with an average farmgate payout of $8.62, compared with $9.48.

Livestock revenue was $107m, down $20m due to the sale of the four farms, along with lower livestock pricing particularly for sheep, lower live weights due to adverse weather conditions, and stock losses following Cyclone Gabrielle.

Income from wool, forestry and other business activities was slightly higher at $43m, up $3m from $40m in 2022.

Chief executive Mark Leslie said the business faced a poor outlook for commodity prices.

Combined with the magnitude and cost of Cyclone Gabrielle recovery, Pāmu directors have determined that no dividend will be paid to the government.

Last year $5m was paid.

The recent steep decline in forecast milk prices for the current season, together with softening red meat prices, means that Pāmu is looking at least 12-18 months of reduced income in the near term. 

“There is no doubt we are heading into a challenging cycle, but despite this, our strategy is still the right one,” Leslie said.

“Reduced milk prices, softening meat prices, and continuing high farm costs mean we are looking at budgets line by line and analysing where spending can be reduced, including pausing non-essential capital expenditure while carefully evaluating feed, fertiliser, and other spending.” 

The forecast net operating profit for FY24 is currently $1m to $11m.

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