NZ: Silver Fern racks up FY loss
By Katy Askew | 13 November 2012
- Silver Fern Farms falls into red
- Sales dip
- Investing in marketing, production
Silver Fern hit by falling global demand for lamb
New Zealand meat processor Silver Fern Farms has booked a loss in the year to the end of September as higher lamb prices hit global demand.
The company racked up a net operating loss of NZ$31.1m (US$25.4m) in the 12-month period, down from an income of NZ$30.8m in 2011.
Chief executive Keith Cooper said Silver Fern's bottom line was hit by difficult trading conditions as a shortfall of lamb supply resulted in "unsustainable" global prices.
The lower supply led, Cooper said, "resulted in a sharp fall in demand, which then led to a significant decline in value".
The company said turnover for the year was down slightly, dropping to NZ$2.03bn from NZ$2.1bn.
Nevertheless, the co-operative insisted it remains well-placed to drive future growth, having invested in various initiatives during the fiscal year, including marketing initiatives and manufacturing improvements.
'Strong balance sheet, investment into the future the key focus'
Silver Fern Farms has reported a net operating loss after tax for the 12 months ended 30 September 2012 of $31.1 million (2011 profit $30.8 million) from total revenue of $2 billion.
Silver Fern Farms Chairman Eoin Garden said that, despite an operational loss, the company's balance sheet was robust (44% equity ratio); and significant investments had been made in 2012 to underpin future growth, including new marketing initiatives ($8 million) and the new Te Aroha plant ($67 million).
In addition, Silver Fern Farms had also made a significant investment of $4 million in FarmIQ in 2012. Now in year 3 of the 7-year build timeframe, not only will FarmIQ become the enabler for farmers to deliver the required product to meet Silver Fern Farms' marketing and sales plans, but it will also empower farmers to identify opportunities on farm to grow their productive capacity, thereby generating
more value from within their own farming businesses.
Mr Garden said it was important to highlight the commitment the company had made to forge ahead with the implementation of the business' overall growth strategy for the future of Silver Fern Farms, its shareholders, suppliers and people, notwithstanding this poor 12-month financial performance.
"In the 2012/13 financial year Silver Fern Farms plans to invest a further $22.6 million into brand development and marketing initiatives to build brand equity, channel and market development, and FarmIQ. That clearly demonstrates our confidence in, and commitment to, the growth path we have charted for our co-operative" said Mr Garden.
Chief Executive Keith Cooper commented that Silver Fern Farms operates in an environment where many outcomes are beyond the company's control but materially impact on the business.
"Climatically we went into the 2011/12 season with ideal pasture growing conditions which meant livestock was held on farm for valid reasons. This resulted in markets being short of product versus historical supply patterns. Off the back of this, we saw global prices for lamb in particular, escalate to unsustainable levels, which resulted in a sharp fall in demand, and which then led to a significant decline in value. This market correction was subsequently reflected back to suppliers and, in turn, caused write-downs in inventory valuations throughout the financial year of circa $25.6 million. Through this period, Silver Fern Farms had to manage business continuity - supplying to customers and operating processing assets - which meant we had to compete for livestock at unsustainable prices which further contributed to the problem.
Mr Cooper reiterated that while this was a poor year financially, strategically it was a progressive one.
"2012 marked a continuation of our unwavering commitment to executing our Plate-to-Pasture strategy. This is a progressive and long term plan, which demands perseverance and determination, to ultimately generate sustainable value for our farmer-partners, by meeting the modern consumer's requirements."
Over the last 4-years, Silver Fern Farms has invested in designing the brand detail and marketing infrastructure required to drive a greater proportion of its revenue through premium value branded products. "Our differentiated approach means that our brand has now become integrated across all areas of the business - corporate, supplier service, operations, sales and consumer activities - and we are now starting to see the benefits of this throughout the value chain" said Mr Cooper.
While Silver Fern Farms' final inventory position for 2012 was up versus the previous year, Mr Cooper advised that this had decreased markedly since balance date, with the increased working capital being driven by those higher balance date inventories.
Mr Garden also advised that incumbent director Angus Mabin, who retired by rotation, has been reappointed unopposed, which gives the board confidence they have continuing shareholder support.
Original source: Silver Fern Farms
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