Triple profit still not good return

Landcorp has tripled its first half operating profit, largely due to improvement in livestock prices:

Net operating profit was about $11 million in the six months ended Dec. 31, up from $3.2 million a year earlier, the company said in a statement. Sales climbed 13 percent to $103 million.

Sales growth at New Zealand’s largest farming company was led by a 27 percent increase in revenue from livestock to $46.3 million, reflecting higher prices for meat and store animals. Dairy revenue rose 2.5 percent to $53 million on higher milk sales. Total expenses rose to $87 million from about $80 million, largely due to the rising cost of fuel.

“In the North Island, Landcorp operations were not constrained by weather extremes as they have been during each of the previous four springs,” the company said in its half year report. “Grass growth was strong in both islands, and reproductive performance unhindered by storms or exceptional dry conditions. These results were positive for the continued rebuilding of flock and herd sizes following the severe droughts of 2007 and 2008.”

Landcorp expects a positive outcome for 2011/2012, with a net operating profit above $20 million and a $15 million dividend payment for the year.

First-half net profit, which includes changes in the value of livestock required by NZ IFRS accounting standards, rose 73 percent to $71.95 million.

That last sum is an accounting entry which reflects the increase in the value of capital stock rather than revenue.

It all sounds very impressive but the expected $15 million dividend doesn’t look nearly as good as a percentage return on the value of its assets – $1.6b last year and given the increase in the value of land and stock it will be higher now.

Among the arguments against allowing the sale of farmland to foreigners advanced in the last couple of weeks is that it provides unfair competition for local buyers.

Is competition from an SOE any fairer?

2 Responses to Triple profit still not good return

  1. Deborah says:

    Before we can assess whether or not it’s a good return on investment, we need to know what typical returns are within the primary sector. If Landcorp is doing as well or better than most farmers, then what’s the problem.

    Also, earning a financial return is not necessarily the only reason to own property, even for governments.


  2. homepaddock says:

    Deborah – It’s not whether or not Landcorp is doing better than most farmers (and off the top of my head I don’t think it is).

    It’s what’s the best use of the capital and whether the government could get a better return from other investments.

    Selling the farms, individually and gradually, would free up the money which could then be used for greater needs such as education and infrastructure.


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