Our co-operative’s $35 million gross trading result was down 57 percent from $81 million last year. Revenues were $837 million compared to $893 million. Our balance sheet remains very strong as a result of continued financial discipline, reflected in an equity ratio of 80.6 percent compared to last year’s 80.4 percent.
We bought competitively and passed our savings on to our customers effectively giving them an early rebate, rounding this off with a distribution of 87 percent of our gross trading result at year end. Our rebate payments began at the end of July, giving farmers welcome winter cashflow.
This year’s rebate of $25 per tonne means an average gross return of $2,500 for a shareholder buying 100 tonnes. Our rebate was lower than the $55.83 achieved last year for several reasons. We kept prices and margins low all year, and tighter budgets on-farm meant lower demand for nutrients. However the main driver behind the result was an unforeseen trading loss at our Kapuni ammonia urea plant.
Given tight budgets on-farm, we were unlikely to match our strong performance of previous years, but the Kapuni loss eroded what was a steady performance despite the difficult conditions. We hit a bump-in-the-road this year and we expect to deliver more returns for our shareholders again next year. We’ve had a long history of success.
The Ballance rebate will now be the primary mechanism to reward shareholders.
Ballance will not pay a dividend for the 2016 financial year. This is a departure from historic practice and follows a board decision to reward only transacting shareholders through profit distributions. The policy will apply in future financial years and acknowledges the loyalty of the shareholders who do business with us.
Non-transacting farmers will continue to benefit from increases in the value of our shares. The last revaluation was in 2013, and saw a 60 cent increase in the value of our shares to $8.10. Where a non-transacting shareholder has exited farming it is the directors’ expectation that the shareholder will apply for a surrender of their shares.
Kapuni has contributed positively to our trading results for many years, supporting us to deliver superior rebates to our shareholders. This year we had budgeted for lower profit levels from Kapuni given the usual production losses from our two-yearly maintenance shut and low international urea prices. However, production was also hit by a catalytic converter breakdown which led to $13 million in lost profits and capital. Cost recovery options are being explored. The repair required specialised replacement parts, custom-made in Europe, with a lead time of nine months from manufacture to installation. This meant that our plant was running at around 75 percent of normal production levels for most of the year. It could not be fixed any sooner.
The plant is 30 years old and operates well with regular maintenance, but it is less efficient than modern facilities. We have been seriously looking at options for a complete redevelopment of the plant – the only one of its kind in New Zealand – so that we can continue to provide a local, sustainable supply which is globally competitive.
Following the recent withdrawal of a potential cornerstone partner for a rebuild of the plant and in light of declining global urea prices and surplus global supply, the likelihood of the project going ahead in the immediate term has decreased. We have written-off scoping costs of $13.3 million
associated with a partial or full upgrade of the plant in our accounts this year.
The existing plant continues to be efficient and reliable, but like any technology, more modern plants are better all round. Our aim is to keep planning ahead and exploring options to ensure our ammonia urea plant remains a commercially viable part of business which creates value for our shareholders.
Our $21.5 million Kapuni turnaround, which involves up to 500 workers on site, went beyond its scheduled four weeks as a result of further work required on the ammonia plant. This delayed completion of the shut by two weeks. The plant is now back up and running at full capacity. A total of 1967 safety observations were carried out onsite during the shut alone, and site employees achieved a full working year with no lost time injuries.
Total sales volumes across fertiliser, industrial urea, animal nutrition and industrials were down eight percent at 1.62 million tonnes compared to 1.75 million tonnes the prior year. Tough market conditions, particularly in the dairy sector, contributed to lower fertiliser sales volumes.
Industrial sales volumes rose, with growth in hydrofluosilicic acid (HFA) volumes and sales of our GoClear exhaust additive system. The additive, which reduces nitrogen oxide emissions from diesel engines, is increasingly being used by
many truck, bus and heavy machinery operators.
Nitrogen sales remained strong as dairy farmers looked to make the most of home-grown feed. SustaiN is becoming the preferred nitrogen source for our customers, with half switching to the treated urea product to retain more nitrogen in the soil, grow more grass, and save money.
