E ko te hau ka Wherū - Financial stability in changing times

Navigating the economic winds of the past year has impacted all the levels of the business, but a strong focus on fiscal stability means PKW’s performance will continue to provide certainty for our Rau Titikura / shareholder whānau.

“No-one has been immune from the high interest rates and fast rising inflation, from households trying to make ends meet right up to the largest NZ businesses,” says Jahron Neha, Te Rau Māhorahora / General Manager Finance and Investments. “Cost management and discipline have been key throughout the year to manage the impacts on the business.”

As PKW Farms forms such a significant part of the Incorporation, a sharp focus on robust budgeting and financial controls has taken place within this business unit.

“Despite the economic pressures and a falling milk payout, we have been able to retain our focus and make wise budgeting decisions throughout the year, and subsequently have a respectable profit expectation,” says Jahron. “We should acknowledge our kaimahi out on the paddocks and our farming partners for their vigilance and diligence despite the pressures they experienced.”

Other key considerations regarding the end-of-year financial report include Miraka Hipi, which has just completed its first full year of operation. With the first milk pick-up in July 2022, all the operational targets for this new business venture have been met and the attention now turns to scalability, a key element to achieving the financial expectations over the longer term.

“We are following a clear strategic pathway for our sheep dairying business in order to gain improved financial returns,” explains Jahron. “Increasing the scale of the operation, with more milking ewes on more farms will deliver a beneficial return, but the initial timescales for that have been extended, largely in response to the sharp increases in interest rates and on-farm related costs.

However, while this start-up phase will be financially challenging, we have already gained the benefits of the other key drivers for this enterprise – the reduced environmental impact of this alternative land use, and the diversification of our portfolio.

“Miraka Hipi is a relatively new industry in New Zealand, and we are only one-season into our experience and learnings. There is still an exciting journey ahead of us.”

Another new investment was entered into this year by joining the Aotearoa Fisheries Limited and Pūai Tangaroa consortium to purchase $48 million worth of kōura quota (PKW acquired $1 million of quota). A significant driver behind the investment decision was that the purchase of the quota meant a culturally significant resource remained in Māori hands.

Fiscal responsibility extends to the debt management approach for the organisation, and a robust tender process was employed to ensure the best lending rates were secured.

As a result, ASB has joined Rabobank in holding PKW’s loans.

“PKW has held a strong relationship with Rabobank for 14 years and value the dairy farm expertise the team there have shared with us over that time,” says Jahron. “Ensuring the best value for our Rau Titikura/Shareholders is always our first priority and ASB’s offering was an opportunity that complements our arrangement with Rabobank.”

The valuation of the corpus whenua can have a disproportionate impact on the year-end figures, given that the prescribed value would only be realised in the event of a sale.

“The land value can be extremely volatile, demonstrating huge swings in dollar terms on an annual basis,” says Jahron. “But this is commonly referred to as a ‘paper adjustment’ as selling corpus whenua would never take place. Despite that, it is still a significant contributor to the balance sheet and can have a large impact on our reported final profit result.”

“We are expecting a fall in valuation this year, negatively impacting the bottom line.”

“That perpetual leases remain in place over 86% of our whenua portfolio is a constant reminder of the words of Te Whareaitu, “Ko te mana raihana kāore nei he oranga.” The inherited leasehold regime will continue to constrain our efforts to lift financial outcomes but we will continue to strive for prosperity when the wind abates. ‘He raupō ka piko e te hau, ka ara.’”

The 2022/2023 financial year report will be available with the release of the annual report in October. Shareholders wishing to receive a hard copy should order one by calling the PKW office on (06) 759 9373 (freephone 0800 759462) or email reception@pkw.co.nz. The report will also be available on the PKW website –https://www.pkw.co.nz.