Blue Sky Meats posts $1.9m loss, signals review of unprofitable Gore beef plant
Blue Sky Meats, the Invercargill-based meat processor, posted a loss for the second year in a row and said the future of its unprofitable beef plant in Gore is under review.
The company reported a loss of $1.91 million, or 16.54 cents per share, in the 12 months ended March 31, from a loss of $1.96 million, or 16.98 cents, a year earlier, according to its annual report. Revenue slid 17 percent to $97.9 million. It won't pay a dividend.
Blue Sky paid $3 million for the Clover Meats beef processing plant in December 2014 after mulling the prospect of an investment in beef processing for some years in response to comments from sheep and bobby calf suppliers that they wouldn't supply more livestock unless the company widened the variety of species processed. However, the acquisition has failed to break even and has been a drag on the resources and performance of the company and Blue Sky closed the plant in the third quarter to stem the losses and review its options.
"We are now in the process of reviewing our options, which range from the reinstatement of full operations to an asset sale," said Todd Grave, who undertook a comprehensive strategic review of the company after he took over as chief executive in October last year.
Blue Sky noted several factors which impacted its profitability over the past year, including a $1.4 million loss at its Gore plant, $163,000 of advisory costs related to a takeover bid by the local unit of China's Heilongjiang Binxi Cattle Industry Co, which didn't proceed after it failed to receive Overseas Investment Office approval within the specified time, and a loss of $860,000 due to delays in completing its new effluent pond which meant it had to stop its rendering operations for periods during the second half of its financial year. The pond is now complete and allows better management of effluent and 15 times more storage capacity, it said.
The company said its base business, the Morton Mains ovine processing plant, generated a small pretax profit.
Looking back on the year, Blue Sky said the new ovine season started with a promising outlook but projected lamb numbers didn't eventuate, mostly due to an unusually cold and wet start to the season. Disrupted and inconsistent stock flows throughout the season and competition with stock yards pushed up prices to unprofitably high levels, and the company chose to accept lower overall stock numbers with a wider margin per unit, it said. Higher selling prices were partly undone by a stronger New Zealand dollar, it said.
Grave said the results for the first three months of the company's 2018 financial year are "up significantly" on budget and previous years, which he said displayed a positive trend for the upcoming season.
He said the new strategic plan forms the platform for a return to profit for the business, through 20 projects forecast to bring $7.8 million of added value to the business. In the fourth quarter of the 2017 financial year, the business achieved $1.5 million of additional value, more than double the financial benefits targeted for the period and with all nine projects started on or ahead of time, he said.
During the quarter, the company prioritised the top three projects for implementation, which account for more than half of the strategic plan's total financial benefits over the next three years, including improving yields, doubling annual export chilled volume, and remediation of the Gore beef plant.
The company's total equity fell to $18.8 million at the end of the 2017 financial year, from $21.5 million in its 2016 year and $23.6 million in the 2015 year. Blue Sky noted it breached debt covenants with its lender as of March 31 this year, but said its lender had approved an unconditional waiver of the covenant.
"Our management team is acutely aware of the impact financial underperformance in recent years has had on the balance sheet of the company," Grave said. "The only remedy is a return to profit."
Blue Sky's shares last traded at $1.85 on the Unlisted platform in November, giving it a market capitalisation of $21.3 million.