The country’s largest meat exporter, Silver Fern Farms, has announced a record pre-tax profit of $89.6 million and $70.6 million after tax for the 2019 year, a huge improvement on the previous year’s $6.3 million and $5.8 million respectively. Turnover of $2.6 billion was 8% up on 2018 and only $100k less than the 15 month turnover in 2017 which produced a pre-tax loss of $6.5 million. Borrowings and working capital funding amount to $130.1 million.
The latest result is a $100 million turnaround from the recent low point in 2016 before the injection of capital by Shanghai Maling which saw a $30 million loss on turnover of $2.15 billion. It is now hard to understand why there was so much resistance to the sale to the well heeled Chinese investor which has clearly brought about a comprehensive recapitalisation of the company while allowing the cooperative to retain 50% of a solvent and performing business. This has resulted in a profit of $34.9 million for the cooperative and farmer shareholders which is sensibly being retained as a buffer in the uncertain trading environment.
The annual report acknowledges upfront that the 2019 result predates the enormously uncertain environment in the post Covid-19 world, as well as benefiting from the China led price recovery which saw red meat prices, especially sheepmeat, reach unprecedented highs. Noting the dreadful end to 2018 which saw the previous year’s income and profit fall away sharply, CEO Simon Limmer said 2019 was a China story, but in a different way this would also be the case in the current year.
Limmer makes the point the current year has already seen a sudden decline of the food service side of the business, but retail has compensated for this. Demand in a post-Covid recovering China is strong, while American demand for hamburger beef remains solid, but the outlook is less certain in other markets. The UK and EU are likely to remain sluggish for the rest of the year.
The main advantages for Silver Fern Farms are the strength of its balance sheet with no long term debt and the successful implementation of its business strategy. It is in a position to invest in its people and its operational facilities, as well as pursuing its vision of becoming the “world’s most successful and sustainable grass-fed red meat company.” The 2019 result demonstrates the importance of stable ownership which SFF clearly now has with committed shareholders that are determined to ensure successful performance at both ends of the business – livestock supply and international marketplace – while investing in its plants and people.
SFF is confident it is robust enough to cope with the challenges 2020 will continue to throw at it. In Limmer’s words “our financial stability provides a platform to execute our strategy, develop our people, support our farmers, feed New Zealanders and the world with sustainable, naturally delicious red meat.”
Current schedule and saleyard prices are available in the right-hand menu of the Rural section of this website.
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4 Comments
No long term debt. Aye, therein lies a remedy to all ills. The whole outfit had the staggers for twenty odd years, ever since the hashed up move on Richmonds. Re-branding, re-imaging, all of that, no more than tarting up the mannequins in the window of a failing department store. Still as Mr Barber explains the white knight finally cantered in with a knapsack full of re-capitalisation. Long neglected issues such as plant maintenance and modernisation were attended, the whole shooting box went about and from the look of it is now standing to a fair wind. Just as well. May not have been able to weather in its former condition, the unfortunate global challenges to its markets at present.
learnings here for any business in a commodity economy
1. Low debt gives you ability to withstand shocks which always come in a commodity based system.
2. having a small part of a well capitalized entity is better than a big part of a poorly capitalized entity.
3. Having a range of skills and expertise in a business gives you strength
4. Number 8 wire skills alone don't cut it in todays world
5. Things change all the time and quickly with no warning
Full credit to the Silver Fern Farmers original owners who weathered the flack and took the step. Long may your success continue.
Should never have given the C.C.P the casting vote! Sort term gains have been great. Let hope the C.C.P do not give us long term pain.
Sadly they will be doing the same to many NZ business's in the near future I suspect. What a fantastic way to take over the world:-(
Well done S/F lets hope its not one of,although a no debt policy is stupid when equity growth for shareholders should be main aim,still a whole cake for NZ farmers would been better than half a cake,if tired AGL directors and clueless ceo at time had gotten of arse in probally biggest opportunity in 50 years,to fa-full farmer desires of merger , or in a more simplistic way dont no many farmers who wouldnt buy neighbours farm if could do it without increasing there debt wonder if AGL directors no what intrinsic value is according to charlie and warren,as Carl Icahn would say i make my money studying human stupidity,we will get better gauge when other results come out.Liquor shops essential ,in some parts NZ,like food processors taking massive wage subsidies 43.3 million for S/F,34.4 for million for AGL, 2.4 million for Blue Sky.
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