sff annual report 2009

ANNUAL REPORT 2009

CONTENTS

3 Chairman and Chief Executive Review14 Board of Directors15 Senior Executive Team17 Governance19 Statutory Information22 Financial Statements27 Notes to the Financial Statements57 Auditor’s Report58 Five Year Historical Summary59 Directory

ANNUAL MEETING OF SHAREHOLDERS

The 2009 Annual Meeting of Silver Fern Farms Limited Shareholders will be held on Wednesday, 27 January 2010.

The Notice of Annual Meeting will be provided separately to Shareholders.

We are linking customers to farmers via long term contract supply pricing options. We are committed to a suite of technological innovations and we are investing in a unique new brand – a brand that we believe will influence red meat consumer buying habits throughout our markets.

It’s all part of our vision: to be a fully integrated market-led company investing in consumer products that will differentiate and add value to our farmer partners, our customers and our people.

our market-led strategy

2009 Annual Report 1

2 Silver Fern Farms

chairman and chief executive review

THE 2009 FINANCIAL YEAR WILL BE RECORDED AS A WATERSHED YEAR FOR YOUR COMPANY, DURING WHICH WE MADE SUBSTANTIAL PROGRESS IN OUR TRANSFORMATION FROM A TRADITIONAL MEAT PROCESSOR/SALES ORIENTED CO-OPERATIVE TO A MARKET-LED FOOD COMPANY.

The need to invest in longer term value adding strategies is imperative if we are to position our company for the unprecedented global demand for red meat protein predicted immediately following recovery of the current global economic crisis.

Under our plate to pasture strategy, Silver Fern Farms has this year:

• Launched the Silver Fern Farms brand locally and internationally

• Established the Backbone® contract procurement programme and developed a number of market based procurement contracts

• Invested in innovation, technology and R&D projects including X-ray carcase analysis, robotics and radio frequency identification (RFID)

• Recruited key marketing personnel to develop the in-market strategy

• Formed joint ventures into non-core businesses, including:

• rendering through Farm Brands Limited

• Livestock Logistics, a joint venture to create a more efficient transport model

• Integrated supply chains between farmers and large customers to deliver specific genetics and product type.

The past trading year has been dominated by the global credit crunch, the widespread recession in the majority of New Zealand’s key markets and a highly volatile New Zealand dollar exchange rate.

Reflecting this trading environment, your company recorded a net operating profit before tax of $43.4 million, from total income of $2,015 million. In line with our focus on strengthening the balance sheet, total borrowings were reduced by $57.7 million to $184.5 million. This includes the SFF020 Bonds repayment of $50 million during March 2009. However it should be noted this result included a one off gain from the settlement with PGW of $37 million and other minor one off items, to deliver an actual operating profit of $5.1 million.

RebatesIn view of the economic environment and the company’s recent focus on recapitalisation of the business, the directors have resolved that no shareholder distributions would be paid for the year ended August 2009.

Whilst this will be disappointing, your directors believe it is prudent financial management and distributions should be looked at over the long term and not at each year in isolation.

Eoin GardenChairman

Keith CooperChief Executive


Capital restructuringOn 30 July 2009 Silver Fern Farms’ shareholders voted in favour of constitutional changes which endorse the need to align the company’s capital and governance structure in support of our long term strategy, designed to ensure the co-operative’s longevity for future generations of New Zealand farmers.

The approval of a new Constitution means that Silver Fern Farms now has the ability to introduce a modern capital structure which not only protects the company, but gives shareholders increased benefits over past structures.

Clear benefits for your company include:

• The new performance premium pools system

• Removal of redemption risk

• An enhanced governance structure, allowing for skills based governance, not restricted by wards or occupation

• Flexibility to raise capital if and when required in the future.

Exchange OfferA total of 5,787 shareholders, holding 42.9 million shares and representing 75% of the total 57.5 million shares eligible for exchange, participated in the offer which closed on 9 October 2009. Shareholders elected to subscribe for a further 22.2 million shares under the associated rights offer. The results reflect a high level of positive shareholder engagement with the new structure of their company.

Project OptimalThe Capital Restructuring, last year’s Project Rightsize and the proposed PGG Wrightson Partnership were all major business events in their own right, requiring significant Board and Management focus and resources.

Despite those significant events, the need for best practice, at both governance and management level, is ever present.

