Intense competition for stock and uneven livestock flows increased costs while consumer market prices were just steady, chief executive Peter Conley said.
Anzco’s pre-tax profit fell to just $1.8 million in the year ended December 31, from $17m a year earlier. Because the group’s international trade offices are required to pay tax in the countries they’re based in, overall group tax took up $1.7m of the earnings, leaving an after-tax operating profit of $100,000, down from $12m previously.
The seven overseas offices are performing strongly and extending their market reach.
Beef processing and exporting make up 60% of the Anzco business. The uneven flow of beef livestock into processing plants in the group’s mid South Island and lower North Island regions means plant costs were incurred for periods without full throughput gains, chief financial officer Paul Loke said.
Total revenue at $1.46 billion was marginally higher than the 2016 year.
Anzco’s sheep meat business performed well in a year of increasing consumer market prices but makes up only 30% of the business and couldn’t offset the beef impacts.
The spike in pre-Christmas processing demand from farmers also affected the result, lifting costs going into year-end balance date with the resulting product being sold in the next year.
The balance of the overall business is in the food and solutions division covering food, nutrition and healthcare, which achieved a 30% lift in sales and made a positive contribution to earnings, Conley said.
Food and dolutions had aggressively pursued its strategy to create net value from what were traditionally lower-value parts of the carcase. The Angel Bay manufactured food business has good sales into Australia.
Growth was strong and expected to be sustainable but that part of the business still remains a long game in terms of investment and returns, especially in nutritionals and healthcare, he said.
Because of the challenging times Anzco finished the year with an operating cash outflow, higher inventories, higher working capital demands and increased debt, Loke said.
Those figures will be released in the final accounts filed with the Companies Office.
Inventory levels can be worked out as they were $50m higher than in 2016, when they were $159m.
The bigger pre-Christmas kill contributed but Anzco generally keeps inventory at higher levels to ensure supply for its food and solutions activity, the seven international businesses and to meet specific customer programmes.
Loke said the business model, in which Anzco supplies its international offices and they then supply their retail customers, also means a slower path of revenue back to NZ.
The annual accounts will include a $15.1m non-cash charge reflecting the loss of deferred tax available due to the change in ownership when Japanese group Itoham Yonekyu Holdings moved to a 100% shareholding. The adjustment will result in a $15m accounting loss for the year.
Conley said Anzco will continue its expansion of the 5-Star beef lot in Mid Canterbury and growth in the premium Wakanui beef brand in the domestic and international markets including China and also used in the group’s restaurants in Tokyo and Singapore.
As well as expanding livestock numbers 5-Star is continuing to diversify its markets, working to avoid competing with United States-style feedlots and to tell the NZ-story of quality farming with no growth promotants.
Itoham Yonekyu is one of the world’s 10 biggest meat companies. It reported a net profit of $205m on turnover of $10.9b in the year ended March 31.
