Silver fern to seek $100m

Dean Hamilton.

Dunedin-based Silver Fern Farms will be looking to raise around $100 million in new equity next year to repay debt, upgrade plant, and to accelerate its "value added" product strategy, says the co-operative's new chief executive, Dean Hamilton.

Hamilton, who took over from outgoing chief Keith Cooper in October, said the co-operative had hired investment bank Goldman Sachs to advise on its options - a process expected to take six to nine months.

Silver Fern Farms, New Zealand's biggest meat processor and marketer, has made inroads into its debt, repaying about $100 million in the year to September.

But Hamilton said it wanted to reduce its present $280 million debt to $100 million.

In 2011, Silver Ferns Farms' debt totalled about $110 million, but it rose to about $380 million last year after a collapse in sheepmeat prices.

Hamilton estimated the downturn took about $200 million to $250 million of profit out of the New Zealand meat processing industry.

"Our debt went up, our inventory went up, and it peaked in September 2013 at around $380 million, so we were well away from where we wanted to be," he said.

The company had two years of losses - $42.3 million in 2011/12 and $36.5 million in 2012/13 - as it worked its inventory down.

"Last year was all about getting debt down and we took $100 million out of the business," Hamilton said.

"So that's good progress but there is still a gap between that and where we want to be," he said. "This year we have ambitions to take out another $100 million."

Silver Fern Farms has a 50/50 joint venture - Dairy Bull Beef - with fast-food chain McDonald's. The co-op intends to back out of the arrangement, which Hamilton said would release about $50 million.

Silver Fern Farms also plans to sell some surplus assets and will further reduce debt through expected improvements in profitability.

The numbers have yet to finalised, but Silver Fern Farms is expected to turn a profit of $5 million to $7 million in the year to September.

"It's a big improvement from a year before, but it's just a milestone to where we want to be," Hamilton said.

"At the moment, our pre-occupation is with paying down debt. We want to accelerate our path to that [$100 million] target.

"We want to invest in the business more strongly than we have done in the last couple of years, so the board has taken the decision to see if we can raise equity."

In an ideal world, Silver Fern Farms would have raised money from its farmer shareholders - as it has done in the past - and Hamilton said he expected shareholders to play a part in the planned capital raising.

Silver Fern Farms has had an internal restructuring to separate its beef, sheep and venison operations.

As well as debt repayment and plant upgrades, it also wants to accelerate its "value added" strategy to a point where value-added sales exceed a "tipping point" of 10 per cent of total sales from 5 per cent at present.

Silver Fern Farms, formerly the Primary Producers Cooperative Society, rebranded in 2008 and went on a valued-added route, supplying Silver Fern branded venison, beef and lamb.

Now it wants to do the same thing in its biggest market, China.