Silver Fern turns to pretax profit, mulls capital structure

Silver Fern Farms turns to pretax profit, signals reorganisation as CEO steps down

By Tina Morrison

Oct. 28 (BusinessDesk) - Silver Fern Farms turned to a pretax profit following losses the previous two years and signalled a reorganisation that may lead New Zealand's biggest meat processor and marketer to change its capital structure.

The Dunedin-based meat company expects pretax earnings of $5 million to $7 million in the year ended Sept. 30, it said in a statement. It posted a pretax loss of $36.5 million in 2013 and a loss of $42.3 million in 2012. It didn't provide details of 2014 sales, and said it would release its full audited accounts next month.

Silver Fern Farms is reorganising its business into three species units of beef, sheepmeat and venison in a bid to make the farmer-owned cooperative more responsive to opportunities in the industry. It plans to appoint an investment bank to review its capital structure and help reduce bank debt , having paid down $100 million of debt in the latest year.

Current annual debt servicing costs are $35 million. Silver Fern Farms didn't detail its latest debt position. It had net debt of $387.6 million at Sept. 30, 2013.

"The business has made good progress this financial year following two very challenging years, however there is still much work to do," said chief executive Keith Cooper, who is stepping down from the role after eight years.

Dean Hamilton, appointed chief strategy officer in April, will transition into the role of interim chief executive over the coming months, the company said.

"We believe the timing is right to look at capital structure options in view of our improved profitability, a positive backdrop of rising global demand for protein, an improved outlook for farm profitability and ongoing interest from customers to gain security of supply," chairman Rob Hewett said. "With an improved capital position there is the potential we can enable industry rationalisation if the right opportunities arise."

New Zealand meat companies abandoned efforts to consolidate and reduce surplus capacity last year because they lacked an agreed export strategy and farmers wouldn’t commit stock to firms that closed plants, according to people in the industry who were involved in the talks.

The country’s four biggest meat processors - farmer owned cooperatives Silver Fern Farms and Alliance Group, accounting for about half the industry, the Talley’s Group family-owned Affco and ANZCO Foods, with a majority ownership held by a Japanese food company - ended talks after failing to reach agreement last year.

Silver Fern's reorganisation follows a PriceWaterhouseCoopers strategic review of the business which focused on future options following the stalled industry aggregation discussions.

The company said its sales and procurement operations have both been reorganised and performed strongly.

Hewett said the market outlook is positive heading into the coming season, with expectations for farmers to receive $100 a lamb, beef in the range of 450-550 cents per kilogram and venison at levels of 680-800 c/kg.

Shares of Silver Fern Farms, which trade on the Unlisted platform, were last at 40.2 cents, valuing the company at $40.4 million.

(BusinessDesk)

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