Silver Fern Farms has bounced back to profit and reduced debt for the 2014 year.

The co-operative is reporting a net profit before tax for the year of $1.8 million, a $38.3 million improvement on the 2013 season. Over the same period the company paid down $99 million in debt as part of a plan to reduce the cost of debt servicing to the company.

Chairman Rob Hewett says Silver Fern Farms’ shareholders will be heartened to see audited confirmation of the turnaround in profitability. “This is a positive result, and confirms that the changes we’ve made to the business are setting us on the right track after two challenging years. Whilst the absolute level of profit at $1.8 million is unacceptable, it is a sign post on the path to where we need to get to.”

The reported result includes a provision taken of $3.3m, following the Employment Relations Authority decision announced on 8 December regarding the technical redundancy of staff at our Silverstream plant in October 2013. Mr Hewett said: “the decision was unexpected and w

e believe it is prudent at this stage to take the provision while we consider our next steps over the coming month. Adjusting for this provision, we are in line with our profit guidance issued at the end of October.”

Debt levels at year end are down $99m from $387.6m to $288.6m, a 25.5% reduction on the previous financial year. The equity ratio has improved to 45.2%. “We know many of our farmer shareholders see improved profitability and debt reduction as a priority for the company, which is what we have delivered.”

“We are committed to creating a sustainable co-operative. To achieve that we need to materially lift our level of profitability and we need to further reduce our debt. We have a range of plans in place right across the business to achieve these goals. Whilst it is early into the new season, it is pleasing to note that, based on unaudited management accounts, for the first two months of the new financial year we are trading ahead of last year and with lower levels of inventory and debt.”

“As previously announced, we believe the timing is right to look at options to build an enduring capital base which will help us return sustained profits to our shareholders.”

The company is currently working with Goldman Sachs to advise on options to create a more sustainable business and capital structure. “With an improved capital position there is the potential to invest in the business to further improve the efficiency of our plant network, and to accelerate our value added programme which has shown great potential although still in its infancy in international markets.”

Chief Executive Dean Hamilton says “the return to profit and debt reduction has come from a stable market for key commodity products, a strong focus on plant performance and inventory management, a new regional procurement structure and good progress for high value products locally and in new “Looking forward, the new season has started positively. Cattle numbers are up significantly in both the North and the South Islands, whilst lamb numbers experienced a slower start before flowing strongly in December. We are currently processing in excess of 200,000 lamb and mutton and 20,000 cattle each week, meaning we have the most capacity on of any company. Despite this there remains demand for “

Whilst end-market prices across lamb, beef and venison have all been weakening off their highs seen earlier in the season, they remain at good historical levels. The next key pricing period will be in the new year as New Zealand processing levels seasonally pick up, customers reflect on their sell-through during the holiday period, and we gain greater visibility on the Australian cattle kill which continues at record levels driven by drought conditions.”

The Annual report will be available in late January ahead of the company’s Annual Meeting which will be held in Dunedin on February 18.

Summary of key financial items:






Total income   $2.32b $2.00b $2.03b $2.11b

Operating earnings before interest, tax, depreciation and amortisation (EBITDA)         

  $68.1m $22.0m $9.0m $87.7m

Operating earnings before interest and tax (EBIT)

  $39.3m ($8.5m) ($16.2m)  $60.9m
Net profit before tax   $1.8m ($36.5m) ($42.3m) $40.7m
Net profit after tax   $0.5m ($28.6m) ($31.0m)  $30.9m
Total assets   $760.8m $833.3m $828.5m $708.2m
Net working capital   $233.7m $288.6m $294.5m $213.6m
Net debt   $288.6m $387.6m $347.7m $153.2m

Total equity including members' shares

  $340.7m     $320.2m     $349.0m     $394.8m    
Operating cash flow   $91.5m ($5.1m) ($104.0m) $12.9m
Equity ratio at balance date   45.2%  38.7% 42.2%  56.2%