Silver Fern Farms slumps to loss
Major New Zealand meat processor Silver Fern Farms posted a net operating loss for the September year of $31.1 million, reversing its previous year's profit.
The Dunedin-based processor made a profit of $30.8m in 2011. The company said turnover for the September year worsened slightly to $2.03 billion, compared to $2.1b for the September 2011 year, and $1.8b in the 2010 year.
Chairman Eoin Garden said despite an operational loss, the company's balance sheet was robust, with a 44 per cent equity ratio at September 30, down from 59 per cent a year earlier.
Significant investments had been made in 2012 to underpin future growth, including new marketing initiatives of $8m and the new Te Aroha plant investment of $67m.
In addition, Silver Fern Farms had also made a significant investment of $4m in the FarmIQ programme in 2012.
Now in year three of a seven-year programme, FarmIQ was an "enabler" for farmers to deliver the required product to meet Silver Fern Farms' marketing and sales plans.
The programme would also allow farmers to identify opportunities on-farm to grow their productive capacity, thereby generating more value from within their own farming businesses.
Garden said it was important to highlight the commitment the company had made to forge ahead with a growth strategy, notwithstanding this poor 12-month financial performance.
"In the 2012/13 financial year Silver Fern Farms plans to invest a further $22.6m into brand development and marketing initiatives to build brand equity, channel and market development, and FarmIQ," Garden said.
Chief executive Keith Cooper said Silver Fern Farms' operating environment and outcomes beyond its control hit the business.
"Climatically we went into the 2011/12 season with ideal pasture growing conditions which meant livestock was held on farm for valid reasons. This resulted in markets being short of product versus historical supply patterns," Cooper said.
"Off the back of this, we saw global prices for lamb in particular, escalate to unsustainable levels, which resulted in a sharp fall in demand, and which then led to a significant decline in value."
The market correction had "reflected back to suppliers". This in turn caused write-downs in inventory valuations throughout the financial year of about $25.6m.
Through this period, Silver Fern Farms had to manage business continuity - supplying to customers and operating processing assets. "(This meant we had to compete for livestock at unsustainable prices which further contributed to the problem."