SFF Ltd co-chair Rob Hewett says while Shanghai Maling’s investment unshackled the company from debt, just as importantly it enabled it to unleash its plate-to-pasture strategy of connecting grass-fed red meat and consumers, which has paid huge dividends in recent years.
In 2013-14 lenders were asking hard questions about the future of SFF, which was weighed down by debt that peaked at $340m and reported a $28m loss in 2013 and a $470,000 net profit after tax in 2014.
When Shanghai Maling Aquarius deposited a $267m cheque into SFF’s bank account on December 6, 2016, the impact was almost immediate.
The meat company used $203m to retire term debt, paid $57m to joint shareholder SFF Co-operative and invested $21m in capital expenditure, the most spent in four years.
Free from debt, the performance of SFF Ltd has steadily improved.
Net profit after tax for the last four years has been $15.4m in 2017, $6.3m in 2018, $70.7m in 2019 and $65.4m in 2020.
Dividends in each of those years respectively have been $3.2m, $1.7m, $26.5m and $26.2m.
Hewett says the relationship with Shanghai Maling is positive, and they act as an investor, committed to SFF pursuing its strategy.
This provides some autonomy, evident by most product it sells in China is not channelled through the Shanghai Maling network.
SFF now has wholly owned foreign entity (WOFE) status in China, which provides geographic risk and allows SFF to target discerning customers, while providing options and product mix.
“We don’t differentiate ourselves as two partners but rather look at how we can bring our strategy to life and what is best for the company and our goal of wanting to be the most successful grass-fed red meat company in the world,” Hewett said.
That strategy of being agile, responsive and building connections as close as possible to consumers, was crucial in SFF weathering a tumultuous few years.
When lamb prices in China tanked in 2019 after large volumes of frozen pork were released on the market, SFF was able to switch product to the US.
When covid-19 broke out in China the focus on the US intensified but then swung back to China when the pandemic engulfed the US.
Hewett says another significant benefit was the substantial increase in capital expenditure.
In 2016 that totalled $7m. In the three years to 2021, it cumulatively totaled nearly $200m.
A significant challenge for SFF has been educating their Chinese partners on the intricacies of the NZ grass growth curve.
Given Shanghai Maling’s background in pork and the year-round instantaneous production, Hewett says they had to learn the intricacies of NZ’s seasonal production by visiting farms.
Such visits, along with face-to-face board meetings have not been possible for the past 18 months, during which two new Shanghai Maling directors were appointed, including a new co-chair.
Chief executive Simon Limmer says pre-covid-19 the board met face to face every second meeting, but would come together the week prior, enabling informal discussion.
Limmer says Shanghai Maling acts as an investor, looking at its return on investment and allowing SFF to develop deeper, strategic and long-term relationships targeted at the premium end of the market.
Shanghai Maling understands that.
“They want SFF to be strong in China and realise our strategy is important for our performance,” Limmer said.
One significant change has been the recruitment of 12 sales and marketing staff based in Shanghai charged with implementing the company’s strategy.
Former SFF Co-op chair Richard Young says while a NZ partner was preferable, it was not to be.
The Shanghai Maling deal dwarfed other offers and enabled SFF to clear its debt and invest in and reset in the business.
“In the long run that’s been a good thing, because a NZ outcome would only have put a bandaid over the crack and not allowed us to address our capital structure,” Young said.
It also gave SFF the scope to target markets as they intended.
Shanghai Maling has an executive based in Dunedin, Stanley Zhao, and this has helped give a better understanding of the business.
Young says the deal was approved in 2016 by 85% of shareholders and the concerns of those opposed, such as not understanding the livestock supply process, has not materialised.
“The co-op has been heartened by comments by Shanghai Maling about the importance of farmers and suppliers and how we need to look after them,” he said.
Young says it has been a positive experience.
“Strategically we are well aligned with where we want to get to as a co-operative and Shanghai Maling wants to grow and understand the NZ business,” he said.
