Friday, March 29, 2024

New venture like planting trees

Neal Wallace
Having cleared the final regulatory hurdle Silver Fern Farms is turning its attention to putting in place the mechanics of its $261 million joint venture with Chinese processor and retailer Shanghai Maling.
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SFF chairman Rob Hewett said that included selecting four directors from the SFF board to join him on the board of the new entity, SFF Ltd, which would be 50% owned by Shanghai Maling and 50% by SFF Co-op.

SFF Ltd would govern the company’s operating assets and be co-chaired by Hewett and Shanghai Maling president Wei Ping Shen. The 10-person board would consist of five directors from each company.

The current SFF board would remain and represent the interests of shareholders on SFF Co-op and, through its appointees, their interests on SFF Ltd.

Shanghai Maling’s five directors on SFF Ltd would consist of three from Shanghai Maling and two New Zealand-based independent directors with meat industry knowledge.

Hewett said he understood a list of potential directors had been short-listed but final appointments were still to be made.

The company’s constitution did not require amendment but work was needed to determine the role and responsibility of SFF Co-op and how the boards of the SFF Co-op and SFF Ltd interacted with each other and shareholders.

He hoped to have that confirmed by the end of the year.

Primary Industries Minister Nathan Guy welcomed the ministerial approval of the deal.

“It’s the right move because it puts the company in a better financial position, allowing them to grow exports while producing major benefits for NZ,” he said.

“The shareholders have considered this proposal very carefully and voted overwhelmingly in support twice now. It is their company and they have expressed their views clearly.

“Overall, this is a big vote of confidence in NZ’s red meat sector.”

The proposed investment was now unconditional and was set to be completed by January 4, the first business day of the new financial year for the partnership.

Hewett said Shen would lead a delegation of senior management on a visit to SFF next month.

“Overall, this is a big vote of confidence in NZ’s red meat sector.”

Nathan Guy

Primary Industries Minister

The two companies were already working together developing new sheep meat and beef products specifically for China. The joint venture gave SFF privileged access to 750 retail stores in China, 56 speciality meat stores and 19 wholesale facilities.

The agreement did not commit SFF to supplying only Shanghai Maling but the new-found financial strength allowed it to push its Plate to Pasture added-value strategy into new markets, replicating the recent launch of retail packs in Germany, which would be stocked in up to 2000 supermarkets.

As a comparison SFF retail packs were sold in 225 NZ supermarkets.

“There is a whole lot of opportunity been put in front of us and that is even before we look at in-market opportunities in China.”

The investment made SFF debt-free. It would still require seasonal funding but servicing that debt would be “in the low single digit” millions compared to annual servicing costs of $36m when debt peaked several years ago.

The investment also allowed for plant upgrades and staff training to meet the expected demand for the new, high-value products and to catch up on delayed repairs and maintenance.

That could mean adding cold cutting capability or new chillers.

Hewett described the joint venture as a game-changer. Its success would be judged on the ability to grow sales of premium products from 4% to 10% but that meant supplying consumers outside the traditional production season.

Success would also be judged on the ability to pay livestock suppliers what he called “sustainable, superior returns” from selling meat at premium prices in selected markets.

A further measure would be meeting the stated goal of returning half of annual profits to shareholders in dividends.

Having the deal approved provided SFF with opportunities but it would take time to start reaping the benefits.

“An investment like this is like planting trees or bringing hoggets back in to the flock but having the opportunity to do this is huge and ultimately will be the differentiator for us.”

Shareholders should see the initial benefits by March 31 next year by when SFF paid a special 30c a share dividend to all ordinary and rebate shareholders.

It would also start redeeming the remaining $5m of Supplier Investment Shares.

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