Saturday, April 20, 2024

Low consumer demand a blow to SFF profits

Neal Wallace
Market conditions have meant SFF Ltd has adjusted the pace of planned investment and focused on reducing operating costs.
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Low consumer demand and fallout from Cyclone Gabrielle are being given as reasons for Silver Fern Farms Ltd reporting a $24.4 million after-tax loss for the year.

The company declares two results for the year to December 31 2023 –for the operating company, Silver Fern Farms Ltd, which is owned jointly owned by Silver Fern Farms Co-operative and Shanghai Maling, and the annual result for SFF Co-operative. 

The co-operative has reported a $10.7m loss after tax for the same period, having reported an after-tax net profit of $94.1m in 2022.

SFF Ltd reported turnover was $497m lower than the previous year to $2.78 billion, reflecting weaker market sentiment compounded by increased supply out of Australia and South America.

The loss compares to a net profit after tax in 2022 $198.2m and revenue of $3.27bn. No dividend will be paid to its two shareholders. In 2022 it paid a $76.9m dividend.

In addition to devastating farms and communities, Cyclone Gabrielle caused damage and disruption to SFF’s Dargaville and Pacific (Hawke’s Bay) processing sites for several weeks.

Chief executive Dan Boulton said challenging market conditions persisted throughout last year and have continued into the current year.

“Weakened market sentiment has been compounded by increased supply dynamics out of the likes of Australia and South America.

“This has added more volume to already high in-market inventory levels, and put downward pressure on pricing,” he said.

Those conditions has meant SFF Ltd has adjusted the pace of planned investment and focused on reducing operating costs.

“Some technology programmes that were in progress will be finished, however the timing of some larger projects has been deferred until our spending envelope increases,” he said.

“There has also been an ongoing focus on cost management and optimising our day-to-day operations.

“Non-critical spend and investment have been deferred, and the business is focused on prioritising the core aspects of the business, from operations, through our supply chain, and into market.”

Boulton said the company has not lost confidence in its market-led strategy.

“While it’s still a growing proportion of our business, we’ve seen that where we have invested in our brand, we have been able to retain value relative to decreasing commodity pricing.”

Increasing numbers of higher value customers and consumers are being attracted to the SFF brand and its sustainability messages, he said.

“In particular, we continue to see strong interest and engagement from our key customers in our Nature Positive programme of work.”

Boulton said processing capacity improved in the year under review after a few years of disruption, primarily due to labour shortages.

Recruitment and retention plans and around $70 million of investment into the plant network helped improve processing capacity and reliability.

However, abundant feed levels for much of the season delayed stock flows, which presented some challenges.

Co-op chair Rob Hewett  aid after several years of strong performance and record returns to shareholders, it is disappointing to not distribute any dividends.

He is confident in the operating company’s ability to recover when market conditions become more favourable.

“The board regularly reviews the strategy and is confident that SFF’s strategy and direction of travel is the right one. However, it’s critical the business continues to adjust to the market conditions we are currently facing,” he said.

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