Where weather conditions were favourable, demand for phosphate and nitrogen in sheep and beef country continued to grow as farmers looked to make the most of steady returns.
In a year where dairy farmers with higher Olsen P levels were looking to draw from these to maintain production, our PhaSedN and PhaSedN Quick Start products came into their own, offering a great option to boost pasture covers ahead of autumn with nitrogen, while also fulfilling a good part of annual sulphur requirements.
We were able to pass savings on to our customers due to weak international nitrogen prices on the back of high global inventories and increased Chinese supply capacity.
The decline in the value of the New Zealand dollar put us under some pricing pressure, but we made the call to keep prices low to support farmers by absorbing as much of this volatility as possible. Our foreign exchange approach helped us to offset the weaker New Zealand dollar.
We keep a close watch on both international commodity prices and foreign exchange so our customers have access to competitively priced farm nutrient essentials.
Our superphosphate manufacturing plants at Mount Maunganui in the North Island and Awarua in the South produce approximately 600,000 tonnes of fertiliser each year to meet nationwide demand. Manufacturing processes are continuously revised to ensure optimum efficiencies are achieved.
At our Mount Maunganui site reviews of downtime reports identified bottlenecks which, when cleared, enabled average production gains of more than four hours a week or 160 tonnes. We have also trialled rock blends with the aim of achieving the best possible physical and chemical properties in our products at the most competitive price.
In June we breached our air consent for our Mount Maunganui manufacturing plant when we temporarily exceeded our permitted fluoride emissions. The exceedance occurred during a plant restart and was caused by blocked water spray nozzles which work to remove fluoride from our process. We have reviewed our procedures, systems and training to avoid any future incidents.
Our Awarua site, just south of Invercargill, manufactures for the South Island.
The plant’s annual maintenance turnaround went smoothly this year, supporting our ability to meet with the ISO 14001:2004 and 9001:2008 international environmental and quality management systems standards.
As with all labour-intensive maintenance programmes, the Awarua turnaround benefits the local economy through contracted work. Investments in site infrastructure this year included a caustic dosing system to reduce sulphur dioxide emissions, roofing replacement, paving extensions and drainage improvements. The site completed the year with no resource consent breaches.
The Bay of Plenty Regional Council has been using an air quality trailer to monitor sulphur dioxide (SO2) levels at Whareroa Marae and the harbour bridge marina, next door to our Mount Maunganui site.
The trailer was put in place late 2015 when our neighbours raised concerns about air quality and odours from local industry. Monitoring results have recorded levels above the upper National Environmental Standard (NES) for air quality on two occasions. There has been a further six instances where the lower NES level was exceeded.
We were surprised and concerned to hear of the exceedances, as our plant has continued to operate within our resource consent and our own site monitoring has not shown anything out of the ordinary.
We’re not the sole cause of this problem, but we take our part to play seriously. Following notification of the last exceedance in March, we immediately slowed production to reduce onsite emissions by more than half while we investigated the issue.
We set up a team of internal and external experts to identify the best ways to further lower our SO2 emissions long term, and we are putting in place our own extra air monitoring.
In July 2016 we installed a new caesium catalyst which is contributing to reduced SO2 emissions at the site. The board also approved a further investment of $8.5 million covering the installation of a new converter during the July 2017 turnaround to further reduce SO2 levels. This is the earliest we can complete this work due to the time required to source materials and build the convertor.
We are confident that with the changes we’ve made to our operations, we will do our part to keep within the NES. The standard is set with a protective margin to keep even the most vulnerable members of our community safe, and that’s our aim too.
We invested $6.5 million in our distribution network to support improved customer service levels and product quality, with a particular emphasis on faster turnaround of orders and improving mixing and blending services.
Our new mobile screening plant installed at Maru Street this year is already delivering some big quality improvements for high analysis fertilisers.
We invested on the back of strong demand and growth in Canterbury with a new bag store in Rolleston, and transitioned Anama from a consignment store to a service centre, expanding the site and installing a new hopper.
