Article - Silver Fern Farms

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Seasonality and Currency Volatility Impact Half Year Results

Fri, 24/04/2009 11:11:00 a.m.

Silver Fern Farms has reported a net loss of $5.9m for the six months ended 28 February 2009 on revenues of $1,002.4m (February 2008: $884.5m). Whilst unit revenues are up as a result of international market gains and currency depreciation, the results reflect timing changes in marketing programmes based around a flatter sales profile aimed at aligning supply to year round customer requirements. Further, the company had to contend with an exceptionally volatile currency which had fluctuating impacts on revenues and margins.

Keith Cooper, Silver Fern Farms' Chief Executive said the results would have been similar to the comparable six month period to February 2008 adjusted for currency mark to market and timing of sales volumes.

"Working capital requirements for the period were also substantially up on last year's as a result of the higher than forecast kill albeit at lower overall levels than 2008, lower currency, the early season and shortening of customer orders as they assessed the impact of the international debt crisis. "So while disappointing, the result is considered acceptable given the seasonality of the meat industry. It is also gratifying to note that farmer returns have moved to more sustainable levels, which is positive news for the pastoral sector as a whole."

Inventories stood at $383.3m (February 2008: $289.6m) from which margin will be gained over the second six months of the financial year.

The year-end forecast is projected to be positive with an equity ratio of 45% up from 41% in August 2008 and an interest bearing debt (including bank, bonds and leases) position of $194.5m (August 2008: $245.2m).

Chairman Eoin Garden said Silver Fern Farms was currently evaluating capital raising options to ensure capital adequacy, fund the business reinvestment programme going forward and insulate the company from the potential risk associated with the international credit crunch.

"A share issue has a number of inherent benefits, while ensuring farmers retain control of their processing and marketing assets, the cornerstone of the cooperative model," he said. The company was planning to launch the capital restructuring and governance review to shareholders during July of this year. Mr Cooper said the company would continue to work towards implementing its plate to pasture strategy. "There were a number of initiatives on track for the remainder of the current financial year, including the consumer brand launch, supply chain management, and the installation of robotic technologies and XRay yield grading.

"We are looking forward to an improved second half of the year. While there is an expectation that lamb numbers will likely be down by 20% this year, M&WNZ Economic Service is forecasting a modest increase next year, which will positively influence financial returns as Silver Fern Farms completes its business transformation programme that it commenced in February 2007."

Group unaudited 6 months ended 28 Feb 2009 $m Group unaudited 6 months ended 29 Feb 2008 $m

Revenue 1,002.4 884.5

Profit/(loss) before income tax and non-recurring items (16.7) 14.4

Non-recurring items credit/(expense) 4.6 (2.0)

Taxation credit/(expense) 6.2 (1.1)

Net Profit/(loss) after tax (5.9) 11.3