Launched at the end of the 2009 financial year, Project ‘Optimal’ is focused on testing all parts of the current business model to ensure optimal efficiencies.

The project is targeted at a number of core business areas:

• Procurement

• Marketing

• Operations

• Freight optimisation.

The aim is to interrogate the way in which we do things, to ensure right resources are in place per business unit, while streamlining overheads and maximising margins to the benefit of our shareholders.

350

300

250

200

150

100

50

0

60%

55

50

45

40

35

30

25

$2,200m

2,100

2,000

1,900

1,800

1,700

1,600

1,500

2007 2008 2009

2007 2008 2009

2007 2008 2009

$184.5m

52.4%

$2,015m

$242.2m

41.3%

$1,990m

Total debt

Equity Ratio

Total Income

$334.1m

35.2%

$1,846m

4 Silver Fern Farms

As of November 2009 Silver Fern Farms’ branded consumer products for lamb and venison will be available at leading supermarkets throughout New Zealand and in international markets.

In early October France’s biggest retail co-operative, Intermarché, rolled out a range of chilled, consumer ready Silver Fern™ branded lamb leg roasts, boneless rumps, French racks and lamb stir fry into their retail meat cabinets. This level of New Zealand branded product entry into supermarket shelf space is a first for France. As an endorsement to the launch, All Blacks® Ma’a Nonu, Tony Woodcock and Andrew Hore were part of the marketing launch.

LAUNCH OF BRANDED CONSUMER PRODUCTS

A cut you’d expect in a Restaurant (at a price you’d expect in a Supermarket)

Above: The recent launch at Intermarché with All Blacks® Ma’a Nonu, Tony Woodcock andAndrew Hore received wide international coverage.


SILVER FERN FARMS’ LAMB SALES MIX

SILVER FERN FARMS’ LAMB SALES BY COUNTRYfor the year ended 31 August 2009

2009

27%

73%

2008

78%

22%

Frozen Chilled

< $50m

$50m+

$100m+

$150m+

$175m+

6 Silver Fern Farms

LAMB PURCHASE PRICES PER HEAD 2009

$115

110

105

100

95

90

85

80

75

70

Average prices for schedule only

Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug

AVERAGE COST COMPONENT OF LAMB RETAIL PRICE INTO STORE (UK)

Calculated on chilled cuts destined for retail

Packer

Importer Processor (including seafreight)Retailer

Farmer

45%

21% 12.5%

19%

2.5%

Market Outlook

Lamb and MuttonThe global economic crisis had a significant impact on importer activity as uncertainty surrounded many market sectors. Hardest hit have been the high-end restaurant trade and tourism industries as consumers reduce their spending. Lamb products are an integral part of these two sectors and sales have been impacted as importers have adopted more conservative purchasing programmes. Despite the uncertainty, shipping flows have kept pace with seasonal production ensuring stocks, both in New Zealand and in-market, have been managed at low levels.

Market signals suggest that lamb stocks at season’s end are low, setting a positive scene for the commencement of the 2009/10 season.

Chilled retail growth continued during the 2008/09 season with programme expansions by our major retail partners. This business continues to develop year on year improving carcase returns back to New Zealand due to the premium for chilled over most frozen market prices. While we see continued increases in chilled volumes moving into 2010, lamb prices are at historically high levels in most markets in spite of the global economic crisis. Opportunities to lift retail prices further will be limited against a highly competitive retail environment and reductions in prices of most competing proteins.

New Zealand will fully utilise its European Quota again this year, despite some early year uncertainty. With the 15% lamb slaughter reduction in 2009, and attendant lower lamb availability, a greater range of lamb cuts plus some quantities of mutton carried over from the higher 2008 slaughter were utilised to fulfil quota this year, providing increased overall returns.

The 2010 season lamb forecasts from Meat and Wool New Zealand Economic Service suggest a further 2.2% drop in lamb production which will further tighten lamb availability and should keep demand firm. However with market prices at historical highs and with lamb continuing to be highly priced against other proteins, value extraction for lamb requires strategic direction. We are confident that our “plate to pasture” strategy will continue to develop consumer focused products that will return additional value to our farmer partners.

The main negative impact is the volatility of the New Zealand dollar against all major currencies. Approximately 75% of the increased lamb returns for 2009 were as a result of currency gains, which have been largely eroded in the last two months of the slaughter season. Continued New Zealand dollar strength would have an unfortunate and significant impact on our returns and therefore farmer payments in the 2010 season.


