Thursday, March 28, 2024

MEATY MATTERS: Anzco achieves huge turnaround

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Anzco Foods’ 2019 pre-tax profit was $30.6 million on record sales revenue of $1.7 billion, which, admittedly, represents a margin on sales of less than 2% and a return on assets of 3.74% but it is a huge improvement on the pre-tax loss of $39.1m in 2018.
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It is also the third highest profit the company has achieved and its best for 16 years, signalling the benefit of the restructuring done over the last 18 months, which has simplified the business and made it more efficient across the entire operation. 

Replying to a question about the relative importance of a favourable market and trading environment as against these internal improvements, chief executive Peter Conley accepts market conditions certainly helped but is adamant the main benefit came from the changes to the business.

Comparable meat industry results on the same basis show Silver Fern Farms achieved a pre-tax profit of $89.6m on sales of $2.6b in 2019 while Alliance’s profit was $20.6m on the same $1.7 billion turnover as Anzco. 

These three performances, highly profitable by meat industry standards, illustrate the importance of taking advantage of a year when livestock supply and favourable market prices are not overwhelmed by cutthroat procurement competition. 

It is unduly optimistic to expect a repeat during the challenging 2020 season but I imagine the companies will be reasonably happy if they do only half as well as last year. 

Conley says this year has been tougher from the start with Lunar New Year hitting sales in January closely followed by the covid-19 pandemic. He is confident the company has maintained momentum from the business improvements that will continue to be reflected in the annual performance but, inevitably, market conditions will not match 2019.

Anzco’s efficiency gains came from a simplified and less expensive business structure including closing overseas offices and sale of non-core assets, plant automation, a new sales and operations planning system enabling better decision-making, reduced inventory levels, shipping and storage costs. 

The successful implementation of these changes is clearly illustrated by an increase of $120m in receipts from customers and a reduction of $39m in operating expenses, including livestock procurement and employee costs, from the previous year. That enabled positive cashflow of $140.6m compared with negative $20m in 2018. 

In the annual result media release Conley said the company made record payments to farmers for the second year in a row, ensuring the benefits of higher market prices have been shared across the value chain and Anzco has consistently paid higher prices when benchmarked with the wider industry. 

The fact that was possible in 2019 while producing a massively better result in striking contrast to the previous year’s record loss demonstrates an impressive turnaround in efficiency as well as the company’s ability to control the livestock procurement function. 

Conley attributes much of the improvement to the adoption of the Sales and Operations Planning system, which matches customer orders and product specifications to inform livestock procurement and production planning, thus reducing inventory levels and wastage. 

Sales and marketing general manager Rick Walker says the system provides much better market signals, taking advantage of Anzco’s in-market resources and close customer relationships in key markets including Japan, China, Germany, Britain and the United States.

Last year also saw significant growth in Anzco’s added-value business, which already represented 10% of turnover in the previous trading period. 

The Primary Growth Partnership FoodPlus initiative, completed during the year, produced two successful developments, notably the Bovogen blood product business and healthcare products. Other profitable added-value units are the beef jerky plant and the beef patty production plant though they have been severely disrupted by food service restrictions during the covid-19 lockdown.

In response to questions about Anzco’s equity ratio and the size of its balance sheet relative to its competitors, Conley said he is keen to see further improvements in debt collection and inventory levels though they are certainly better than 2018 and he will be looking for a continued increase in the positive cashflow trend. 

Chief financial officer Paul Loke made the point Anzco owns more land and biological assets than other meat companies with its investment in Five Star Feedlots and store cattle, which is a key aspect of the company’s strategy. 

It should also be noted the equity ratio rose from 23% to 25% in 2019 and interest-bearing debt of $382m is current and guaranteed by the parent company, Itoham Yonekyu Holdings, the ninth largest global meat company, which remains very supportive of the business.

Anzco takes pride in its commitment to invest in the international market and value-added initiatives, which it sees as a clear differentiator from its competitors. The strength and commitment of its Japanese owner means it can take a longer-term view of its business activities and method of operation to the advantage of its customers, staff and suppliers. The 2019 result confirmed it is moving in the right direction.

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