Friday, March 29, 2024

Price gap hurts Silver Fern Farms

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Strong farmgate prices for sheep meats cut into Silver Fern Farms earnings in the latest year.
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Procurement prices did not reflect in-market returns at crucial points of the season when processing volumes were low, co-chairman Rob Hewett said.

That eroded operational efficiency. 

Trading in December alone was the worst result for that month in the last 10 years.

The Silver Fern group is now two distinct entities, the Silver Fern Farms Co-operative and the operating business Silver Fern Farms. 

The co-operative and Chinese group Shanghai Maling each own 50% of the operating business. The co-operative does not have control of the company so its profits are equity accounted rather than being consolidated into its own accounts.

The co-operative will distribute its share to its supplier-shareholders, paid from a dividend received from the company.

SFF had sales of $2.4 billion in the year ended December 31, achieving operating earnings (Ebitda) of $32.4 million, a pre-tax profit of $6.3m and an after-tax profit of $5.8m, well down on the previous year.

The company increased investment in capital expenditure by $8m to $29m for the year.

SFF chief executive Simon Limmer said prices for beef and venison products held up well throughout 2018 and returns to both farmers and processors equitably reflect the market realities.

During the year the company made a slight gain in beef procurement market share with sheep meat and venison static.

The SFF after-tax profit was not at the level the business aimed for, Limmer said.

“We must lift the profitability of the business in order to sustain our aggressive capital reinvestment programme and to more actively progress our in-market investment in sales and marketing to grow value in the market.”

Hewett, who is also chairman of the co-operative, said the business is consolidating with intensive capital investment across infrastructure and systems. 

“While the level of profitability is lower than desirable as it goes through this process we have an expectation that we will be in a position to derive future value from our equal share in the company.”

The co-operative reported a profit before tax of $2.4m for the year and an after-tax profit of $0.9m. At year-end it had cash and near-cash of $18.1m, no borrowings, and total shareholder equity of $283m.

The company is paying a $1.7m cash dividend, without tax credits, split equally between the two owners.

The co-operative will pay its share, $874,000, as a patronage reward to qualifying supplying shareholders based on livestock supply criteria. 

The payment, also without tax credits, will be 3c a share. It will be paid on April 26 on shares held on December 31.

The company’s report did not include details of operating cashflows and debt levels in the operating business. They will be made public in the written annual report on April 12. 

The period leading up to the December balance date is a high point for the company’s seasonal debt as it buys stock for processing. That debt is not included in the co-operative accounts. 

In the December 2017 year, the company reported an after-tax profit of $15.4m on revenue of $2.2b and after one-off charges of $10.2m, mostly for the closure of its Fairton plant in Mid-Canterbury.

For the 2017 year, covering 15 months, the co-operative made a bottom-line loss of $5.6m.

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