Watershed year for Silver Fern Farms

Eoin Garden.
Eoin Garden.
The 2009 financial year would be recorded as a watershed year for Silver Fern Farms, chairman Eoin Garden wrote in the company's annual report.

It was a year in which SFF made substantial progress in its transformation from a traditional meat processor-sales oriented co-operative to a market-led food company.

"The need to invest in longer-term value-adding strategies is imperative if we are to position our company for the unprecedented global demand for red meat protein predicted immediately following recovery of the current global economic crisis."

The year had been dominated by the global credit crunch, the widespread recession in the majority of New Zealand's key markets, and a highly volatile New Zealand dollar exchange rate, he said.

SFF earlier reported an operating profit of $5.1 million for the year ended August 31, well down on the $75.6 million reported in the previous corresponding period (pcp).

Assisted by a one-off gain from the settlement with PGG Wrightson of $37 million, and other minor one-off items, the company reported a net profit of $43.6 million compared with $37.6 million in the pcp.

Mr Garden said that in view of the economic environment and the company's recent focus on recapitalisation of the business, the directors resolved that no shareholder distributions would be paid for the year.

"While this will be disappointing, your directors believe it is prudent financial management and distributions should be looked at over the long term and not at each year in isolation."

In July, SFF shareholders voted in favour of constitutional changes, meaning SFF now had the ability to introduce a modern capital structure which not only protected the company, but also increased shareholders' benefits over past structures, he said.

A total of 5787 shareholders, holding 42.9 million shares and representing 75% of the total shares eligible for exchange, participated in the offer, which closed on October 9.

Shareholders elected to subscribe for a further 22.2 million shares under the associated rights offer.

The results reflected a high level of positive shareholder engagement with the new structure of the company, Mr Garden said.

The market outlooks offered some good news for farmer shareholders but were dominated by references to the volatile currency.

Mr Garden said the global economic crisis had a significant impact on importer activity as uncertainty surrounded many market sectors.

Hardest hit were the high-end restaurant trade and tourism industries as consumers reduced their spending.

Lamb products were an integral part of those two sectors and sales had been affected.

SFF was confident that its "plate to pasture" strategy would continue to develop consumer-focused products that would return additional value to farmers.

The main negative impact was the volatility of the New Zealand dollar against all major currencies.

About 75% of the increased lamb returns for 2009 were as a result of currency gains which had been largely eroded in the last two months of the slaughter season.

Continued strength in the New Zealand dollar would have an "unfortunate and significant impact" on SFF returns and therefore farmer payments in the 2010 season, he said.

Currency was also a key influence on the beef industry as it not only affected the New Zealand dollar net returns but also influenced the global flow of New Zealand beef exports.

There was also concern that South American countries were making great progress in gaining access to markets that had traditionally been closed to them.

"While tonnages from South America are forecast to be lower through 2010, low production costs will continue to see their beef very competitively priced," Mr Garden said.

 

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