Ballance bears cost of fertiliser price support

Media release for immediate use
 
30 July 2009
 
Ballance bears cost of fertiliser price support
 
Ballance Agri-Nutrients has reported a significant profit downturn in its 31 May financial year after a turbulent year of roller-coaster international fertiliser prices.
 
Ballance Chairman David Graham said it would come as no surprise to shareholders that it was a particularly difficult financial year for the co-operative, with international fertiliser prices rising beyond the reach of many farmers.
 
The trading result of $30.7 million, before year-end stock write-downs, was down 61 percent on the $78.6 million recorded last year as prices and profit margins were reduced progressively to reflect the rapidly declining international costs.
 
After opting to revalue its product inventory to reflect market value and current replacement cost, requiring a $36.7 million adjustment, the Group reported a loss of $3.2 million after tax. The write-down was considered a prudent step as it enabled the co-operative to set itself up in a strong position for its new financial year.
 
Revenue grew 27 percent to $828 million ($651 million in 2008) as a direct reflection of the higher fertiliser costs and prices applicable throughout the year, on sales volume down 28 percent at 1.115 million tonnes (1.54 million tonnes in 2008).
 
‘The global fertiliser environment, and in fact the whole world, changed dramatically during our financial year, and it is clear that Ballance has borne the cost of consistently shielding its shareholders from the worst of the fertiliser price volatility.
 
‘While this has come at a significant cost, we believe it was the right option for the co-operative as shareholders were already facing economic constraints in their own farming businesses.’
 
Mr Graham said farmers made it obvious to Ballance this year that they needed lower plant nutrient prices on the day to help alleviate some of the financial stresses they were facing, rather than a rebate at the end of the year.
 
‘We acted on this feedback, selling fertiliser at times below cost to meet our co-operative’s primary objective of delivering fertiliser to our shareholders at an affordable price – well below the prices paid by other farmers around the world.’
 
On average, each tonne of Ballance product sold cost New Zealand farmers almost $700 this year, compared with about $400 in Ballance’s previous financial year – a 75 percent increase.
The co-operative experienced record demand in the first part of the financial year ahead of heavy international price increases. This rampant surge reversed suddenly in the second half of the year, affected by the collapse of the commodity cycle and the onset of the global credit crunch, quickly killing off global demand for fertiliser.
 
‘From November our emphasis moved to reducing prices as quickly as possible, managing the implications of holding large volumes of high-cost inventory and continuing our efforts to strip costs from our business.
 
‘In light of our financial results and balance sheet impact, we will not be paying a rebate or dividend in respect to the 2009 year. Earnings do not support either form of distribution. Our budgeted outlook for 2010 is more positive and provided this is achieved it is expected that our shareholder distributions will revert to the normal range.
 
‘However, taking into consideration the below-cost prices applicable through the last half of the year, we have benefited shareholders to the tune of $76 million.’
 
Mr Graham said 2010 would be a year of rebuilding equity within the co-operative and improving its balance sheet. 
 
‘We don’t expect much change in sales volumes in 2010 compared with 2009, but we can expect an improvement in profitability and cash flow. Because of the product inventory write-downs, we have started the current financial year with a clean slate and anticipate reporting a strong bottom line this time next year.’
 
ENDS
 

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