Thursday, May 19, 2022

SFF rises to the challenge

A bid to reduce the impact of labour shortages by lifting wages cost Silver Fern Farms Ltd an extra $40 million in 2021 and shareholders have been warned this may have to be repeated.

Chief executive Simon Limmer says higher freight charges added a further $30m in costs to the meat company, but he says the company’s strategy of positioning branded product at high-worth consumers has made these sudden costs tolerable. 

Limmer told the SFF Co-op annual meeting that he is optimistic about market prospects despite global uncertainty, saying that full processing plants and high livestock prices reflect a strong market.

Farmgate prices for beef are 17% above the five-year average, lamb 29% and venison 7% below, although a year ago it was 35% below.

Limmer says SFF is reconfiguring venison products, the channels to market and its target consumers to turn around the fortunes of deer.

“We are clawing our way back to where it needs to be.”

A relaunch of SFF-branded meat on the NZ retail market has seen sales growth of 52%, including a 15% lift in sales of its burgers.

A target in the coming year is developing products around what he called beef’s fifth quarter, or by-products.

Representing 44% of a cattle beast by weight, Limmer says there is an opportunity to add value by promoting products such as hides in the same way branded NZ grass-fed has elevated meat into premium markets.

“Farming has never been so challenging but the future has never been so bright.”

Rob Hewett
Silver Ferm Farms

He says a shortage of labour this season means SFF plants had about 10% fewer workers than what it is needed and higher wages could be needed to retain and attract staff.

Add the impact of Omicron, and Limmer says on some days the labour force was 70% of what was needed.

This, along with a slow season, may extend this year’s season by up to three months.

Limmer’s address follows an exceptional financial year in which SFF Ltd, the processing arm in which SFF Co-op owns 50%, recorded a $103.8m net profit after tax ($65.4m in 2020), a $54m lift to $179.7m in earnings before interest, tax, depreciation and amortisation (EBITDA) and a boost in equity from $609.5m to $683.6m.

Limmer says the five year plan implemented in 2019 to create financial stability,has been achieved in three.

That goal was to cumulatively generate and consolidate $150m in profits and a 10% return on equity. 

It has achieved $240m and in 2021 the return was 16%.

“We are resetting our goals and objectives,” he says.

The result also reinforces the worth of its market-led plate to pasture strategy and its move to form relationships with suppliers beyond the weekly meat schedule. 

The other critical move was employing 35 people in-market including 20 in Shanghai.

In the past two years they have retained relationships with customers and managed logistics when SFF staff were confined to NZ due to covid.

Limmer expects global disruption to continue and he praised the work of staff, especially those working in the supply chain, in dealing with a difficult two years.

Despite these challenges, Limmer says underlying demand for meat remains strong and being positioned as a reliable supplier of quality, nutritious food will help navigate those issues.

Chairman Rob Hewett also relished the company’s financial result, saying the year under review was the fifth successive year of dividend payments and/or patronage rewards for shareholders.

Shareholders received $18.4m in dividends from the 2021 result.

He is also optimistic despite the challenges.

“Farming has never been so challenging but the future has never been so bright.”

During 2021 SFF attracted 180 new livestock supplying shareholders of which 160 were suppliers who became fully shared.

Hewett announced more than 100 people have participated in the company’s governance development plans in the last six years.

Wairarapa director Tony O’Boyle retired from the board after six years and after a very tight race, fellow Wairarapa farmer William Beetham was elected ahead of South Otago’s Simon Davies.

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