Half Year Results to 31 December 2022

28 February 2023


HALF YEAR 2023 REPORT

Unaudited Half Year Consolidated Result

The Directors of Allied Farmers Limited (ALF.NZX) report an unaudited consolidated net profit before tax (NPBT) of $2.097 million for the six months ended 31 December 2022. This is +46% percent higher than the NPBT of $1.438 million for the six months ended 31 December 2021.

The following table summarises consolidated NPBT over the previous interim periods from Allied Farmers’ investments and Parent Company Operations [see attached PDF}

This higher result reflects a record contribution from Farmers Meat Export Limited (FMEL).

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

The HY23 after tax profit attributable to Allied Farmers’ shareholders was $1.585 million (HY22 $1.059 million). Earnings per share (EPS) for HY23 was $0.055 (HY22 $0.0368).

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 Company continues to utilise tax losses and therefore paying unimputed dividends does not make sense. The Board strongly believes that in the short term, retaining and redeploying earnings is in shareholders’ best interests.
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 2022 equals $0.54 per share (versus $0.42 per share as at 31 December 2021).

Tax Losses

Allied announced on 28 November 2022 that it had obtained a Private Ruling from Inland Revenue under s 91E of the Tax Administration Act 1994 that will result in a significant increase in the tax losses currently available to the Allied Farmers Group.

Since then, Allied continued to work with Inland Revenue in relation to the ruling.

In the financial statements for 30 June 2022 no tax losses were recognised as an asset, and there was a disclosure that tax losses of $36,288,403 were available (2021: $40,568,976).

Allied now expects the amount of tax losses available as at 31 December 2022 should be: $187,935,558 (2021: $192,731,161).

The ability to utilise the tax losses is dependent on continuing to meet shareholder continuity requirements of prevailing income tax legislation.


Update on Acquisition of 50 percent of New Zealand Rural Land Management (NZRLM)

On 19 December 2022, Allied announced the exercise of its call option to acquire the 50% of NZ Rural Land Management (NZRLM) it does not already own. PwC is in the process of determining a binding valuation of that stake (NZRLM Consideration).
In accordance with the call option deed, on receipt of the binding valuation from PwC, the vendors of the 50 percent of NZRLM not owned by Allied (the Vendors) are required to notify Allied Farmers whether they would like to receive the NZRLM Consideration in cash or Allied Farmers’s shares. While no decisions have been made, Allied Farmers understands that the Vendors are likely to request that the NZRLM Consideration be satisfied in cash.
On receipt of this notice the Independent Directors Committee of Allied Farmers, Shelley Ruha and Philip Luscombe (IDC) will, in consultation with its external advisors, determine the optimum manner in which to satisfy the NZRLM Consideration. Again, while no final decisions can be made prior to the receipt of notice from the Vendors, the IDC is exploring the possibility of satisfying the NZRLM Consideration in a mixture of cash and NZ Rural Land Company Limited (NZL) shares. The cash component would be funded by a combination of cash reserves and borrowings. Because this would not require an issue of any new Allied Farmers shares, shareholder approval would not be required.
A further update will be provided once both the valuation has been received and the way the NZRLM Consideration will be funded and satisfied has been decided.

Business Segment Reports

New Zealand Farmers Livestock Limited (NZFL) - 67% owned:

NZFL again reports a half year result significantly improved on the previous half year, driven heavily by a strong veal processing spring campaign. Livestock agency performance was impacted by the weather, grass and market conditions, but still slightly ahead of 2021/22 first half result. Improved livestock agency performances in the later months of the period are pleasing. It is very early in the year to gauge likely full year dairy herd forward sales (generally completing and accounted in June), but indications are that these will be behind last year’s record year.
The livestock financing business progressed well through the transition of all but the seasonal lending, from own-funding to the Heartland Bank referral-based arrangement, to be only just short of the 2021/22 half year. Directors are pleased with this progress, and this lower risk platform is expected to support its future growth. Seasonal lending has progressed ahead of last year.
NZFL has reviewed its capital requirements during the period. A combination of being debt free outside of overdraft and seasonal lending facilities, release of capital from lending that is now funded by Heartland, and a profitable half year, will likely enable NZFL to make significant distribution to Allied Farmers and its minority shareholders.

NZFL Outlook:

NZFL acknowledges the challenges that Cyclone Gabriella has created for the rural community. While most of NZFL’s people and activity lie outside of the cyclone’s major impact areas, we acknowledge the tragic loss of life, disruption, and the lengthy recovery ahead for many.
NZFL’s assets suffered no damage, but it is reasonable to expect some impact to stock trading over the balance of the financial year, especially at 52% owned Redshaws which is based in the Hawkes Bay.

NZFL remains focused on national growth, digital innovation, improving agent performance, and cost management. Effort continues to grow the veal processing contribution, with work to improve calf supply chain integration, further improve our partnering outcomes, and to meet the anticipated challenges during the year ahead.
In terms of the recent weather events in New Zealand, NZFL assets suffered no damage but it is reasonable to expect some impact to stock trading over the balance of the financial year, especially at 52% owned Redshaws which is based in the Hawkes Bay.


NZ Rural Land Management Limited Partnership (NZRLM) – 50% owned:

NZRLM is the external manager of NZX-listed New Zealand Rural Land Company Limited (NZL).
On 21 October 2022, NZL entered in to an agreement to acquire its first forestry estate. The forestry estate encompasses a 2,400ha of existing pinus radiata forest located in the Manawatū-Whanganui region in the North Island. The purchase cost will be approximately NZD$63 million subject to final costs. The acquisition is scheduled to complete on 15 April 2023.
NZL has signed a 20 year lease with New Zealand Forest Leasing Limited for the estate which will commence on completion of the acquisition. New Zealand Forest Leasing Limited has significant experience in the forestry industry. Established in 2010, it owns more than 60,000ha of forests and leases a further 43,000ha, being one of the 10 largest freehold landowners in New Zealand. The forestry estate acquisition is expected to be approximately + 16% accretive for FY2024 AFFO and Dividend Yields on a per share basis for NZL shareholders.
The acquisition reflects NZL’s strategy of diversifying its portfolio of rural land assets, which currently comprises 11,710 hectares of dairy farms across Canterbury, Central Otago and Southland. The estate will be the first forestry land in NZL’s portfolio. These assets are all underpinned by long term triple net leases with CPI-linked rental adjustments, positioning NZL well in a high inflation environment.
NZL has announced a 1:3 pro-rata rights issue at $1.00 per share to raise $38mln to fund the acquisition. NZL also has indicative approval from its primary funder, Rabobank, to increase its revolving credit facility by approximately NZD$25 million, being approximately 40% of the purchase price in line with NZL’s gearing policy.
NZRLM reported earnings of $834,000 for the period ending 31 December 2022. Allied Farmers as 50% owner of NZRLM reported earnings from NZRLM of $417,000.

NZRLM Outlook:

The outlook for NZRLM remains positive driven by a large opportunity set for NZL and an expanding international investor base at NZL.

In terms of the recent weather events in New Zealand, NZL’s assets suffered no damage and forestry estate acquisition was also unscathed.

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Announcement PDF