High dollar shaves $1m off Landcorp payout to Crown

State-owned Landcorp, the country's biggest corporate farmer, has slashed its planned dividend to the Crown by $1 million after the high dollar and falling sheepmeat prices hit earnings last year.

CEO Chris Kelly said yesterday the continued strength of the dollar was making him "nervous" about achieving a hoped-for recovery in earnings this year.

His comments follow Fonterra chairman Henry van der Heyden's complaints about how the combination of high inflation, high interest rates and a high dollar posed a threat to the co-op's $4.05/kg of milk solids payout forecast.

Van der Heyden has called on the Government to set policy and manage its spending to help the primary sector.

Kelly said as an exporter he would like to see some sort of intervention to drive the dollar down, but wondered what could be done in practice.

He was still hopeful the dollar would fall to about US61c after the new year and help Landcorp achieve its targeted earnings for 2007.

But "the longer it stays at [around] US67c the more nervous I am getting", Kelly said.

Landcorp's annual report said it had been planning to pay a $4 million dividend to the Crown but cut this by 25 per cent after earnings before interest and tax (ebit) fell $2.8 million in the year to June.

The reduction was due to getting less cash than expected from farming operations.

However, tax-paid profit nearly trebled to $28.5 million due to the sale of land and other assets, under a strategy designed to have larger-scale farming on clustered or amalgamated properties.

The report - compiled some months ago - said further land sales in particular "will significantly support an expected recovery in dividends".

Meanwhile, a $350 million-plus jump in asset values - mainly influenced by a 42 per cent rise in farm values - took total assets to $1.38 billion, meaning a 32 per cent return on average shareholders' funds compared to 22 per cent the previous year.

Landcorp said a large portion of the gain in farm values resulted from its development of the properties.

Mild solids production jumped 16 per cent to 9.3 million kilograms, a reflection of Landcorp diversifying more into dairy over the past five years.

Landcorp has shifted 1.8 million kg of its production from Fonterra to Open Country Cheese.

It is using the Fonterra share capital redeemed to support the development of three big new dairy farms in the central North Island.

"We are looking at further ways of working with Open Country Cheese to secure economies of scale," Kelly said.

"We will jointly investigate genetics options for improving milk quality and other production characteristics, and for growth in winter milking."

Open Country reported this week that it was due to double the amount of milk it processed this season to more than 160 million litres.