Silver Fern Farms in good place

Silver Fern Farms is heralding an improved financial performance so far this year. Photo / Beef + Lamb

Silver Fern Farms chief executive Dean Hamilton says the business has never been in a stronger financial position.

In an update to suppliers on the company's financial performance, Mr Hamilton said the first six trading months of the financial year resulted in a good improvement on the corresponding period last year.

Revenue was up on last year, with lower industry volumes more than offset by higher New Zealand dollar prices, and earnings were ahead of the same period last year, albeit behind budget.

The slow start to the season, with good growing conditions, caused tighter margins early on as processors competed for fewer available livestock.

"When volumes lifted in late April through to late June, we benefited from having full plants and the processing economies that come with that.

"The next 3 to 4 months are invariably the challenging ones where winter volumes mean lower utilisation,'' Mr Hamilton said.

There had been a big effort to continue to improve inventory turnover speed. Overall, there was less than one month's worth in its system.

A combination of the Shanghai Maling investment, improved profitability and lower inventory had resulted in a material improvement in the company's capital position. As at mid-July, it had cash in the bank and nil net borrowings.

It had freed up the company's ability to invest in the company to lift performance. This year, the company was investing $22million in capital expenditure compared with $8million in 2015.

Listen to Jamie Mackay's interview with Silver Fern Farms chief executive Dean Hamilton in the Soundcloud embed below:

Those investments in core infrastructure included new plant robotics for packaging and processing, cold chain upgrades and new by-product processing facilities.

In December, Silver Fern Farms completed its joint venture partnership with Shanghai Maling. The Chinese-owned company invested $267 million in cash in return for a 50% stake in the business.

In the last financial year, Silver Fern Farms posted a $30.6 million after-tax loss for the year ended September.

Livestock volumes had been good, with both Takapau in Hawkes Bay and Finegand in South Otago processing more than a million lambs, Mr Hamilton said.

In a market update, the company said demand and prices for lamb this season so far had been ahead of the company's expectations at the start of the year.

However, a number of frozen markets were starting to soften, with the UK wholesale leg market and the Middle Eastern and China forequarter markets all easing in price.

That would have less effect on lamb revenues at this time of the year as the company concentrated on chilled production. However, it did suggest a "note of caution'' to the start of the new season.

Chilled pricing remained firm, with good demand for legs and middles over the next few months.

The UK leg market had seen another supermarket retailer, Morrisons, announce a move to 100% British lamb for the new season.

Silver Fern Farms was exploring alternative options to lessen its reliance on that leg market, including Europe, and its long-term strategy of developing markets for its retail cuts.