Saturday, March 30, 2024

Blue Sky back in the black

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A more focused and efficient Blue Sky Meats has capitalised on high export lamb prices in the past year.
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It produced better yields from each carcase processed and doubled sales of higher-value lamb in chilled form, all part of the strategy adopted by chief executive Todd Grave when he started in early 2017. 

This combined for an after-tax profit of $2.79 million in the year-ended March 31, compared to a loss of $2.72m a year earlier.

On a pre-tax basis, earning were $3.74m, after allowing for a $390,875 writedown on the mothballed beef processing site at Gore, which will be sold. This is the best result since 2011 – four of the years since then have been losses, including 2016 and 2017. 

Rendering income was the highest in five years, with volumes up 50% and income per unit up 80%. 

The strategy initiatives were not ground-breaking but helped get the group back towards the better performers in the sector, chairman Scott O’Donnell said. The next move would be to develop a brand and product to give Blue Sky a point of difference.

Despite the fall in processing volumes – to 595,000 head from 620,000 – revenues rose to $104.5m from $97.9m. Asia/Pacific was the biggest market at $40m, with $38m in sales to United Kingdom and Europe. There was market weakness in the UK, but that was offset by strong demand in Europe, North America, and especially Asia.

Operating cash flows more than doubled to $5.22m. Borrowings were reduced and there was better management of working capital, Grave said.

Shareholders will receive a dividend of 5c a share, their first for three years.

Earnings a share were just over 23c, with most of that going into reinvestment in the plant, which has already begun. Earlier poor profitability meant greater investment was required in efficient refrigeration, power supply, environment and effluent management, and health and safety, O’Donnell said. 

New Zealand had to find ways of putting less pressure on the environment while achieving better returns for every kilogram of meat sold, he said.

Grave said world markets remained strong during the year, with average prices up about 15% on a year earlier. This gain also applied to the procurement schedule, and supplier payments were about $12m higher than the previous year.

Processing cost savings of about $1m year-on-year, combined with the strong market and value-add focus, increased the group’s gross margin by about five points to 13%. “While still not good enough, a 13% gross margin was the best it has been in several years.”

Management was determined to improve profitability further and make the business more resilient to swings in commodity cycles and weather patterns, Grave said. 

The strategy plan projects had delivered $6.9m of added value, with the largest gains in the boning room and slaughter board.

The balance sheet was stronger, with the ratio of debt to total debt plus equity falling to 52% from 61%, and the ratio of borrowings alone falling to 30% from 36%.

The decision to sell the Gore property was not taken lightly, he said, but was the best move for the ongoing financial performance of the overall company. The core sheep meat business was working well and the focus had to be on providing resources to it for further improvement.

O’Donnell said the only impediment to moving the business forward was a very rigid collective employment agreement, which would need to change. The company needed the ability to match resources to demand and be able to increase productivity.

Grave said that greater variability in stock-flows because of more extreme weather patterns and geo-political events was the new environment for meat companies. 

“It is imperative we re-orient all elements of the business towards increased flexibility and agility to better deal with this.” 

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