Net loss of $31m for Silver Fern

Silver Fern Farms has announced a net operating loss after tax of $31.1 million from total revenue of $2 billion for the year ended September, continuing the trend of poor but well-signalled results from meat processors.

The company's result was in stark contrast to its $30.8 million profit in the previous corresponding period.

Last week, Alliance Group reported an operating loss before restructuring costs of $57 million for the year ended September, down from a profit of $20.7 million, while Blue Sky Meats made a loss before tax of $604,576 for the year ended March, compared with a $6.5 million profit the previous year.

When contacted yesterday, Beef and Lamb New Zealand chairman Mike Petersen said profitable companies were needed for farmers and all the results were "a real concern".

The results were widespread and showed it was a complete industry issue, rather than a single company issue, Mr Petersen said.

Silver Fern Farms' turnover was down from $2.1 billion to $2.03 billion, while the operating cash-flow deficit had gone from $7.5 million to $105.6 million. The equity ratio was 44%, compared with 59% the previous year.

Chief executive Keith Cooper said the company operated in an environment where many outcomes were beyond its control but materially affected 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."

That market correction was reflected back to suppliers and, in turn, caused write-downs in inventory valuations throughout the financial year of about $25.6 million.

Through that period, the company had to manage business continuity - supplying to customers and operating processing assets - which meant it had to compete for livestock at unsustainable prices which further contributed to the problem, he said.

While it had been a poor year financially, strategically it was a progressive one, Mr Cooper said.

Over the past four years, Silver Fern Farms had invested in design of the brand detail and marketing infrastructure required to derive more 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," he said.

Chairman Eoin Garden said the company's balance sheet was robust, with its 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).

It had also invested $4 million in FarmIQ in the year.

In the 2012-13 financial year, the company planned to invest $22.6 million into brand development and marketing initiatives and FarmIQ.

Waitaki MP Jacqui Dean hoped farmers and the industry would consider a more united approach.

While meat companies had been "hesitant" to accept some of the recommendations in the red meat sector strategy, the recent losses made the strategy "all the more relevant", Mrs Dean said.

The strategy, initiated by the Meat Industry Association and Beef and Lamb and released last year, was aimed at improving the sector's viability and increasing its earnings from $8 billion to $14 billion by 2025.

The current operating losses were unsustainable, she said.

Mr Petersen agreed with Mrs Dean's comments, saying there was also a far greater need for more transparency and realistic market returns and signals.

He pointed out that while an average lamb price of about $95 was signalled this season, prices were around $50 five years ago.

While he would like prices to be much better, it was still a "significant lift".

sally.rae@odt.co.nz