Steady progress with Primary Growth projects

It is eight years since the Primary Growth Partnership programme was announced by the then recently elected National Government. At the end of 2016 there were 20 projects under way and just two completed, but 30^th June sees the completion of FarmIQ, the largest of the red meat sector programmes. This seems to be an appropriate point to evaluate the success of PGP, in particular the six meat and two wool programmes which have been allocated total Crown and industry funding of $342 million.

Changes at the top for both meat cooperatives and a return to profit for Ferns

The announcement by Silver Fern Farms which signalled a return to profit, albeit a small one, also heralded a changing of the guard. Keith Cooper will retire as Chief Executive at Christmas following Rob Hewett’s move into the chairman’s role earlier in the year.

 

There is a neat synergy about these developments which are mirrored by the changes at Alliance Group where Owen Poole handed over as chairman to Murray Taggart at the last AGM, while Grant Cuff has already announced his retirement as CEO. There will inevitably be speculation about whether either or both have been pushed or have gone in their own good time.

 

The word from the respective chairmen is that both Keith and Grant have gone entirely of their own accord after many years of loyal and competent service in one of the most competitive and bruising industries there is. It wouldn’t surprise me if both, especially Cooper, have decided there must be a less stressful way of spending their working life before they reach the age at which they want to put their feet up.

 

Running SFF during a period of substantial industry change involving seriously reducing sheep numbers, cut throat procurement competition and a perpetually weak balance sheet must have taken its toll. That said, Keith has always been unfailingly prepared to answer phone calls and questions while fronting a lot of the meat industry’s essential public relations issues.

 

Grant Cuff has taken a completely different approach, probably because he is by nature much more reticent than his counterpart; he was also content to take a backseat role and allow his chairman and predecessor as Chief Executive to front the industry restructuring issues. Alliance had had its worst period back in the late 80s after acquiring Waitaki’s South Island assets and under Poole’s management had never allowed itself to fall back into a similarly stressed financial position.

 

While not profitable every year, Alliance has successfully navigated its way through the last 20 years with its balance sheet intact as well as making the right investment and rationalisation decisions at most points along the route. The company remains a genuine cooperative based principally in the South Island. Cuff’s contribution as a manager and more recently as Chief Executive should not be underestimated.

 

SFF has had a much more colourful time over the same period. It entered the 90s as Primary Producers Cooperative Society (PPCS) with no assets outside the South Island, but had a reputation as a hard-nosed, tightly run business that did things its own way without showing any weakness to its competitors. Fortex which collapsed in the early 1990s learned the hardest way of all the rashness of baiting PPCS in its own back yard.

 

By the early 2000s PPCS, under CEO Stewart Barnett and chairman Robbie Burnside, fought a bitter campaign to take over Richmond based in Hawkes Bay. This takeover was eventually successful, although it weakened PPCS which became the country’s biggest, but possibly weakest, meat company. Supplier disaffection saw a steady loss of market share, while the asset base was in need of both rationalisation and reinvestment which has required substantial bank debt.

 

Keith Cooper took over from Barnett in 2006 since when he has led the company through a renaming exercise, the development of a high profile branded consumer meat business (although this is not yet necessarily profitable), sale and closure of a number of assets, establishment of FarmIQ and the conversion from cooperative to ordinary shares. This has been achieved in spite of heavy losses and a weakening balance sheet against a background of rumours about the company’s ability to survive.

 

At the present unlisted share price of just above 40 cents, members ordinary shares valued at $136.5 million in the 2013 annual report, have a market value of a little over $40 million funding assets of $833 million. This week’s announcement talks of debt being reduced by $100 million which will certainly bring down the $35 million interest bill as well as improve the debt to equity ratio, but the real need is for an urgent and significant improvement in equity.

 

According to the chairman Rob Hewett, equity options presented in the PriceWaterhouse Coopers report are still six months away from being able to be evaluated and presented to shareholders. It seems that a further move away from SFF’s previous cooperative status is inevitable.

 

The small $5-7 million unaudited pre and doubtless post tax profit is trumpeted as a $40 million improvement over the previous year’s result, but as a return on the massive asset base it is pretty minimal.

 

Cooper is getting out under better performance circumstances than would have been the case a year ago, but the jury is out on how successful his legacy will be. The new CEO Dean Williamson will need all his experience gained from running Riverlands as part of Brierley Investments meat business 20 years ago, as well as some new skills if he is to return SFF to fully profitable safety.

 

In retrospect and in spite of a much lower key tenure, Grant Cuff leaves the meat industry with a more substantial record of achievement.

Silver Fern Farms heaves sigh of relief

This week’s announcement by Silver Fern Farms of an unaudited pre-tax profit of $5-7 million for the last financial year signals a massive improvement on the substantial losses of the two previous years. But in spite of the $100 million debt reduction, it does little more than provide some breathing space for the company to review its future capital structure options.

Doubtful if changing of the guard will bring change of direction

When Eoin Garden retires as Silver Fern Farms’ chairman at the AGM in December, both cooperatives will have had a change at the top within three months of each other. So the big question is whether this will make any difference to the way they operate: will there be a significant change of culture and leadership from the top or will it be much the same as before?

MIA gives honest assessment of industry challenges

The Meat Industry Association has recently published its 2013 Annual Report which contains an honest assessment of the challenges of the past year and a summary of the positive initiatives under way.

Genetics programmes critical for improving productivity

Two complementary programmes have just been announced which promise to deliver improved sheep traits which will compensate for lower production and generate greater profits.

Differences more apparent than real

In spite of recent disagreements, most notably between Keith Cooper of Silver Fern Farms and Beef and Lamb NZ, there doesn’t appear to be too much wrong with relationships between meat companies and the industry good organisation representing sheep and beef farmers

More farmer support for Beef & Lamb NZ

Keith Cooper’s resignation and call to farmers to give meat companies their levy funds for marketing appear to have, in B&LNZ chairman Mike Petersen’s words, “crystallised support for the organisation.”