Fert company riding out dairy downturn

Chairman John Henderson says it seems dairy farmers are reacting to their reduced cashflow by looking after their pasture rather than buying in supplementary feed.

Speaking on the company's annual results for 2015-16, Henderson said Ravensdown had expected the year to be difficult.

"We thought the dairy sector was going to be a real challenge for us this year and it hasn't materialised as we thought it would," he told Rural News.

"We are wondering whether dairy farming is moving away from supplementary feed and just concentrating on growing grass," he says. "Let's hope that's correct."

Ravensdown announced a profit before tax and rebate of $62 million for the year ended May 31, 2016, up from $46m in 2015; it will pay a total rebate of $41/tonne to shareholders.

Henderson says it's a very satisfying result – the culmination of a three-year strategy of incremental improvements by focusing on fundamentals.

Shareholders already paid an interim rebate of $21/t in June will now get another $20/t; at least $44m will then have been returned to farmers.

"Being able to pump $44m back into the rural economy when times are tough, being able to provide an interim rebate to our shareholders during the year -- that was satisfying," Henderson says.

"And we've been able to take our prices down regularly through the season and pass that on to our shareholders; that's equally satisfying."

He believes Ravensdown has outperformed the sector with a better rebate, and in passing on value in the form of technical advice and product quality, and leading in price cuts throughout the year.

Price cuts on urea and superphosphate were worth at least $60m on an annualised basis for farmers. The co-op spent $33m on infrastructure and $4m on R&D.

Operating cashflow was $106m. Equity was further improved via retained earnings -- equity ratios is 84% -- and the co-op was net debt-free in 2015-16, versus 2012 when the equity ratio was 41% and the company owed $355m.

The rebate is down from the $50/t paid in the previous year, but Henderson says that was achieved by tapping into reserves.

"This year we've got $44m out of profit, but also we have 10-odd million back after tax that we've got for capital reserve, so it's satisfying that we're building the capital of the company and still paying a good rebate."

A highlight of the year was building a blending tower at the Hornby plant, that can make a precisely metered custom blend on the fly, and loading it straight into a spreading contractor's truck.

That machine is proving to be "a real gem," Henderson says. "We're thrilled at how well it works and we're finding all the time that it can do other things that are going to add value to our business."

Contracts are let for a second tower in a big redevelopment now underway at the co-op's New Plymouth plant.

Ravensdown 2015-16 result summary

• Rebate of $41/t; $21/t already paid in cash. The remainder of $20/t will also be paid in cash unless the customer is not a fully paid-up shareholder, in which case up to half will be distributed in shares and the rest in cash.

• No net debt. Equity ratio at 84% pre-rebate and 75% post-rebate.

• $106m operating cashflow.

• Operating profit of $62m.

• A revaluation impairment of $3m associated with discontinuing activities. $10m post tax and after rebate in retained earnings to spend on current and future capabilities.

• $33m spent on infrastructure including new loaders, conveyors, roofing, laboratories and precision blending machinery.

• Infrastructure upgrade funded without need for extra capital.