Our mobile SustaiN manufacturing plant based at our Timaru Hub was designed by our team to meet growing demand for this product, which has historically been produced in the North Island. Production closer to Southern farm gates means better product quality due to less handling, as well as improved ability to match local supply with demand.
Other work included an elevator upgrade at our Pungarehu store and an additional hopper at Fielding, as well as seismic strengthening throughout the network.
We continue to build on work completed at Te Kuiti and Te Awamutu to ensure these upgrades deliver to requirements.
Our new service centre at Huntly is nearing completion, and is set to open in spring 2016. Situated in an improved location, the purpose-built store is expected to deliver safety, environmental, product quality and customer service benefits.
Animal nutrition subsidiary SealesWinslow has grown market share and volume in a market which has declined on the back of low dairy prices. The business holds a leadership position in calf feed, and is now the preferred supplier of calf nutrition products to the national network of FarmSource retail stores. The new agreement formally came into effect from 1 July 2016, and covers supply of SealesWinslow-branded calf feed and the manufacturing of the Country Mile house brands range of products.
This year SealesWinslow attained FeedSafeNZ accreditation across all three mills, recognising the high quality of the animal feed products we make. FeedSafeNZ is a quality stamp from the New Zealand Feed Manufacturers Association, and aims to give farmers an additional level of certainty that products are safe and have been produced in a manufacturing plant which is regularly audited.
SealesWinslow continues to make good progress with product innovation, which included the release of a specially formulated fodder beet block to help overcome phosphorus deficiency and balance other minerals that are lacking in cattle on a fodder beet diet. We are well placed to make the most of the dairy recovery.
Super Air’s reorganisation was completed this year. We now have the most efficient combination of bases, aircraft and pilots to meet customer demand. Two aircraft are equipped with our patented SpreadSmart™ technology which enables us to best match desired productivity gains with fertiliser applications, especially in hill country areas. The system uses farm mapping to apply fertiliser exactly where it is needed and to avoid environmentally sensitive areas on farms such as wetlands.
Super Air achieved a full year of operation without lost time injuries.
Upskilling our 100-strong field team to build their capability to deliver the best possible advice is a core priority for us. We have been looking at the most effective way to transfer knowledge to our team and have invested in our digital capability to offer e-learning and science foundation training to our sales team. Part of this learning builds on better farm systems understanding to help our team shape the types of conversations we have with our customers to unlock their farm potential.
Giving farmers confidence they are getting the right advice is also important, we put 16 members of our sales team through Certified Nutrient Advisor Training this year, bringing our total number to 40.
We have invested in a new customer relationship management system to drive greater consistency and continuity of the relationship our customers have with Ballance.
The ultimate aim is a better customer experience which comes from understanding each unique farm and farmer. This is a stepping stone to delivering service through a single digital platform, providing our customers with instant access to all of their Ballance information.
We have been further strengthening our partnership with our retail merchants in recognition and respect of the relationship we share with our customers with the aim of providing a more seamless experience for them.
As land intensification builds and farmers look to diversify their interests there is a growing demand for specialist horticultural support. We appointed a new horticulture business manager during the year in acknowledgement of the specialist support this sector requires from their nutrient specialists to get maximum value from their orchards and crops.
We are committed to making it easier for our customers to do business with us by developing digital solutions which are mobile, intuitive, robust and valuable. Equally as important is supporting knowledge sharing and decision making by providing solutions to transform data into accessible, useful information.
Ag Hub has performed to expectations, however since we purchased Ag Hub in 2012 the online precision farming world has grown in leaps and bounds. Digital tools have become the norm and, as always, our farmers are at the forefront of change.
We’re continuing to build on and invest in our Ag Hub platform as we move closer to creating a onestop fully-integrated experience for all our Ballance customers.
BUILDING FOR THE FUTURE
Farmers want to see us bring them value beyond the rebate. We are making the best use of our knowledge of farming systems to help unlock farm potential and increase profits on farm. That includes continuing to build a strong portfolio of products best suited to local farming systems to lift production, and minimising nutrient losses through precision farming tools.