BeefThe New Zealand beef industry has been affected through 2009 by the ongoing negative recessionary sentiments. The downturn in tourism, of between 30 – 40% in some of our major markets has seriously impacted on the food service hotel / restaurant sector, particularly for higher valued cuts. At the same time demand for manufacturing beef used in burgers remains steady to slightly firmer.

The US market this year was dominated by a low domestic market price, dairy herd culls and general poor demand. Despite a small increase in overall imported beef entering the US the main focus for processors was the abundant and cheap supply of US domestic lean beef. This was supported by an increase of approximately 30% or 190,000 head of manufacturing cows from the dairy industry retrenchment.

Currency, of course, is a key influence on the beef industry as not only does it affect the NZD net returns but also influences the global flow of New Zealand beef exports.

There is also a concern that South American countries are making great progress in gaining access to markets that have traditionally been closed to them. Whilst tonnages from South America are forecast to be lower through 2010, low production costs will continue to see their beef very competitively priced.

The Middle East has not escaped the effects of the recession and markets such as Dubai are under pressure particularly from the tourist and food service sector. In Taiwan, Japan and Korea all buyers are concentrating on reducing inventory levels and forward orders have been reduced accordingly.

Silver Fern Farms and its supplier partners must therefore continue to focus on the quality of our grass fed beef. We must promote and preserve the global perception that we are established as world leaders in food safety to protect health conscious consumers.

SILVER FERN FARMS’ STEER MARKETSfor the year ended 31 August 2009

Wholesale Foodservice / Retail

Ingredient Grinding

39%

16%

14%31%

STEER PURCHASE PRICES PER HEAD 2009



$950

900

850

800

750

700

650

600

550

8 Silver Fern Farms

Venison The past 12 months have reflected the impacts of the economic crisis on key venison markets. However with the weaker exchange rates through much of the year, particularly against the Euro, and also the above-average market prices, average schedules were the highest on record.

Dry conditions and relatively large kills in early 2008, saw reduced production of chilled venison for the traditional Northern Hemisphere game season (July to early November 2008) by 31%, from the previous year. Whilst normally this would have created issues, the arrival of the global economic crisis brought consumer resistance to the high venison prices and the resulting lower demand balanced the reduced supply. Higher value frozen items, aimed at mid to top-tier restaurants, also slowed in demand, which led to a carry over into the 2009 year.

Lower value items are still in firm demand, and this looks set to continue as processing numbers further decline. From 480,000 in the 2008/9 year, production in the coming 12 months is expected to be between 350,000 – 400,000 head. This is approximately two thirds of the 2007 production level, and will continue to impact market dynamics.

For the coming year, there is caution as key markets remain in recession, with many customers impacted by current market and economic conditions.

Silver Fern Farms supports initiatives that focus on improved farmer returns. Accordingly on your behalf we are supporting Johne’s disease research with a voluntary levy of $1 per head. For the sake of transparency we are deducting this on your purchase invoices as opposed to deducting within schedule calculations.

Co-productsHides – The collapse of hide prices in September 2008, closely followed by the financial crisis which saw reduced credit limits for tanners resulted in the worst market conditions ever experienced by the industry. Whilst CIF prices fell to 50% of July 2008 prices, the market has now rebounded by 25% during October 2009 and the outlook is for stability and slightly increased prices during 2010.

Skins – A sharp slump in October 2008 due to the financial crisis in the USA, was followed in February 2009 by greater stability as the Indian market emerged as a new supplier of leather garments to Europe. Stable prices have continued through to August 2009 and the outlook is for this to continue through 2010.

Casings – Prices for natural casings increased by 45% in USD terms since October 2007 and shortages of supply have occurred during 2009 due to significant reduction in the New Zealand lamb kill. Added to this the significant improvement of the Euro against the USD also presented European casings distributors with a major advantage over their US competitors. Demand for natural casings is expected to be firm into 2010, however the use of synthetic casings is certainly increasing in the cheaper segment of the market as natural casings become more expensive.

Tallow – As with most commodities there is expected to be good demand from China for tallow for the 2009/2010 season.

