Blue Sky turns to FY loss

Friday 13th July 2012

Blue Sky Meats, the Invercargill-based meat processor, turned to a full-year loss after export prices plummeted in the second half, squeezing margins for companies who started the season with 'unrealistic' opening schedules for lamb.

The net loss was $449,149 in the 12 months ended March 31, from a profit of about $3.69 million a year earlier, the company said in a statement to Unlisted, the platform where its shares trade. Sales rose about 13 percent to $114.2 million while expenses climbed 22 percent to $114.8 million.

Shares of the company last traded on Unlisted at $1.40, giving it a market value of about $16 million, and have dropped about 22 percent this year. The shares trade infrequently.

"International market prices for almost all items that the company sells reduced at an alarming rate from November to March, against a background of EU financial challenges," chairman Graham Cooney said. This caused sales "to dramatically slow as importers only purchased the minimum amount to keep them in business."

The company was critical of the strategy of meat companies to set opening schedules for lamb "about $1 per kilogram of carcass weight higher than justified in the market." The rates were set amid "false optimism" after a strong previous year and the battle to procure livestock, he said.

"Companies cannot blame anyone else for an opening schedule that gave unrealistic expectations to producers and they must also accept full responsibility for not reflecting what was happening in the market as the season progressed," Cooney said in his chairman's review for the annual report.

He said it was "a brave company" that would be willing to break ranks and pay less when chasing livestock. He also sheeted home blame to third party agents, saying "the majority have no interest in the international market and do not consider it has anything to do with their role."

"Consequently they add cost, not value to the industry," he said.

The battle for procurement and the sometimes distorted signals it sends to growers is being tackled by the Meat Industry Association and Beef & Lamb NZ, under the Red Meat Strategy.

"The points raised are well understood in the industry and there are a number of initiatives to establish a closer procurement relationship between grower and processor," MIA chairman Bill Falconer told BusinessDesk. "This is just a start and it will take some time before both parties establish the confidence that would see different arrangements applying on a wider scale."

Blue Sky said meat exporters also had to contend with record "cheap" Australian meat shipments, which undercut prices, and a strong kiwi dollar, which eroded the value of overseas sales. Drought in Southland while the rest of the country enjoyed good growing conditions also provided a challenge for Blue Sky.

While the long-term outlook for sheep meat farming was "strong" the debt crisis and recessionary conditions in Europe will continue to weigh on trading.

"It is certain that trading conditions in the UK and Europe will get worse before they get better and the speed of improvement will depend on politicians' and their constituents' acceptance that they cannot live in an artificial environment forever," Cooney said.

Blue Sky won't pay a dividend for the latest year and has paid an average 10 cents a share in previous years. It paid out $2.2 million in 2011.

BusinessDesk.co.nz

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