The company had invested a lot of money in the brand and marketing operations for the value-added trade, launched in March last year, covering beef, lamb and venison products, chairman Rob Hewett said.
A new German marketing team had been put in place to build awareness of the premium, grass-fed products and the range was now stocked in more than 1000 stores.
The up-front costs of the project were one of the factors in Silver Fern Farms suffering a net operating loss $7.5 million in its year ended September 30, a year described by Hewett as one of the toughest in a long time, especially for lamb but also in beef because of currency impacts.
Experiencing the dual downturn at the same time had been difficult to cope with.
The trading figures included a $5.5m cost of transferring venison processing to Pareora, near Timaru, and also building new cold storage there while there were also costs of shareholder meetings relating to the Shanghai Maling investment in the group.
Otherwise the result was close to a break-even outcome, Hewett said.
The value-add retail business made up about 5% of the total group business and with the benefit of the $267m capital injection from Shanghai Maling, the directors were targeting it to increase to 10% over the next four years or so as part of the move to a higher-value future.
“If we can do that, it would be a real tipping point for us.”
The domestic NZ market was becoming more important for Silver Fern and it was also used as a test-bed for the introduction of new products into bigger markets.
Total value-add sales increased by 31% during the year.
Silver Fern would also be working to increase the ratio of chilled product sold internationally, though it had also increased well, to more than 40% for beef and more than 30% for lamb in the latest year.
Silver Fern’s operating loss of $7.5m compared to a profit of $30.8m in the 2015 year ended September 30.
Revenues fell to $2.2 billion from $2.5b. Many companies judged their earnings on the Ebitda measure (earnings before interest, tax, depreciation and amortisation). The figure for Silver Fern was $32.1m, down from $90.5m in 2015 and $68.5m the year before that.
Lamb marketing was difficult and compounded by the UK Brexit vote in June last year, which caused an overnight 35% lift in the value of the NZ dollar against sterling.
Sheep meat volumes sent to the UK were not substantial but were high-value leg cuts and the UK was still the best paying market, Hewett said.
The kiwi also strengthened against the euro and United States dollar and the currency “swings were very hard to deal with”.
For beef, the US currency mix was the main issue but trading was also affected by the very high volumes of Australian beef pushed into the market early in the financial year.
On top of the trading loss, Silver Fern also booked a one-off write-down through the profit and loss account, in line with international accounting requirements, to value the business in line with the price being paid by Shanghai Maling for a half-share, rather than the historical book values.
After an income tax expense of $700,000, the bottom line loss for the year was $30.6m, compared with a 2015 profit of $24.9m.
The company also took a $7.3m write-down through reserves (reversing earlier asset revaluations) so the total impairment charge was $30.3m.
Operating cashflow remained positive but at $32.4m was well down on the $156.8m cashflow in 2015 and $91.5m in 2014.
The latest balance date ratio of equity to total assets was 60%, steady with a year earlier. Total assets fell to $541m from $627m and shareholders’ equity to $324.4m from $368.4m.
Group net debt fell to $107.2m from $121m in 2015 and $288.6m in 2014. Interest costs of $14.8m were half the previous year’s level.
If the Shanghai Maling investment had been completed on September 30, the Silver Fern operating business would have had no core debt at balance date and would have had $90m in cash, Hewett said.
That would have been in addition to $57m retained in the co-operative entity.
Shanghai Maling and the Silver Fern Farms co-operative each owned half of the meat processing and exporting business.