SILVER FERN FARMS’ VENISON MARKETSfor the year ended 31 August 2009

35%

14%3%

6%5%

10%

10%

1% 4% 3% 9%

Sweden Belgium

GermanyAustria USA Italy UK Others

FranceNetherlandSwitzerland

HIND PURCHASE PRICES PER HEAD 2009 – excludes feral

$490

480

470

460

450

440

430

420

410

400




The Supply ModelFor 2009 the Backbone® programme has been simplified into two cornerstone programmes:

• The Backbone® Committed Supplier Programme, providing suppliers with certainty of processing space, access to additional supplier premiums and flexibility

• The Backbone® Integrated Value Chain Programme, offering certainty on prices for livestock and linking supplier partners directly to a group of key global customers, with supply into a strengthened customer programme.

Backbone® Partnership ClubAs part of its integrated value chain offering, Silver Fern Farms has established a new partnership between key suppliers and a select group of key retail and food service customers.

This partnership will provide our farmers with specific information about the retail partners within the programme, enabling our farmer partners to grow livestock that meets the exact customer specification and delivery periods, provides rewards for meeting those criteria and allows a collective approach to maintain both consistency and continuity of supply.

Performance Premium PoolsFarmer suppliers who wish to access premium prices for livestock may continue to participate in the marketing rebate scheme, which is now targeted at specific supply criteria as per Silver Fern Farms’ Backbone® supply programme.

A key aspect of these ‘Performance Premium Pools’ is that participants will no longer be compelled to subscribe for shares in Silver Fern Farms using the proceeds of their rebates. Rather, eligibility to participate in the Marketing Rebate System will be determined based on the number of Rebate Shares, Supplier Investment Shares, and Ordinary Shares that are held.

A supplier wishing to participate in a Performance Premium Pool must hold Ordinary Shares, Supplier Investment Shares, or Rebate Shares (in any combination) in a ratio of eight shares for each Production Equivalent (‘PE’) for the first 5,000 PEs and thereafter three shares for every subsequent PE up to a maximum requirement of 100,000 shares.

Performance Premium Pools reflect market returns dependent upon:

• Proportion of stock supplied meeting quality specification weights and grades

• Meeting Backbone committed supply plan numbers

• Quality attributes determined by X-ray carcase analysis

• Other specific market related criteria as per customer requirements.

MeatproAs part of enhancing service levels to its supplier partners, Silver Fern Farms has recently installed Meatpro, a new back office system which co-ordinates livestock supply, kill sheet analysis, supplier payment and supplier management information, and integrates those functions with product inventory and sales information. This is an integrated financial solution for Silver Fern Farms and its suppliers, and will serve to significantly streamline administrative processes. As part of the change, all livestock payments have moved to a 14-day turnaround from kill date.

the backbone® partners’ supply programme continues to underpin our supply chain strategy, linking our supplier partners directly with our valued customers who require a guarantee of quality and a consistency of supply.

10 Silver Fern Farms

Industry Good

International Sheepmeat ForumThe International Sheepmeat Forum for Producers and Industry was held in Brussels in early October. Meat & Wool New Zealand (M&WNZ), as a key organiser along with COPA-COGECA, UECBV, the European Meat Processing and Trading Union and Meat and Livestock Australia aimed to bring together the world’s sheepmeat producers to address common issues.

Key conclusions of the forum were clearly aligned with Silver Fern Farms’ own ‘plate to pasture’ strategy, serving to endorse our own initiatives and commercial direction across:

• Improved efficiency: new technology, ongoing investment in R&D and exchange and transfer of knowledge. Specifically the forum acknowledged the need for greater cooperation across different parts of the supply chain, and opportunities to capture the benefits of year round supply.

• The environment: from genetic selection, animal feed adaptation and efficiency, usage of by-products for energy production. The forum also encourages the adoption of new methodologies/technologies that increase productivity with a lower emission footprint.

• The consumer: recognised there is a need to focus on:

• New customers and market segments

• Capturing the younger generation

• Muslim markets

• Trends for boneless meal solutions

• Development of new products to fit convenience needs

• Enhanced enjoyment of cooking and recognition of healthy benefits

• Educating consumers about a product’s attributes and how to use it

• Partnership with retailers with better pack presentation and training.

Silver Fern Farms would lend support to the creation of the “International Lamb Meat Task Force” as a starting point for promoting cooperation, recommendations and designing common and global strategies aimed at increasing lamb consumption around the world.

