Those figures were distorted by the change of balance date from September to December, resulting in a statutory 15-month earnings report covering two quarterly trading periods where earnings were traditionally weak, managing director Mark Clarkson said.
On a straight comparison, the pre-tax profit for the 12 months to September 30, 2015, was $14 million, up from $7.12m at the same time in 2014. Like-for-like revenues were $1.54 billion up from $1.25b.
The published figures compared the 12-month 2014 result with the 15 months to December 31, 2015, where the pre-tax earnings were just $5.7m. This covered two October to December periods where sales were low but costs higher due to the start of the procurement and processing season.
This also changed the operating cash flow numbers, finance general manager Paul Loke said. Cash flow to the end of September was $54.1m (up from $6.5m a year earlier), but by the end of last December was showing an outflow of $67.7m.
Although December 2015 borrowings were higher than at the September balance date in 2014, they are down from December 2014. Total borrowings at September 2014 were about $208m, in December 2014 about $335m, and in the latest December balance date $312m. December 2015 trade receivables and inventories were both lower than December 2014.
The jump in borrowings was mainly due to the acquisition of a 50% stake in Ashburton-based Five Star Beef in the intervening period to make it wholly-owned. The asset was bought from Japanese group Itoham Foods, which about the same time increased its shareholding in ANZCO to 68% from 45%.
Itoham now consolidates the ANZCO numbers in its own accounts and the change of balance date was made to fit in with Itoham’s financial year. Itoham has this year merged with another Japanese food company Yonekyu and together they make-up the world’s 9th biggest meat company, with giant Japanese corporation Mitsubishi owning 39%. ANZCO expects to gain from being part of this.
The $14m September pre-tax profit came after an impact of about $10m on earnings from three factors, Clarkson said. These were the volatility in US-influenced raw material prices, mainly for beef, where high prices paid couldn’t be recovered in immediate market sales; the costs of developing the group’s Food and Solutions business, including ingredients and health care; and restructuring costs as part of the increased Itoham shareholdings.
“The Food Plus initiatives are costing us as an investment and that is reflected in the bottom line.”
Food Plus was part of a seven-year Primary Growth Partnership (GPG) project, where the government was a partner. The work was about half-way through and was expected to provide gains over the next few years.
The Value-add business was now about 10% of group profits; the target was to get this up to about 30% after 2020, Clarkson said.
For this year (12 months to December 31) ANZCO was budgeting for higher revenues and profits and was on track.
He and Loke were comfortable with the group’s overall position and with the debt position. With very low interest rates, it was a good time to borrow for growth, Loke said.
“The industry here is getting squeezed by the banks, but we think ANZCO is in a better space. We have a banking group of four banks, three of them in Japan, and the other is also Asian, so we’re not reliant on the Australian-owned banks.”
ANZCO was working with Itoham-Yonekyu on four major synergy projects, mainly in chilled lamb and beef market development and the value-add Foods sector. The focus was very much on the wider Asian market.
“They will be done over the next four to five years, and we see it as part of our long-game strategy that we think will have substantial gains,’’ Clarkson said. “ANZCO’s in a strong position going forward and we’re stronger with the shareholder change.’’
Itoham was looking to internationalise its traditional Japan-based business and would also benefit from ANZCO’s expertise in some markets. “We’re handling their marketing is some markets.”
An indication of the closer working relationship was that Itoham has moved from its mid-west United States base to ANZCO’s base in Chicago, and ANZCO’s Tokyo office was working more closely with Itoham there.
On domestic processing over-capacity, Clarkson said ANZCO had tried to assist in rationalisation attempts, but to no avail.
“We put a lot of work into that and now we’re just getting on with our own work, our own strategic direction and we’ll hold on to what (capacity) we’ve got.
ANZCO’s Seafield plant near Ashburton has been one of the busiest in the country over the last two seasons, taking stock which might otherwise have gone to Silver Fern Farms and also growing numbers of stock from Southland and Otago.
The company hadn’t targeted Silver Fern and Alliance. “What we’ve done has been incidental to what they’ve done, but we’ve had increased support in recent years.”
