Dunedin meat co-operative Silver Fern Farms has reported a $5.9 million loss for the first six months of this financial year, despite a sharp increase in revenue.
Revenue for the six months to February 28 was $1 billion compared to $884 million a year earlier, due to market gains and currency depreciation.
But the loss was attributed to timing and marketing programmes, which had resulted in a flatter sales profile.
That marketing programme was aimed at aligning meat supply to customer demands, while the fluctuating currency impacted on revenue and margins.
This year's result compared to an $11.3 million profit a year earlier, but chief executive Keith Cooper said that was something of an anomaly, with a large kill due to drought and farmers quitting sheep to convert to dairying.
In an interview, he said that over a five-year period,the result this year would be consistent with previous years.
In the period under review, inventory was more than $90 million higher than a year earlier at $383 million, compared to $290 million, which Mr Cooper said would boost the second-half performance.
The higher inventory value was the result of higher product values and timing, with stock held over till March to meet traditional Easter markets.
It was also the result of a higher-than-forecast kill, albeit at a lower level than 2008, which also meant a greater demand for working capital for the six months.
And customers were placing shorter orders as they assessed the impact of the international crisis, he said.
"So while disappointing, the result is considered acceptable given the seasonality of the meat industry," Mr Cooper said.
"It is also gratifying to note that farmer returns have moved to more sustainable levels, which is positive news for the pastoral sector as a whole."
Mr Cooper said the $40 increase in the price of lamb for farmers this season did not directly mean a strong financial performance for the company, as farmers had enjoyed all the gains from a lower currency but company margins had been kept lean.
For the period under review, Silver Fern Farms reported a $16.7 million loss ($14.4 million profit a year earlier) before a tax credit of $4.6 million and non-recurring items of $6.2 million.
Mr Cooper said SFF had successfully reduced debt, with interest bearing debt $43 million lower at $391.7 million, compared to $434.6 million.
The company was confident of a strong second six-month period, with a projected equity ratio of 45%, up from 41% in August 2008, and interest bearing debt (including bank, bonds and leases) of $194.5 million before the gains from Friday's settlement with PGG Wrightson over its failed joint venture.
Mr Cooper said that settlement of $30 million in cash and 10 million ordinary shares in the rural servicing company would allow a further reduction in debt and improved equity.
Chairman Eoin Garden has released further details of the company's capital raising options, suggesting some sort of share issue.
Details of capital restructuring and governance review would be released in July, but Mr Garden said the capital would be invested in the company and would insulate it from the credit crunch.
"A share issue has a number of inherent benefits, while ensuring farmers retain control of their processing and marketing assets, the cornerstone of the co-operative model," he said.