Meat & Wool NZAs an international exporter and marketer of meat products regularly working in partnership with M&WNZ, Silver Fern Farms believes M&WNZ plays a vital role in the pastoral sector.

We support beef marketing programmes in North Asia, and can endorse the value M&WNZ staff in Korea, China and Japan have added to both generic and joint-venture marketing programmes in these regions.

We have also enjoyed good support from M&WNZ for our marketing initiatives in the Middle East, North America and Germany, promoting lamb and beef.

M&WNZ brings meat marketing companies together, providing a more consultative approach to global market activities, which will be further enhanced with leveraged models with industry to grow in-market investment.

National Animal Identification and Tracing (NAIT)NAIT aims to provide New Zealand livestock owners, processors and government with timely and quality information on the current location, movement history and other key attributes associated with livestock. The industry remains strongly supportive of this initiative, particularly given the sentiment of large international customers towards improved traceability and food security.

For New Zealand, the days of competitive advantage solely on the basis of price are over. Rather, we are competing on the same footing as a host of other global protein producers, so it is important that our product upholds not only the promise of quality, but also key measures such as bio-security, on-farm traceability and management systems. These are the true measures of NAIT’s worth to the industry.

Proposed NAIT Timelines

20

09

20

10

2011

2012

201

2

Design and Build System

Voluntary Use and Beta Testing

Mandated for Cattle

Mandated for Deer

Cabinet Approval


The EnvironmentSilver Fern Farms appointed a Group Environmental Manager during the financial year, whose role is to manage group-wide initiatives which will enable the company to adhere to the many regulatory elements of compliance, respect the growing customer expectations and apply our own environmental disciplines implicit in a company of this size.

Environmental initiatives during 2009 were largely focused on improving our operational impacts on the environment, and included:

• Commissioning of the award winning bio-fuel boiler at Finegand with EFI. The boiler ensures the highest standards of waste treatment are maintained and it is expected to reduce coal use at the plant by 1,300 tonnes a year and cut carbon dioxide emissions by more than 2,000 tonnes annually

• Use of an artificial wetlands at Shannon and Te Aroha, to ‘polish’ surface run off effluent from land based effluent treatment sites

• The introduction of riparian ‘buffer zones’ at these sites to allow endemic vegetation to grow, also improving the quality of surface water run-off

• Use of commercial crops such as grass, lucerne and a hemp trial, to remove nutrients from land-based effluent treatment sites at Fairton, Takapau and Pareora. The latter site is also trialling a land filtration trench whereby effluent moves into the underlying soil profile providing a natural filtering and treatment activity before reaching the sea nearby for further natural filtration.

InnovationSilver Fern Farms continues to set new standards for industry innovation, and technology development. The company also plays a leadership role in the New Zealand meat industry to support industry-wide developments, including ‘Ovine Automation Limited’ – an R&D consortium including most New Zealand meat companies – which is investigating automation opportunities for sheep slaughter.

Market Value Traceability System: As part of the company’s commitment to traceability, quality and innovation, it was announced during the financial year that Robotic Technologies Limited (RTL) – a joint venture between Silver Fern Farms and Scott Technology – has developed the world’s first X-ray grading system for lamb processing. This ‘Market Value Traceability System’ (MVTS), is being rolled out at all of the company’s sheep and lamb plants, as an important measure of quality and value.

Information on yield is used to capture maximum value of carcases by using technology to make cutting decisions which optimise the size and shape of muscles to best suit customer requirements.

Accurate yield information by cut will also enable better data to be reported to suppliers, helping on-farm improvements in animal productivity.

The X-ray process also identifies optimal cutting points for the commercialised RTL automated carcase cutting machine and considerably improves the throughput and efficiency of our processing rooms.

Traceability: RFID product tracking systems are currently being introduced at our plants from slaughter through to boning. Not only will these provide traceability to meet customer requirements, but gains are expected in boning yields and plant productivity.

New man-made wetlands at Shannon provide a ‘natural’ solution to effluent treatment.


Human ResourcesChange within the business has been ongoing throughout the year and has presented a number of challenges. Our ability to recognise the need to change followed by the determination to implement is a key factor in having a successful business.

Our ‘people focus’ has been to continue to develop a sense of accountability for areas of responsibility through empowered leadership and the use of a variety of people management tools.

