Tru-Test posts annual loss on writedown related to NZ dairy downturn

Tru-Test Corp, the agricultural technology company, has posted a full-year loss after writing down the value of its Dairy Technology Services (DTS) unit to reflect a downturn in the global dairy sector.

The loss was $14.3 million in the 12 months to March 31, from a profit of $4.2 million a year earlier, according to the Auckland-based company's annual report. Sales rose to $141.1 million from $140.9 million.

Tru-Test kept many of its costs in line with the previous year and would have achieved another profit if not for a $16.8 million impairment of intangible assets. Notes to its accounts say it did detailed impairment reviews "due to the current global dairy sector downturn" of intangibles related to DTS, resulting in an $8.9 million charge. It took a second charge of about $7.9 million against its NZ-based DTS cash-generating unit.

"The 2016 year was very challenging for Tru-Test," chairman John Loughlin and managing director Greg Muir said in the report. "The downturn in the dairy sector had a big impact on our New Zealand-based businesses. Our major customer for Farm Holding Tanks dramatically reduced its capital expenditure budgets and as a result purchased a significantly lower number of FHT's during the year. In addition to this, sales of our products through our retail partners also declined due to lower dairy incomes and deferred expenditure by farmers."

By contrast, "in offshore markets we have continued to grow sales and profitability which has been a very pleasing outcome given the state of the agricultural sectors in many markets," they said.

Tru-Test, which counts Australian private equity firm Kestrel Capital as its largest shareholder with a 34 percent stake, doubled in size in 2013 with what it called the "transformational acquisition" of DTS for $73 million. Gallagher Group, a rival agricultural equipment firm, sold its stake in Tru-Test in February 2014 as part of efforts to satisfy anti-trust regulator requirements in Australia, where it was attempting to make an acquisition.

Buying DTS extended Tru-Test's reach in the dairy industry after it acquired dairy automation and herd management company Radian Technology for $1 million in December 2012.

Earnings before interest, tax, depreciation and amortisation fell to $13.7 million in the latest year from $17.6 million, the annual report shows.

Loughlin and Muir said on a revenue basis, the US and Brazilian markets were again "the standout performers, offset by a sharp fall in New Zealand dairy based revenue." US sales rose 12 percent and in Brazil revenue was up 14 percent. Australian sales climbed 9 percent, driven by animal-weighing products.

"Dairy farmers have reacted to their lower incomes by reducing capital and consumable purchases (which includes our electric fence, animal weighing products and dairy automation products),'' they said. "Although we are obviously disappointed by having to reflect this write-down caused by the low point in the commodity price cycle we remain confident that this business will grow again in the years ahead as the sector recovers and the demand for new and replacement FHT's returns."

Tru-Test doesn't see an immediate revival in the dairy sector.

"We do not expect the New Zealand dairy sector to recover during the course of this financial year and anticipate gains recorded in offshore markets will likely be offset by a further retraction in New Zealand trading," Loughlin and Muir said.

The company won't pay a dividend for the 2016 year, because of the dairy downturn and uncertainty about the timing of recovery.

(BusinessDesk)

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