The reduction in debt of New Zealands biggest meat exporter is impressive. After the takeover of NI processor Richmonds, Silver Fern Farms debt was at unsustainable levels.
To have equity now at 70% and rising is a very good turnaround and improves the security of those who deal with this meat processor. It is good to see four of the major banks are supporting this companies new direction.
The challenge for this company and other exporter processors is to improve profitability in the sector so their suppliers and shareholders can also improve their equity status.
Looking at Beef and Lamb NZ's latest farm monitoring figures, it could be argued that this turnaround in debt has been at the expense of farmers profits. Now its the farmers turn.
Meat processing co-operative Silver Fern Farms says it will repay its $75 million of bonds ahead of schedule, with re-financing through a new banking facility. The NZX-listed bonds would now be repaid on November 15 with interest paid to investors up until that date, SFF said in a statement. Chairman Eoin Garden said a marked improvement in SFF's balance sheet had been part of a decision to re-negotiate its banking partnerships for the next two years reports Stuff.
"The re-syndication of the banking structure demonstrates the confidence of a key group of stakeholders the company's bankers has in the strategic plan and vision of Silver Fern Farms," Garden said. During the past two years, SFF had reduced its working capital by improving debtor management and decreasing inventory, requiring less capital.
It was forecasting an equity ratio (indicating the relative proportion of equity used to finance a company's assets) of approximately 70 per cent at September 30, and debt of approximately $118m. This compares favourably to an equity ratio of 52 per cent and $183m a year earlier.
Grant Williamson, a director of brokerage firm Hamilton Hindin Greene, said SFF had likely chosen the bank debt ahead of the option of issuing fresh bonds because that was a cheaper choice.
Fresh bonds would also have had to be issued at a premium to other bonds because of the more risky nature of the meat processing industry, Williamson said. Given its stronger balance sheet and the need for further industry consolidation within a low livestock numbers environment, SFF was in a relatively good position.
"I would hope for the sake of the industry overall there would be some possible further consolidation," Williamson added. SFF said the new syndicate involved Rabobank, HSBC, Westpac and CBA.
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.