Friday, July 8, 2022

Processing companies lose about $200m

New Zealand’s meat-processing companies might have had pre-tax losses totalling about $200 million in the latest September year.

Three of the big four processors – Silver Fern Farms, Alliance Group, and ANZCO Foods – racked up combined losses of $137m.

AFFCO Holdings, the third-biggest processor ahead of ANZCO, is privately owned and does not release results. Its losses are expected to be at least in line with the average of the others and possibly greater, because of the impact of an extended industrial dispute during the September 2012 year.

In pre-tax terms, Alliance lost $70.5m, Silver Fern Farms $42.3m, and ANZCO $25.6m.

If AFFCO’s loss was around the average of those figures, the top four losses would be about $180m for the trading period.

There are 15 meat processor/marketers on the European Quota list but the only one of the smaller companies to release a result is Blue Sky Meats, which trades on the Unlisted platform. It has a March balance date, had a pre-tax loss of $604,000 in the 2012 year and will not release its March 2013 result until July.

Blue Sky, ranked seventh on the quota list, had 2012 annual revenue of $114m, well down on the billion-dollar plus turnovers of the other three to release results.

It is likely most of the smaller meat exporters also lost money over the September year. As market prices slumped and sales fell, companies were forced to mark down the value of increasing volumes of inventory.

Beef + Lamb New Zealand export figures suggest some of the inventory from the last September year might still be in store.

About 90,000 tonnes was shipped overseas during the October to January period, out of annual lamb production of about 350,000 tonnes.

By the end of January the current processing season would have been well under way, with companies having plenty of new product to sell, as the drought forced farmers to get rid of lambs.

Whether those carry-over stocks continue to put pressure on company cash flows, working capital, and debt levels, or whether there has been an orderly disposal process, won’t be known until the Blue Sky report in July, and then to a greater extent in the Silver Fern Farms and Alliance September 2013 reports, due in November.

New-season export sales have been solid, specially for Easter, but the scale of domestic supermarket specials is a sure sign of reasonable stock levels remaining onshore.

Of the three big groups reporting their results, ANZCO improved its inventory and cash flow position from 2011 to 2012.

Inventory fell to $106.3m from $129.1m, livestock on hand fell to $14.9m from $21.4m, and the level of receivables to $85.9m from $103.3m. This led to a positive operating cash flow of $35.2m from an outflow of $22.4m in the profit-making 2011 year.

Borrowing reduced to $193.8m at balance date from $223m a year earlier. ANZCO’s equity ratio was steady at just below 44%, on total assets of $481m, down from $539m a year earlier.

Silver Fern Farms inventory rose to $180m from $111.5m year on year, with livestock on hand rising to $56.5m from $42.2m, and it managed to reduce trade receivables to $116.3m from $141.2.

Borrowing ballooned to $316.6m from $120m a year earlier and the equity ratio fell to 42.5% of total assets of $796m, from 54% of total assets of $674m in 2011. If members shares are classed as a liability, the equity ratio falls to 37.5%.

Alliance inventory and cash flow had a similar trend to its southern rival. Inventory jumped to $190m from $101m, with receivables at $114m from $106.5m. Alliance went from a $3.1m positive cash flow in 2011 to an outflow of $163.5m.

This outflow was covered by borrowing up to $198m at balance date from just $6m in 2011. The equity ratio fell to 50% on total assets of $579.7m, from a strong 75% level on total assets of $458m a year earlier. However, if the $75.39 million of members shares are classed as a liability instead of equity, the 2012 equity ratio falls to 39.5%.

For all three companies, the level of borrowing came at a balance date when there should have been the least need for debt, following the main sales period and ahead of the seasonal financing for the current season’s procurement and processing costs.

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