Silver Fern Farms operating surplus $40.6m

A good result for Silver Fern Farms reflects the positive turnaround of the sheep and beef sector and is a credit to the executive team and board of that company.

In a climate where over capacity issues due to the decline of sheep numbers nationally and the rapid growth of dairy in both islands they seem to have handled their resizing well.

Innovative ideas characterised the year with their FarmIQ systems, freight partnership with Fonterra, new product launch and the acquistion of two North Island plants leading the way.

As the chief executive notes it has not been an easy year with the earthquakes, the volatile currency and economic recessionary times in main trading markets in Europe and the United States, so a result such as this is pleasing.

However the challenge is to maintain this level of profitability to encourage sheep and beef farmers to reinvest and grow numbers and production to sustain the existing processing efficency. Next year's result will reflect whether the long term plan will be successful.

Silver Fern Farms has reported an operating surplus of $40.6m (2010 12 month loss of $8.0m) for the year ending 30 September 2011 (after Performance Premium payments and non-recurring items and before tax) from a turnover of $2.1b (2010 12 month $1.8b).

The company has also declared a dividend of 10 cents per ordinary share in addition to the quarterly Performance Premium payments made during the year, bringing total distributions to suppliers/shareholders of $14.5m.

Silver Fern Farms Chairman Eoin Garden says the satisfying result comes at the end of a challenging year and a 3 year restructuring programme.

“Our recent acquisition of two processing plants, the Wallace Waitoa plant and Frasertown Meats in Northern Hawkes Bay, is evidence of our commitment to consolidation and is part of our wider strategic plan for the future of Silver Fern Farms."

"We are now seeing the benefits of the creation of a modern consumer-facing, farmer partner focused co-operative, with a clear progressive strategy that focuses on operating within today’s challenges but also invests in the future. We are investing in product development, innovative marketing to meet the future expectations of our consumers and we are committed to FarmIQ Systems Limited to deliver optimal farming systems to enable our farmer partners to meet consumer expectations."

"In addition we are demonstrating our commitment to making a difference, not only to the red meat sector but also to the New Zealand economy, by the establishment of our joint venture with Fonterra Co-op Limited forming Kotahi Limited. Kotahi will optimise the supply chain to market and deliver new efficiencies. The future of the red meat sector will depend upon continued execution of such market focused strategies”, says Mr Garden.

Chief Executive Keith Cooper notes “The 2010/11 financial year was full of extraordinary events – some positive, others less so. We experienced never before seen volatility in the New Zealand dollar, a spring storm that left the industry with a record low lamb crop, the Christchurch earthquakes which affected so many of our Christchurch people and the devastating fire at our Te Aroha plant just prior to Christmas. But, on the upside, in-market prices for red meat and by-products lifted and, thanks to many factors aligning, our farmer partners received record returns.”

The company’s balance sheet is strong with an equity ratio now sitting at 59%, positively influenced by a reduction in total debt over the past 3 years. This included the repayment of $75m of bonds during the first quarter and in October 2011 the repayment of the redeemable preference shares. The balance sheet restructuring is now complete.