Friday, March 29, 2024

SFF Co-op loses, SFF Ltd in profit

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Silver Fern Farms Ltd’s change of balance date means it is finishing the year when its calls on working capital are near peak levels.
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The meat processor had an operating cash outflow of $59 million for the year ending December 31, compared to positive flow of $32m in the year to September 30, 2016, and $156m in 2015 and $91m in 2014.

October to December is a big time for stock procurement for the processing plants with purchases at record levels in the latest period, including $260m spent in December alone and that also shows up in the $126.7m of seasonal debt, ahead of the main period for product sales from January onward. 

A company spokesman said the seasonal debt will unwind as the season progresses and it is expected SFF Ltd will fully repay the facility by July.

Since Chinese group Shanghai Maling bought its half-share of the SFF Ltd business, the company had no debt and significant cash on hand until well into November. Of the $260m it paid, $203m was kept in the new operating company.

The balance date move to December 31 doesn’t change overall operating cashflows, earnings and debt levels but means the snapshot year-end figures might not be as impressive as the September 30 figures, coinciding with the end of the meat export season and before the start of the big spend on stock procurement for processing.

The new balance date coincides with that of Shanghai Maling, which now shares ownership with the mainly farmer-owned Silver Fern Farms Co-operative. 

Silver Fern Farms Co-op and the processing business were a single entity before the Shanghai Maling investment. 

But now there are two entities, the co-operative and the operating company, and the latter is not considered to be a subsidiary of the co-op. Each partner has five directors on the SFF Ltd board but Shanghai Maling has a casting vote on major issues if there is disagreement. The co-op has lost control so now reports the SFF Farms Ltd result on an equity-accounted basis rather than consolidating the accounts into its own accounts. It reports its share of operating company earnings.

Otherwise the accounts are quite separate. SFF Farms Ltd’s seasonal debt does not show up in the co-op accounts. The co-op has not had any borrowings since the Shanghai Maling deal. It got $57m of the $260m from Shanghai Maling and had $16m of it in cash on December 31. 

The co-op reported an operating cash outflow of $60m for its 15-month year to December 31. That related only to October and November 2016, before the Shanghai Maling investment, when the co-op was operating as a meat processing business, rather than as an investor in a meat processing business.

But the co-op is the formal buyer of livestock from supplier/shareholders.

It then sells the stock to the operating company at the same price. However, the co-op does not deal in any cash transactions. They are book entries only.

The co-op is due to receive a $6m dividend from SFF Farms Ltd this month, with Shanghai Maling receiving the same amount. On April 27, the co-op will pay out $4.1m in dividends to its shareholders, including a patronage dividend to qualifying livestock suppliers.

The operating company had net profit for the December 31 year before abnormal items of $25.6m. The one-off charges totalled $10.2m, mostly the closure costs of the Fairton plant in Ashburton.

The Ebitda earnings were $50.9m and the net after-tax profit was $15.4m.

Annual sales were $2.2 billion, steady with the previous year.

The co-op reported a bottom-line loss of $5.6m for the 15 months to December 31, after a pre-abnormals after-tax profit of $7.8m. There were one-off costs due to complexities relating to the change in group ownership and structure, as well as the share of the Fairton costs.

The decision to close Fairton was a difficult one, the directors said in the co-operative’s annual report. 

“The reduction in sheep farming in the surrounding area over the last 10 years through land conversions had resulted in an ongoing reduction in lamb numbers and a shorter and shorter season for the plant and the people there. 

“The plant was no longer viable.”

The Fairton operations have been absorbed into the Pareora plant in Timaru.

The annual report says $677,400 in directors’ fees were paid in the 12 months to December 31, $206,400 to the eight co-op directors and $471,000 to the five appointees on the operating board. Rob Hewett was paid $43,000 as co-op chairman and $175,000 as co-chairman of the operating board. 

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