KEY POINTS:
New Zealand's largest meat exporter, PPCS, says underlying performance improved in the six months to the end of February - but the group is still in the red.
The co-operative company reported a loss of $8 million (before interest, tax and non-recurring items) on revenue of almost $960
million. That compares with a loss of $13 million for the same period last year.
The bottom line loss was $12.5 million compared to $3 million a year earlier but a one-off sale of plant and processing equipment boosted the 2006 figure.
The seasonality of the meat industry means processors traditionally make most of their profits in the second half of the financial year.
"The skewed seasonal earnings profile of the meat industry typically sees processors post negative results in the first half as a result of fixed overheads in processing capacity and limited throughput over the July-October period," said PPCS chief executive Keith Cooper.
However, this had been exacerbated in recent years with premiums being paid by the industry for stock for processing reasons which were unrelated to market returns, he said.
To address this issue PPCS is introducing a new livestock procurement system for the 2007-08 season which it hopes will better reflect market demand, provide improved market signals to its farmer suppliers and better manage seasonal effects on the company's earnings profile.
The company will no longer buy stock simply to manage the flow through its processing plants.
Starting July 2007, the co-operative would offer forward supply agreements based on required market specifications and market returns, Cooper said.
"The approach reflects our core philosophy of providing the correct market signals to suppliers in relation to market returns and to ensure procurement is aligned to market demand."
PPCS will reconfigure plant throughput capacities to reflect limited volumes of livestock likely to be processed at certain times of the year under the new system.
Commenting on the six-month result Cooper said he was pleased to see an improvement in underlying performance ... "particularly in plant operating expenses and overheads although there continues to be room for improvement".
As a result of stronger operating cash flows, total borrowings have reduced by $41 million relative to the equivalent period last year.
A highly competitive procurement environment saw prices for livestock reach unsustainable levels in the early season period, Cooper said.
While beef and venison continued to perform solidly, lamb experienced a difficult period.
Consumers continued to resist strong 2004-05 prices in the face of competition from alternative meat proteins, especially poultry and pork, and alternative lamb supply from Australia in particular.
Cooper said the company was performing well in the second half of the year but the strong dollar remained a concern.
"Strong currency conditions undermine returns, as ... world prices remain under pressure."