Silver Fern profit masks challenging markets

Silver Fern Farms reported a 16% gain in full-year profit, helped the settlement of its failed merger with PGG Wrightson, while at an operating level earnings tumbled in the face of difficult market conditions.

Net profit rose to $43.6 million in the 12 months ended August 31, from $37.6 million a year earlier, the meat processor said in a statement. Operating profit before items sank to $5.1 million from $75.7 million.

Silver Fern has gone through what chairman Eoin Garden called a “defining year,” as it prepares to test the market value of its shares on the Unlisted platform following a lacklustre pick-up of rights in its recent capital restructuring.

The capital raising amounted to $21 million, from a hoped-for bucketful of as much as $128 million. The company exports most of its product and has to contend with a kiwi dollar that’s climbed above 76 U.S. cents this week.

The New Zealand dollar also soared to a 20-year high against the pound, currency of the biggest market for the nation’s lamb.

“There’s a question about the high level of the dollar at the moment and how that’s impacting upon them,” said Fergus McDonald, head of fixed-income at Tyndall Investment Management, which holds Fonterra debt and has looked at Silver Fern.

With a combination of a high kiwi and recession in the UK, “can our farmers and Silver Fern Farms make a decent living providing lamb to that market,” he said.

Notwithstanding the meat company’s low-wattage capital raising, it has slashed debt, repaying $50 million of bonds last March. Total debt declined to $184.5 million from $242 million in the latest year.

Sales rose 2% to $2 billion.

“If you look at revenues of $2 billion into any offshore currency and apply the swings we have – it’s so sensitive to movements,” chief executive Keith Cooper told BusinessWire.“This year we’ve had materially lower numbers and a market flat or stabilized – and we’ve had some challenges managing the currency this year,” Cooper said.

By contrast, 2008 enjoyed a rising market, high throughput volumes and a relatively stable currency, he said.

Silver Fern shares begin trading on Tuesday after the long Labour Day weekend. Holders of 42.9 million, or 75% of Silver Fern’s stock on issue opted to exchange their cooperative shares for the new ordinary shares that will trade on Unlisted. They also subscribed to a further 22.2 million under the rights offer.

Chairman Garden said the current high dollar will have a “detrimental impact on livestock values.”

“This is particularly frustrating when so much has been, and is being achieved in maximising value from global markets,” he said. 

Businesswire.co.nz

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