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