Silver Fern $51m profit exceeds expectations

Silver Fern Farms is back in the black, the meat company reporting a better-than-expected $51.2 million net profit for the last financial year, a $120 million turn-around in its accounts.

This year's net profit before tax and member distributions compares with a $68.8 million loss for the co-operative in 2007, when comparable accounts were compiled under International Financial Reporting Standards (IFRS).

Chairman Eoin Garden attributed the improved result to higher livestock throughput with associated efficiencies and improving markets but warned profits would return to "realistic levels" this year.

Mr Garden said Silver Fern Farms (SFF) reduced debt in the year under review by $91 million, from $329.5 million to $238.6 million and attributed that to a tight rein on inventory, improved margins, disposal of non-core assets and the issue of supplier investment shares.

It also implemented Project Rightsize at a cost of $25.3 million, primarily in redundancy payments related to the closure or part closure of six operational sites and five lamb processing chains.

Revenue measured under IFRS for the year ended August 31, 2008, was up $144 million on the previous year at $1991 million, compared to $1847 million.

Chief executive Keith Cooper said all species processed and products sold, including by-products, were in demand.

Profit before finance costs, non-recurring items, member distributions and tax was $109 million ($6.6 million loss a year earlier) while non-recurring items were back at $25.3 million ($32 million) and distributions to shareholders for the year were $14.5 million ($3.4 million.)The profit before tax was $36.7 million ($72.2 million loss) and the net profit $37.7 million ($79.3 million loss).

Shareholder's equity rose from 35% to $40%.

SFF paid $11.5 million in rebates based on animals supplied and a cash dividend of 10c (equivalent to a fully imputed value of 14.9c a share) for each fully paid supplier investment share held.

While a high exchange rate made the year difficult, Mr Cooper said markets strengthened and the dollar was relatively stable, which assisted margins.

Looking ahead, Mr Cooper expected farmers to enjoy higher prices due to a more favourable exchange rate, but tighter margins should see SFF return to more normal profits.

A large number of breeding ewes were killed last year, so fewer lambs would be processed this year.

Mr Cooper said Project Rightsize was designed to align capacity more closely to supply, while the plate to pasture integrated supply chain, which matches production to what customers want and when, should provide further benefits.

"It comes back to issues with the supply chain model which is about chasing supply to create plant efficiencies and to drive out margins, whereas the model needs to be consistency of supply at market-related values and margins, which are derived from marketing initiatives and not throughput efficiency."

Mr Garden said SFF and PGG Wrightson were in discussion to look at alternatives to their $220 million partnership, which stalled after the world financial meltdown prevented the rural servicing company meeting its first instalment.

The transaction was unconditional and enforceable, and Mr Garden said the discussions would also deal with PGG Wrightson's default on the transaction.