Silver Fern Farms’ ‘Back In The Black’

31 October 2008

Silver Fern Farms’ ‘Back In The Black’

Dunedin – Silver Fern Farms, New Zealand’s leading marketer and exporter of red meat, has returned to financial profitability for the 12 months to end 31 August 2008 on the strength of a more favourable exchange rate, increased throughputs and cost containment measures aimed at improving operational efficiency and reducing debt.

Reporting under the New Zealand equivalents of International Financial Reporting Standards (IFRS) for the first full year, net profit before member distributions and tax was $51.2 million compared to a loss of $68.8 million for the same period last year.

The reported 2007 net loss before tax has been restated to reflect IFRS adjustments of $31.3m and the balance sheet reflects changes to retained earnings, restatement of the asset revaluation reserve, deferred tax and the reclassification of issued capital.

The farmer cooperative declared a rebate on livestock supplied and a dividend on Supplier Investment Shares (SIS), effectively rewarding shareholders at both levels within the cooperative model. Total rebates of $11.5 million were paid on 30 September 2008 plus a cash dividend of 10 cents (imputed value 14.9 cents/ share) per fully paid SIS held as at 31 August 2008, paid on 25 September 2008.

Eoin Garden, Silver Fern Farms chairman, said the results were gratifying in light of the volatile financial environment, characterised by swings in exchange rate on all major trading currencies of in excess of 20 percent. “In many respects it was a watershed year for Silver Fern Farms, and we worked hard to ensure we reached our targets. We recognise that, while the average values paid to suppliers for livestock during the season continued to increase, further progress was required to achieve the ultimate goal of delivering sustainable returns to supplier-partners.”

Mr Garden said one of the company’s main priorities was to reduce debt during the year, which was achieved through tighter inventory control, improved margins, disposal of non-core assets and the issue of SIS. “Under our ‘Rightsize’ repositioning strategy we focused on improved business profitability, debt reduction, disposal of non-core assets, plant reconfiguration and rebranding to Silver Fern Farms.”

Net non-recurring expenses related to the implementation of the company’s repositioning strategy amounted to a net $25.3 million, primarily in redundancy payments related to the closure or part closure of six operational sites and five lamb chains.

Proposed Partnership with PGG Wrightson

On 8th September 2008, Silver Fern Farms shareholders approved a transaction involving the issue of shares for $220m, payable in cash, to PGG Wrightson Limited, representing a 50 percent shareholding in Silver Fern Farms Limited.

PGG Wrightson was unable to pay the settlement amount which was due on 1 October 2008. Although the transaction is, and remains, unconditional and enforceable, Silver Fern Farms is currently in discussions with PGG Wrightson to evaluate whether any alternative proposals are feasible for shareholder consideration and to deal with the default on the previously approved transaction.

Outlook

Mr Garden said the board was confident that further benefits would accrue in the coming years from the improved efficiency in the company’s processing operations and from its branding and marketing initiatives. “We do expect, however, the results for the 2009 financial year to return to a more ‘realistic’ profit level following the poor 2007 and strong 2008 financial year’s performance. In the 2009 financial year, we expect lower procurement volumes and firm international market returns will see prices paid for stock increase, but company margins may reduce.

“Nonetheless, farmers can look forward to materially improved returns compared to last season, particularly those supplier partners who take up the opportunities available within Silver Fern Farms’ Backbone™ livestock supply programme to plan ahead with price certainty for 12 months in advance.

“Becoming a Backbone™ partner means working with Silver Fern Farms to change the traditional industry business model and create an integrated supply chain, linking plate to pasture, and ensuring the sustainability of our industry going forward.”

INCOME STATEMENT THE YEAR ENDED 31 AUGUST 2008

Group Unaudited
31 August 2008
IFRS Group Audited
31 Aug 2007
IFRS *
Variance
Revenue and other income $1,991 m $1,847 m + $144m
Profit / (loss) before finance costs, non-recurring items, member distributions and tax

$108.9 m

($6.6m)

+ $115.5m

Finance Costs
$32.4m
$30.3m
Non-recurring items $25.3m $31.9m
Profit / (loss) before member distributions and tax
$51.2m
($68.8m)
+$120.0m
Member Distributions $14.5m $3.4m
Profit / (loss) before tax $36.7m ($72.2m) + $108.9m
Tax expense/ (credit) ($1.0m) $7.1m

Net profit / (loss) for the year
$37.7m
($79.3m)
+ $117m

Total borrowing
$238.6m
$329.5m
- $90.9m
Shareholder equity (including share capital) 40% 35% 5%

*Prior period comparisons have been restated under IFRS.

ends

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