Half Year Results to 31 December 2021

28 February 2022

HALF YEAR 2022 REPORT

Unaudited Half Year Consolidated Result

The Directors of Allied Farmers Limited (AFL.NZX) report an unaudited consolidated net profit before tax (NPBT) of $1.438 million for the six months ended 31 December 2021. This is above the updated HY22 NPBT range of $1.2m to $1.4m provided to the market on 28 January 2022.

The following table summarises consolidated NPBT over the previous interim periods from Allied Farmers’s investments and Parent Company Operations:

[See table in attached PDF]

This higher result reflects the inclusion for the first time (for an interim period) of the NZ Rural Land Management GP Ltd (NZRLM) contribution. In addition, the NZ Farmers Livestock Limited (NZFL) contribution was considerably higher than the previous interim period, driven by substantially stronger revenue from its Farmers Meat Export business.

Profit attributable to Allied Farmers’s shareholders reflecting its 67% ownership of NZFL and 50% of NZRLM

The HY22 after tax profit attributable to Allied Farmers’ shareholders was $1.059 million (HY21 $0.228 million). Earnings per share (EPS) for HY22 was $0.0368 (HY21 $0.0079).

Dividend & Net Tangible Assets Per Share

Consistent with previous interim periods, no dividend will be paid for the period as the Company continues to retain capital.
As indicated at the Annual Meeting last November, the Board’s view is that in the short term, retaining and redeploying earnings is in shareholders’ best interests, particularly as the Independent Directors consider various funding options if Allied were to recommend calling its option to acquire the 50% of NZ Rural Land Management it does not already own (see further comment under “Focus for 2022” below).

Allied Farmers Net Tangible Assets (NTA) per share based on 67% direct ownership of NZ Farmers Livestock, and 50% ownership of NZRLM as at 31 December 2021 equals $0.42 cents per share (versus $0.32 cents per share as at 31 December 2020).

Business Segment Reports

Livestock Agency

The livestock agency result reflects the negative impacts of Covid and unfavourable weather.

Clients and agents have benefited from the continued development of our MyLiveStock digital platform, which provides important options in the face of Covid challenges. We continue a focus on agent team development and provision of supporting tools.

Farmers Meat Export

The vast majority of NZFL’s earnings for the period were contributed by Farmers Meat Export. It benefited from a faster than anticipated recovery of product prices, maintenance of stock tallies, and an earlier than usual sale of the main Spring production. The latter has removed any export logistics risk, and reflects the value of the contracted arrangements in place. This was a very strong result, built upon close management and the procurement performance of our livestock and wider team.
Farmers Meat Export shortly commences its autumn processing, which is anticipated to be at similar levels to last year. Our processor has appropriate Covid management arrangements, and we have good confidence for the more major Spring campaign mid-calendar year.

Livestock Finance

The contribution from our Livestock finance activities was slightly below last year due to buoyant livestock and dairy prices, funder constraints on the scope of lending, and repayment late in the period by several larger borrowers. We are exploring initiatives to diversify and grow this business in a capital efficient manner. Good progress has been made with our Lambplan (store lamb) lending initiative which will incrementally add to the finance offering.

NZ Farmers Livestock Outlook

Stock values are generally high, and while Covid presents some risk, particularly to primary processing and the pricing of some stock, any issue that may develop may also raise agency trading volumes. We expect significant improvements in livestock trading activity for the balance of the year due to these higher prices, the return to more favourable weather patterns nationally, good herd sales activity, and reducing Covid impacts.

Dairy herd forward sales are arranged throughout the financial year but not accounted until contracts settle late in the financial year. With dairy farm sales activity and a higher milk pay-out, these contracted sales levels are appreciably ahead of last year, and we expect to see a significant earnings contribution late in the second half of the financial year.

As in many previous years, the returns from Farmers Meat Export continue to be a major contributor to first half year performance. However, investors are reminded that typically Allied Farmers’s second half year profit is driven by factors distinct from this business that drives first half year profit.

The second half is strongly influenced by livestock trading and herd sale activity, much of which will occur in the later part of the second half, and therefore while it is not possible to forecast full year profits based on first half performance, the anticipated trading environment should ensure a pleasing full year result.

NZ Rural Land Management Partnership (NZRLM) – Manager of NZX-listed New Zealand Rural Land Company (NZL.NZX)

NZRLM contributed $0.3m to Allied Farmers in the interim period, during which NZL completed two acquisitions.

The first acquisition, completed in August 2021, was a 493-hectare hybrid dairy farm located in Waimate, South Canterbury. NZL has entered a put and call options deed where interests associated with the vendor may call for the repurchase of the property from NZL at any time.

In addition, NZL will have the option to put the farm to the vendor and require it to purchase it back in approximately two years. The purchase price will be $12m plus 4.66% per annum in either case.

NZL's second acquisition was a portfolio of six large scale dairy assets in Maniototo, Central Otago, totalling approximately 3,500 hectares. The portfolio comprises a mixture of productive dairy platforms, support farms and modern infrastructure. The purchase price for the farms was $60.640m.

The Manager continues to investigate further investments to increase sector and tenant diversity. NZL has an attractive acquisition pipeline, with the Manager progressing due diligence on several new opportunities at present.

NZRLM Outlook

It is not possible to provide a forecast for NZRLM but as stated above NZL has an attractive acquisition pipeline, with NZRLM as Manager progressing due diligence on several new opportunities at present.

Focus for 2022

The Allied Farmers’ Board continues to focus on growth in earnings per share and careful consideration of how it can utilise its strengthening balance sheet to build value for its shareholders.

Specifically, investors will be aware that this year the Independent Directors will need to consider whether Allied Farmers wishes to recommend calling its option to acquire the 50% of NZRLM it does not already own. Whilst the call option can only be exercised after 18 December this year, the Independent Directors are mindful that significant preparatory activity is required to inform and enable any decision. This work includes the timing of making any call (the option expires on 18 December 2023) and the mechanism for funding.

Mark Franklin
Chair

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Announcement PDF