Landcorp Farming Limited, trading as Pāmu, has reported a Net Operating Profit* of $33 million for the year ended 30 June 2023.

Pāmu Chief Executive Officer Mark Leslie said: “Despite challenges such as Cyclone Gabrielle, continuing adverse weather, and falling market prices, we’ve achieved an increase of $11 million on the prior year’s Net Operating Profit of $22 million.

“Balancing performance with our purpose—to enrich our land, people, and the future of food and fibre for Aotearoa New Zealand—ensures Pāmu and its people remain on the right path and are well prepared for what might unfold in the future. Adverse weather and unfavourable economic conditions over the past seven months have tested us, but it’s also proven our people to be courageous and resourceful.

“Despite ongoing challenges, Pāmu is firmly focused on running an efficient business, with an emphasis on sustainability, innovation and being a safe, responsible employer. As a biologically based, year-round, outdoor business, climate change poses the biggest challenge to our performance aspirations.

“Cyclone Gabrielle has a long tail and subsequent adverse weather has taken a toll. We continue to support our people and communities as they manage ongoing connectivity, roading, and access issues. There will be further impact on our bottom line as we reinstate infrastructure and work to regenerate slips and lost pasture, repair or replace damaged fences, clear slips, and maintain farm tracks. We also have a continued emphasis on safety and well-being.

“It’s never been more important to lead positive change. We continue to build resilience and focus on adaptation to climate change, investing in reducing emissions, and supporting the protection and enhancement of natural assets.

“We recently announced a project to measure the benefits of our native ecology in economic terms and we are confident this work could fit into a biodiversity credit system. We are also proud that more than half our farms are now Toitū carbonreduce certified, ” Mark Leslie said.

The past year saw Income reach $290 million, down $7 million (2.4%) from 2022.

Livestock revenue of $107 million was $20 million down from the prior year following the exit from four farms on 30 June 2022, together with lower livestock pricing particularly for sheep, lower live weights due to adverse weather conditions and stock losses following Cyclone Gabrielle.

Milk revenue fell to $120m, down from $130m in 2022. The decrease was due to lower farm gate milk prices with Pāmu receiving a weighted average of $8.62 per kg of milk solids (kgMS) in 2023 compared to $9.48 in 2022.

A fair value gain on milk futures of $20m (recorded in Income) reflects 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.

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

“With pressure on income it is pleasing Pāmu demonstrated strong control of operating expenses throughout the year despite inflationary pressures,” Mark Leslie said.

Total operating expenses fell by $10 million, largely due to the 2022 total including a $22 million loss on milk futures contracts. There were also $4m of savings this year due to the exit from four farms on 30 June 2022. After adjusting for these factors underlying operating expenses rose by $16 million (7.4%) to $232 million reflecting higher prices for fertiliser, fuel, and other inputs during the year. This increase is broadly in line with the Statistics New Zealand Farm Price Index average inflation of 7.2%. Personnel and other expenses rose by $6 million reflecting tight labour market conditions, although last year’s figure included a one-off reduction of $2m following the reversal of a holiday pay provision.

The net loss after tax of $9 million for the year ended 30 June 2023 compares to a profit in the previous year of $59m. It includes a fair value loss of $26 million on biological assets due to sheep and cattle prices declining steeply in 2023 (FY22 $20m gain). Last year’s result also included “one-off” gains 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).

Total Comprehensive Income shows a loss of $30 million, compared to a profit of $430 million in 2022, reflecting the fact that last year’s total included a valuation gain of $355 million due to the triennial property revaluation taking place.

A further significant component of the swing was the $33 million fair value loss on carbon credits, compared to a $33 million gain in 2022 mirroring ETS uncertainty. This was due largely to their prevailing market price on 30 June 2023 being materially lower than 30 June 2022, although the price has now recovered significantly.

“The business now faces a poor outlook for commodity prices. This, combined with the magnitude and cost of Cyclone Gabrielle recovery, and the need to progress initiatives to boost the resilience of the most heavily impacted farms, has determined that no dividend will be paid,” Mark Leslie said.

Future forecast

The recent steep decline in forecast milk prices for the current season together with softening red meat prices means that Pāmu is looking at 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,” commented Mark Leslie.

“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.”

“We won’t be saving ourselves to greatness, instead farming excellence, driving productivity, and optimising dollars spent is the way forward for our Pāmu teams,” he said.

Forecast Net Operating Profit for the year ahead is set to decrease, and Pāmu is updating its full-year forecast to be between $1 million and $11 million for year-end 2024. This reflects unfavourable sheep and cattle prices, and the conventional milk price forecast decreasing to reflect Fonterra’s current forecast range of $6.00 to $7.50 per KgMS.

*Net Operating Profit is the principal measure of performance for Pāmu Landcorp Farming Limited.