NZ Merino lifts annual profit 19%, meets growth targets

New Zealand Merino Co, a wool marketer that aims to develop higher-value markets for sheep products, posted a 19% lift in annual profit and said its business has doubled in value over the past three years.

Profit rose to $2.7 million in the year ended June 30, from $2.3 million a year earlier, according to the Christchurch-based company's 2016 annual report. Revenue rose 4.9% to $114.7 million while the cost of sales gained 5.7% to $104 million. It will pay its more than 500 growers a total dividend of $1.36 million, up from $1.1 million the previous year and in line with its policy of returning 50% of profit to shareholders.

Formed in 2001 to boost returns for the merino sheep industry, the company inked its longest-ever contract in the past year, agreeing to supply fine wool to Italian luxury fabric manufacturer Successori Reda for the next five years in a deal worth $45 million. The company is also expanding its reach into the strong wool market, managing the country's largest wool clip controlled by state-owned Landcorp Farming in the previous year, and more recently signing a seven-year $22.1 million contract with the Ministry for Primary Industries to improve returns from the fibre.

"The NZ Merino Company is a dynamic company committed to the vision of becoming the world's premium wool company," chairwoman Ruth Richardson said in the annual report. "The strategic anchor of the business is to unlock the merino and sheep industry's potential."

The company said it met its goal set in 2013 of doubling the value of its business within three years, based on its enterprise value which estimates the market value of the business. It's now setting similar targets for the next three years.

"The value that we seek to capture over the next three years planning period will come from innovative approaches to branded contracts for merino and mid-micron wool, creating new market segments for strong wool, and making attractive margins for specialty meats," Richardson said.

In the past year, NZ Merino handled $11.2 million of wool from Landcorp, up from $9.3 million the previous year when the companies established ties.

NZ Merino said its joint venture with meat processor Silver Fern Farms, which markets Silere alpine origin merino meat, had sharpened its in-market focus the past year, following a challenging 18 months. It booked a $60,000 share of profit from the venture, a turnaround from the $149,000 loss the previous year.

In the past year, it has focused on identifying farmers able to supply stock that meets Silere specifications year round, so the meat supplier can meet contract requirements, and invested in the Silere brand following market insight work, it said.

"This has set Silere in good stead with respect to its presence in the premium markets we are targeting," the company said.

NZ Merino shares, held by wool growers, last changed hands at $1 apiece, according to data from the company's website.

(BusinessDesk)

Click the hamburger symbol top right of our homepage to access the Rich List 2016 and other sections.