Silver Fern Farms returns to profit and considers $100 mln fundraising

Wednesday 24th December 2014

Silver Fern Farms, New Zealand’s biggest meat processor and marketer, has returned to profit after two years of losses while it considers raising around $100 million in new equity next year to repay debt.

Net profit was $1.8 million in the year ended Sept. 30, compared to a loss of $28.6 million a year earlier, and in line with guidance it issued at the end of October, the Dunedin-based cooperative said in a statement. Over the same period the company paid down $99 million in debt as part of a plan to reduce the company’s debt servicing costs. Total income was $2.32 billion, up from $2 billion the previous year while Ebitda was $68.1 million, a nearly $46 million improvement on the 2013 financial year.

Chairman Rob Hewett said it was a positive result that confirmed the changes made to the business 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,” he said.

The result includes a $3.3 million provision following an Employment Relations Authority decision earlier this month on the technical redundancy of staff at its Silverstream plant in October last year. Hewett said the decision was unexpected and the company thought it prudent to take the provision while it considered its next steps over the coming month.

Debt levels at year end fell to $288.6 million from the $387.6 million it rose to in 2013 after a collapse in sheepmeat prices. That’s a 25.5 percent reduction on the previous financial year and the debt equity ratio has improved to 45.2 per cent. But chief executive Dean Hamilton has said the cooperative wants to reduce it further, from the present $280 million debt to $100 million.

The company has hired investment bank Goldman Sachs to advise on its capital raising options and capital structure, a process expected to take six to nine months. Any money raised would go towards repaying debt, upgrading plant, and accelerating its “value added” product strategy of selling Silver Fern branded venison, beef and lamb.

Hamilton said 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 markets.

Cattle numbers are up significantly in the new season in both the North and South Island while lamb numbers experienced a slower start before flowing strongly in December, he said.

Silver Fern is currently processing in excess of 200,000 lamb and mutton and 20,000 cattle each week, meaning it has the most capacity on of any company. “Despite this, there remains demand for space,” he said.

While end-market prices across lamb, beef and venison have been weakening off the highs experienced earlier in the season, they remain at good historical levels, Hamilton said.

Silver Fern Farms, formerly the Primary Producers Cooperative Society, rebranded in 2008.

BusinessDesk.co.nz

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