Robust balance sheet, investment and profitability key focus

26 November 2010

Robust balance sheet, investment and profitability key focus

Silver Fern Farms has reported a net operating loss before tax for the 12 months ended 30 September 2010 of $800,000 (2009 profit $5.4m) from total revenue of $1,879m (2009 $2,014m).

In addition, one-off extraordinary restructuring costs of $7.2m were incurred.

Silver Fern Farms’ Chairman Eoin Garden says that, despite an operational loss, the robust balance sheet – with 61.3% equity ratio and dramatically reduced working capital borrowings, down to $117m – now enables the company to focus on delivering long term profitability from its “plate to pasture” strategy.

“It has been a tough, but successful three years, with the company reducing debt by $215m since August 2007, closing three plants and six lamb chains and exiting the Brooks of Norwich operation in the UK, as it no longer added value to the product."

The company moved its financial end of year to 30 September to be in line with industry convention. This year’s statutory accounts for the 13-month period shows $14.0m net loss (including non-recurring items) after tax, having accounted for two Septembers. September is a loss-making month in the industry’s business cycle, because of the low activity and high fixed cost nature of the business.

Total debt was reduced over the period by $67m to $117m as the company refinanced its banking arrangements, as well as repaying the $75m SFF030 Bond on 15 November 2010.

This will save approximately $3m in ongoing interest annually.

Mr Garden says the early bond repayment signals a significant milestone in the overall restructuring of the company’s balance sheet.

“The company is now in a strong financial position, for the future. Through FarmIQ, we are increasing investment in the future of the industry so we can deliver sustainable levels of profitability to our supplier shareholders in the medium and long term. We are investing capital into areas such as processing technology, on-farm advancements and a market-led model, so we can improve company profitability and drive greater returns back inside the farm gate. Silver Fern Farms has a long history of strategic capital expenditure and, during the past 10 years, has spent more than $250m on capital projects, including $23.6m in the past financial year."

A one for five bonus share issue has been declared, which is in addition to the Performance Premium Programme payments made to suppliers through the year.

Silver Fern Farms’ Chief Executive Keith Cooper says the 2009/2010 trading environment was challenging. “We were working with an appreciating and volatile exchange rate, coupled with reduced lamb numbers – and this put pressure on margins.

“It is of little comfort that we, as a business, have sub-optional margins, but it is more concerning that our farmer supply base is yet to achieve sustainable profitability."

Mr Cooper says that, notwithstanding the forecast livestock supply outlook, high exchange rates and lack of industry strategic direction, Silver Fern Farms is now in a strong financial position to deliver a positive outcome in the coming year. The company performance for the difficult first two months of the new year are ahead of budget and ahead of the same period last year, both financially and in livestock market share.

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