Posts Tagged ‘Richmond’

Fairton closure inevitable

May 25, 2017

Wednesday’s announcement by Silver Fern Farms of the proposal to close the company’s Fairton plant was in many ways inevitable. Even the workforce appears to have been resigned to the probability for several years. Sad as it is for workers and the Ashburton community, it is better to front up to the certainty than to have to wait for the axe to fall. (more…)

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Heavy market share losses affect Silver Fern Farms’ financial performance

January 26, 2017

In recent weeks there has been an exchange of views about PPCS’s acrimonious takeover of Richmond in 2003. Keith Cooper, ex CEO of the renamed Silver Fern Farms, emerged from anonymity in Middlemarch to castigate the appointment of Sam Robinson to the board of Silver Fern Farms as the Shanghai Maling representative. He was critical of Richmond’s rejection of the original approach by PPCS to buy the Freesia Investments shares from the Meat Board in the mid-1990s and Robinson’s role as Richmond’s chairman. (more…)

Independent report and road show fail to satisfy all Silver Fern shareholders

October 14, 2015

In spite of apparently solid support for the Shanghai Maling deal at the road show meetings, there are a number of long-term shareholders in the far south who feel let down and ripped off by the company’s determination to sell 50% of their cooperative.

 

Their displeasure has two main causes, one historical and the other current: the historical reason is the company’s departure from cooperative principles after the Richmond takeover; the more current reason is based on a belief there should be no need to commit to a partnership which sacrifices control of the cooperative. However one could argue control has long gone, with present controllers the banks being replaced by a Chinese meat company.

 

There is nothing now to be done about the Richmond takeover which was characterised by acrimony on both sides, as well as the substantial debt burden it imposed on PPCS which had been a successful business for over 50 years. These shareholders feel the company could have raised all the capital it needed, if it had insisted on new suppliers becoming shareholders; but because of the threat of a supplier exodus, PPCS decided to retain supply by accepting livestock from non shareholders.

 

This was an inevitable decision in the very different North Island climate and that horse has long since bolted. AFFCO’s status as a cooperative in anything but name had long disappeared before its capital restructuring in the mid 1990s.

 

The justification for selling half the operating business, including processing assets, brands, intellectual property and production supplied by the cooperative, can be found in the Notice of Meeting sent to shareholders and available on the SFF website. The attached Grant Samuel Independent Report contains essentially the same information as the Notice of Meeting which is logical, as much of Grant Samuel’s information came from discussions with company management and directors.

 

This is probably inevitable, but it raises the question whether an independent report, produced on behalf of and in consultation with a company, can ever be truly independent. The strong probability must be the conclusion will always corroborate the client’s preferred course of action, provided it makes sense.

 

That said, the partnership with Shanghai Maling appears to be an offer which ticks many boxes which are beneficial to SFF and, it could be said, its suppliers. Shareholders will receive a 30 cent a share dividend, having received no dividends and seen the value of their shares fall to 35% of par value; they are also virtually guaranteed to be paid a competitive price for their livestock and dividends in future. The company will be debt free and, in chairman Rob Hewett’s words, the value add ‘plate to pasture’ strategy will gain a turbo charge.

 

The key conclusion in the Grant Samuel report is the following excerpt which states “As a result of an improved financial performance and other strategic initiatives SFF Co-Op has achieved a degree of deleveraging over the last two years and it is arguable that given

time it will be able to achieve a more conservative capital structure without the need for new capital. Nevertheless, the Proposed Transaction achieves the recapitalisation, removes uncertainty, creates new opportunities for growth and is strongly supported by the Board of SFF Co-Op and the Banking Syndicate.”

 

The removal of the uncertainty that has bedeviled the company for several years and the unwillingness of at least some of the banking syndicate to extend facilities beyond the end of this month without a firm, bankable proposal are two very good reasons for accepting the deal.

 

In time the company will be able to transition to its intended supplier remuneration policy of rewarding suppliers for their ability to comply with market specifications. But first there must be a serious review of processing facilities and tough decisions about plant upgrades or closures, because SFF has more capacity than any of its competitors, quite a lot of it less efficient. The recapitalisation will enable this to occur without having to go cap in hand to the banks.

 

For suppliers who support the partnership proposal, the important points are survival of the company, certainty of payment and possibly belief in Shanghai Maling’s ability to enhance the returns from the ‘pasture to plate’ strategy without keeping all the additional profit for itself. Conversely the objectors believe SFF has departed irrevocably from its cooperative principles and should have been able to find alternative capital without selling half the business, while Shanghai Maling will take all the upstream margin.

 

At this stage it is impossible to predict whether, and for how long, Shanghai Maling will be content to remain in a true 50/50 partnership which is a notoriously troublesome business form. History suggests it won’t last this way for ever because, in a joint venture, one partner generally ends up screwing the other. Inevitably it will be the stronger partner that finishes on top and there are no prizes for guessing the outcome here.

 

Unfortunately those suppliers mourning the structural and philosophical change to their cooperative will have to face the reality of the financial position which SFF was faced with and the board has been compelled to resolve the best way it could. That’s what boards are meant to do. Equally, unhappy shareholders also have a choice and can look at the obvious alternative.

 

In proposing the deal with Shanghai Maling, SFF’s board has made a judgement call between the lesser of two evils: it has chosen the financial certainty of new capital in exchange for half the business, believing this to be preferable to the risk of losing supply from disaffected shareholders. The amount of time it took to come up with this solution suggests the board must believe it had no choice in the end.

Turning point for red meat sector

September 30, 2015

The Shanghai Maling Aquarius offer for 50% of Silver Fern Farms may not be the restructuring catalyst that MIE and some shareholders of both cooperatives were hoping for, but it certainly presages a dramatic change in the industry’s dynamics. (more…)

A rare breed in the meat industry

March 4, 2015

AFFCO is establishing an encouraging trend among its management ranks with three women in senior roles as plant and technical managers. Ann Nuku and Rebecca Ogg are plant managers of AFFCO Manawatu and Horotiu respectively, while Emma Fitzgerald is the company’s Technical Manager. (more…)

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

November 12, 2014

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.

Whatever happened to the importance of the fifth quarter?

April 4, 2014

There has long been a belief in the crucial importance of the meat industry’s fifth quarter to profitability. This somewhat obscure term refers to the co-products which contribute an essential revenue component over and above the value of the meat.

(more…)