Dunedin meat processor PPCS has shaken-off a reputation of being a financial lame duck, with a $26 million turnaround in its half-year result.
The co-operative yesterday reported an $11.2 million profit after tax for the six months to February 29, compared to a $14.6 million loss for the corresponding period a year earlier.
The financial transformation was attributed to cost containment and marketing efforts. The positive result reinstates PPCS as an industry heavyweight as the sector considers rationalisation and restructuring.
There was a perception that although it was the country's largest processor, its precarious financial position and high debt loading following the purchase of Richmond compromised its bargaining power.
In 2007, PPCS reported a $48.5 million full-year loss following a $36 million profit for 2006, assisted by a one-off gain from the sale of property.
Company chief executive Keith Cooper said while profit was a key measure, so was debt reduction.
Debt fell $63 million in the six months under review to $427.7 million.
Mr Cooper described the profit as modest, but said the company was embarking on "very aggressive'' business repositioning, including rationalisation and rebranding to Silver Fern Farms.
"People need to understand that our balance sheet is improving very well, and PPCS has got a very robust strategy which will be rolled out in the next few months.''
Mr Cooper said PPCS secured higher market prices this season, which were not eroded by rapid exchange rate appreciation.
Payments to farmers for beef were maintained in the peak of the season and lamb prices were better.
But he accepted returns to farmers were not high enough. Revenue for the period under review was up just over 1% to $885 million ($827 million for the corresponding period in 2007), affected by the exchange rate appreciating 13% against the United States dollar, 8% against the United Kingdom pound and 0.5% against the Euro.
Profit before depreciation, finance costs, member distributions, non-recurring items and tax was $42.9 million compared to $9.2 million.
The volume of mutton processed was up slightly, while lamb, beef and venison numbers were comparable with a year earlier.
Company chairman Eoin Garden said that while the result was encouraging, it was "hollow'' when shareholders endured "unacceptable returns'' and drought.
PPCS has met its interest coverage ratio, earnings before interest, tax, depreciation and amortisation (Ebitda) at 1.75 times interest costs, which applied to its PPCS030
bonds.
The interest rate on those bonds was 10.25%, effective from March 15.
Looking ahead, Mr Cooper said its performance "trend was continuing'' into the second half of the year along with with positive signs from the market, especially for lamb.
He said the company would continue to focus on debt reduction while improving operational performance and repositioning itself through plant rationalisation and marketing initiatives.
