Profit up, dividend down for Silver Fern Farms

The co-op made an after-tax net profit for the period of $0.9m. In 2017, it reported an after-tax loss of $5.6m in 2017 over a 15-month period which included losses from discontinued operations.

Chairman Rob Hewett says Silver Fern Farms Cooperative will receive a $874,000 dividend from their 50% shareholding in Silver Fern Farms Limited, down from last year’s $4.1m dividend. He says the dividend is the first time Silver Fern Farms Limited has been in a position to pay back-to-back distributions out of operating profit to its shareholders.

Hewett says the cooperative remains in a strong position with no debt.

Hewett says the board was determined to support moves to improve the performance of its investment Silver Fern Farms Limited. He notes that it is undergoing a process of consolidation with intensive capital investment across infrastructure and systems.

For the period Silver Fern Farms Limited achieved sales of $2.4 billion, earnings before interest, tax, depreciation and amortisation (EBITDA) including share of associate earnings of $32.4m, and net profit after tax of $5.8m. The company increased the level of capital expenditure, up $8m to $29m, across health and safety, compliance, asset replacement and operational improvement over the course of the year.

Silver Fern Farms Limited chief executive Simon Limmer stated: “The 2018 after-tax result, while it represented a back-to-back profit for the business, is not at the level we are aiming to achieve for the Company.”

“It is acknowledged we must lift the profitability of the business in order to sustain our aggressive capital re-investment programme, and to more actively progress our in-market investment in sales and marketing to grow value in the market.”

Alongside the significant capital investment in Silver Fern Farms, the company continued to pay out strong farm gate pricing across all species.

In 2018 beef made a slight gain in procurement market share versus 2017, with sheepmeat and venison remaining the same. Prices for beef and venison products held up throughout 2018 and returns to both farmers and processors equitably reflected the market realities.

“While sheepmeats were a notable performer for the company in 2017, however, in 2018 returns could not sustain satisfactory levels of profitability,” says Limmer.

“This was due in large part to strong farmgate prices for sheepmeats not adequately reflecting in-market returns at crucial points of the season when processing volumes were low and eroded our operational efficiency. December 2018 was the worst December result for the company in the last ten years.”

Post balance date, Silver Fern Farms Limited announced an un-imputed dividend of $1.7m which will be equally distributed between the two shareholders, Silver Fern Farms Cooperative and Shanghai Maling. This is in-line with the company’s dividend policy of paying a minimum dividend of 30% of the company’s net profit after tax.

Rob Hewett said the cooperative had decided to distribute the $874,000 as a Patronage Reward only payable to qualifying supplying shareholders. 

“We decided to not retain the dividend from Silver Fern Farms Limited. This option was considered, the board saw no additional requirement for the co-operative to hold funds at this time. 

“We recognise the need to grow long-term value in the investment for the benefit of all shareholders. And we want to see greater alignment between supply and shareholding.

“We believe we can contribute to creating this enduring value by encouraging commitment of livestock supply through the Patronage Reward. This was one of the fundamentals behind the establishment of the co-operative’s Patronage Reward mechanism. “

This dividend received by the cooperative is un-imputed. The cooperative board has declared a distribution in the form of an unimputed patronage reward payable to those shareholders who have met the livestock supply criteria set out in our shareholder benefits programme. 

This will represent an un-imputed patronage reward (on qualifying shares) of 3 cents per share. The patronage reward is based on shareholding as at 31 December 2018. Payment date for the patronage reward will be 26 April.

“A highlight for the year was the constitutional review process, which saw strong engagement and a 92% vote in support. 

“Our constitution is now fit for purpose and ensures we have created a process for constructive rejuvenation for the governance of our co-operative as well as for Silver Fern Farms Limited,” says Hewett.

The annual report will be available on April 12, ahead of the cooperative’s annual meeting which will be held in Dunedin on 1 May.