Silver Fern Farms has reported a net operating loss before tax and impairment of $7.5m million for the 12 months ended September 2016 on income of $2.2 billion. This compares to a net operating profit of $30.8m and income of $2.5 billion the prior year.

Operating earnings before interest, tax, depreciation and amortisation (EBITDA) were $32.1m, down from $90.5m the prior year.

Silver Fern Farms Co-operative Chairman Rob Hewett says “while the result was in line with previous guidance of a small operating loss, it was nonetheless particularly disappointing and reflected a very challenging year across the industry. The company managed its way through a tough year as a perfect storm hit with sharp falls in a number of end-markets in the first half, lower industry-wide volumes, unseasonal livestock flows which limited capacity utilisation, and a strengthening NZ currency through the year amplified in June by the Brexit event. It was one of the tougher environments we have been in for some time as events impacted both beef and sheep. We made gains through a continued focus on increasing the consistency and value of yields and at the same time driving a greater proportion of sales as chilled and value-added products. These and other initiatives were however insufficient to offset our lower NZ dollar revenue in what remains a highly competitive market for livestock.

Chief Executive Dean Hamilton says “the disciplines in the business have meant that despite the external conditions, we have continued to manage our working capital, risk and capital expenditure prudently and delivered a year end net debt down $14m to $107m and with a lower average level of debt we halved our finance costs to $14.8m.”

“Whilst very disappointing to substantially miss our profitability goals for the year, we achieved good progress in a number of areas – continuing to grow our value-added business, make further significant progress on improving our health and safety performance, and creating a sustainable capital structure for the company.”

“We achieved a 31% increase in our value added sales of Silver Fern Farms branded products through retail and food service channels in New Zealand and overseas. We increased our sales again in New Zealand, where we were proud to be awarded the Most Trusted Meat Brand (by Readers Digest). In March we launched our Silver Fern Farms branded retail range in Germany, and are now stocked in over 1,000 stores. Launching our brand into a large new international retail market is exciting but at the same time requires commitment as we invest in people and marketing to build an awareness of our brand, and our premium, natural grass-fed New Zealand beef, lamb and venison.”

“In addition to our value added sales, our focus on selling a greater proportion of product in chilled form led to positive results, with over 40% of our prime beef being sold chilled, and over 30% of our lamb sales.

“We processed and sold approximately 15 million stock units this year which was an enormous effort by our 7,000 passionate employees. Our commitment to their health and safety has seen real progress being made; increased safe behaviour conversations, new enhanced protective clothing and equipment, consistent best practice standards across plants, real time online hazard and incident reporting, and our own ORA review system have all contributed to an over 24% reduction in lost time injury frequency across the company (to a TRIF of 7.6 per 200,000 hours worked). We remain committed to our goal of zero harm by 2020.”

Mr Hewett says “we delivered our goal to achieve a sustainable capital structure for the company. Since our September year-end we have completed the $267m investment by Shanghai Maling. Our Co-operative now owns 50% of a strong operating company, in an equal partnership with Shanghai Maling, with the resources to deliver on its value-added strategy and generate sustainable returns over time for all shareholders.”

“The final result for the year was impacted by a one-off $22.4m non-cash accounting writedown related to the Shanghai Maling investment which pushed the bottom line to a $30.6m loss after tax. As at balance date (30 September 2016) we had an unconditional, but at the time yet to be completed, investment by Shanghai Maling. Since the successful completion of the transaction was considered highly probable at balance date, the company was required under accounting standards (NZ IFRS 5 and NZ IFRS 10) to take a one-off non-cash accounting writedown in the value of the disposal group to reflect the value at which Shanghai Maling was investing at relative to our historical book values. Of the $30m non-cash writedown, $22.4m was taken through the P&L, and $7.3m through reserves to reflect the reversal of previous asset revaluations.”

Mr Hamilton says “we have continued to focus on making sure we have the right plants in the right places and investing in our core network. That has meant a combination of closures and new investment. Venison plants at Islington and Mossburn and the Canterbury Coldstore have been closed. Our small Wairoa (Frasertown) mutton plant was also closed and we will consolidate all our sheep processing in that region to our large Takapau plant. We are very aware that closures impact our people, and in every case our people were given opportunities to transfer to our other sites and a number have taken them up. Also during the year we built a brand new venison plant more central to our livestock supply at our existing Pareora site near Timaru (which opened post balance date) and also invested in expanding our cold storage facilities at Pareora to allow better regional consolidation and less use of external facilities. We have also invested in a new state of the art packaging line at our Pacific Beef plant in Hawke’s Bay. The benefits from each of these initiatives will be reflected in 2017 and beyond.”

“Looking ahead, whilst mild weather and strong grass conditions have delayed the start to the new season, we are confident that if a more settled operating environment prevails combined with the improvements we have undertaken and have planned, we will see the performance of Silver Fern Farms improve significantly in 2017.”

The Annual Report will be available ahead of the Co-operative’s Annual Meeting which will be held in Dunedin on February 15.

Summary of key financial items

Financial data