Make or break on capital creation says SFF

Silver Fern Farms is fighting for survival and is asking farmers for a hand. Will the hand hold a chequebook or a dagger? A vote today will provide the answer reports Stuff. The meat company wants its farmer-suppliers to invest up to $128 million, and to also agree to dilute their co-operative by allowing outsiders to own shares. It's a big ask. Helping sway their minds is the promise of a considerable capital gain, expressed by analyst Bruce McKay as spending $2 to get $3.25. "A farmer would be mad or broke not to participate," is his view. At stake is not only the company's future prosperity but also the future of the meat industry. A stronger Silver Fern will mean a stronger industry. At the heart of the plan to raise capital by creating tradeable shares is the need to reduce the company's $189m debt. It follows three years of sweeping changes that have wiped $150m off debt. The company has also been rebranded and a strong push made for procurement contracts as part of a "plate to pasture" supply chain. More changes are to come, if the company can afford them, including carcass X-ray imaging technology in all of its plants. The X-rays will enable it to make lamb payments to farmers based on the size and quality of prime meat cuts. For the forward-thinking farmer this will be another incentive. Such a change will mean farmers who have invested in breeding sheep with the right meat traits will be rewarded. It is not an exaggeration to say this will transform farming, allowing farmers to test the truth of the claims made by a plethora of breeds and hybrids. Of all the meat companies, Silver Fern appears to be the one with the best assets, with meat plants positioned throughout the country to stretch out the season. Chilled, rather than frozen, lamb is the big money earner; supplying that to world markets for as many weeks as possible is the aim. But debt is holding it back. In addition to its book debt it has $75m in bonds due for repayment at the end of next year. Some of this financial strain is a legacy of the long and bitter battle to take over Richmond, finally achieved in 2004. Some tough trading years since haven't helped. Last year's plan to sell half the company to PGG Wrightson for $220m would have been a lifesaver, but it fell victim to the global credit crunch. It is the support for the PGG Wrightson deal that must give Silver Fern some confidence that its new plan will get the yes vote. Its farmers have already shown willingness for change. Since then, they have gone through a profitable season, and are looking forward to another good year. The sticking point for many farmers is likely to be the demise of their pure co-operative. Their shares will become tradeable on the Unlisted trading platform and anyone will be able to hold up to 5 per cent. But Silver Fern promises the co-operative principles will remain enshrined - they will retain control by keeping 60 per cent of the voting rights and five of the eight board positions. Under these conditions, it is questionable whether Silver Fern would be an attractive investment for anyone outside the industry.