Silver Fern Farms chief executive Dean Hamilton says the business has never been in a stronger financial position.
In an update to suppliers on the company’s financial performance,
Mr Hamilton said the first six trading months of the financial year saw a good improvement on the same period last year.
Revenue was up on last year, with lower industry volumes more than offset by higher New Zealand dollar prices, and earnings were ahead of the same period last year, albeit behind budget.
The slow start to the season, with good growing conditions, saw tighter margins early on as processors competed for fewer available livestock.
“When volumes lifted in late April through to late June, we benefited from having full plants and the processing economies that come with that.
“The next three to four months are invariably the challenging ones where winter volumes mean lower utilisation,” Mr Hamilton said.
There had been a big effort to continue to improve inventory turn-over speed. Overall, there was less than one month’s worth in its system.
A combination of the Shanghai Maling investment, improved profitability and lower inventory had seen a material improvement in the company’s capital position. As at mid-July, it had cash in the bank and nil net borrowings.
It had freed up the company’s ability to invest in the company to lift performance. This year, the company was investing $22 million in capital expenditure compared with $8 million in 2015.
Those investments in core infrastructure included new plant robotics for packaging and processing, cold chain upgrades and new by-product processing facilities.
In December, Silver Fern Farms completed its joint venture partnership with Shanghai Maling. The Chinese-owned company invested $267m in cash in return for a 50% stake in the business.
In the last financial year, Silver Fern Farms posted a $30.6m after-tax loss for the year ended September.
Livestock volumes had been good, with both Takapau in Hawke’s Bay and Finegand in South Otago processing more than a million lambs, Mr Hamilton said.
In a market update, the company said demand and prices for lamb this season so far had been ahead of the company’s expectations at the start of the year.
However, a number of frozen markets were starting to soften, with the UK wholesale leg market and the Middle Eastern and China forequarter markets all easing in price.
That would have less impact on lamb revenues at this time of the year as the company concentrated on chilled production. However, it did suggest a “note of caution” to the start of the new season.
Chilled pricing remained firm, with good demand for legs and middles over the next few months.
The United Kingdom’s leg market had seen another supermarket retailer, Morrisons, announce a move to 100% British lamb for the new season.
Silver Fern Farms was exploring alternative options to lessen its reliance on that leg market, including Europe, and its long-term strategy of developing markets for its retail cuts.
Otago Daily Times