These tools provide a strong foundation to meet the challenges in the business environment, now and in the future. We continue to strive for improvements in all areas of human resource management, such as health and safety, communication, performance management, and leadership training and personal development.

Dedication and CommitmentOn behalf of the Board and management of Silver Fern Farms we take this opportunity to express our gratitude to our shareholder partners who have backed their company through this past year, and the ongoing transformation of their business.

We acknowledge the commitment and support of Messrs Borthwick, Curd, Lawson and Shaw, who retired as part of the governance review process and, in addition the contributions of Messrs Luff and Grogan who resigned during the year and Mr McNab who retired in January 2009. The commitment of these directors to the business has been highly constructive, in some cases over many years.

Our staff have continued to show dedication and courage throughout this process of change, working towards achieving positive outcomes. With their continued support, as a proud progressive partnership, we will provide a long term sustainable future for all our stakeholders.

EOIN GARDENChairman

KEITH COOPERChief Executive

X-ray grading – placing value on carcases and improving decision making through processing and information back to breeders.


Angus MabinAppointed to Board in September 2007.

Farms bull-beef on a 1,000 ha property in Waipukurau, Central Hawke’s Bay.

Held a number of positions in the deer industry during the 1990s. Graduate of Massey University.

Herstall UlrichElected to Board in February 2008.

Farms 6,000 su near Cave in South Canterbury.

Participant in the Kellogg leadership course for 2008.

Graduate of Lincoln University. Chairman of Northern South Island Sheep and Beef Council.

BOARD OF DIRECTORS

Eoin GardenChairmanJoined Board in December 1998; appointed Chairman in 2008.

Operates 2,500 ha of high country and finishing land at Millers Flat and another 290 ha in West Otago. His 12,000 su include sheep, cattle and deer.

Richard Somerville Deputy ChairmanIndependentAppointed to Board in 2004; Chairman of the Board’s Audit, Risk Assessment and Mitigation Committee.

Chartered Accountant. Chairman of Milford Asset Management Limited. Director of Southern Hemisphere Proving Ground Limited, Milford Dart Limited and a number of private companies.

Tony BalfourIndependentJoined Board in August 2009.

A globally experienced senior executive with a strong track record of success in a wide diversity of industries and categories, and leading innovation and market/category development.

GM Markets for Icebreaker, the world’s leading brand of merino apparel.

Trevor BurtIndependentTrevor joined the Board in August 2009 and is Chairman of the Remuneration and Appointments Committee.

A former member of the Executive Board of the Munich based Linde Group.

Has high level experience in the strategic leadership of large and complex corporate organisations and a proven record of implementing change and achieving results.

Joe FerrabyJoined Board in 1988;Operates 600 ha in Marlborough and has interests in other farming operations.

Chairman of Terra Vitae Vineyards Limited and Destination Marlborough. Director of Combined Rural Traders Limited, The Equitable Group of Companies and other private companies.

Rob HewettElected to Board in February 2008. Farms a 9,250 su, 960 ha sheep and beef breeding and finishing unit in Manuka Gorge, South Otago.

Graduate of Lincoln University, holding an M.Com in marketing and a B.Com (Ag) in Economics. Director of a number of private companies in New Zealand and Australia.


SENIOR EXECUTIVE TEAM

Keith CooperChief ExecutiveAppointed Chief Executive in February 2007.

Joined company in 1989.Previous roles include Chief Operating Officer (2001 – 2007) and Chief Executive of UK operations (1999 – 2001).

Director of NZ Lamb Company Group North America, Meat Industry Association, NZ Meat Board, Meat & Wool NZ Ltd, Farmbrands Ltd, Robotic Technology Ltd and various Silver Fern Farms’ subsidiaries.

Kevin Winders Chief Financial OfficerAppointed Chief Financial Officer in August after being with Silver Fern Farms for five months in a project role. Has significant experience as a senior executive, including roles with PGG Wrightson, Contact and KPMG.

Has a strong financial and strategic skill set based on a wide exposure to a variety of sectors, along with a deep understanding of the Agribusiness sector. A Chartered Accountant, and past director of the NZ Merino Company.

Glenn Tyrrell Group Sales and Marketing ManagerResponsible for all Silver Fern Farms’ international and domestic brands and marketing including meat, wool, pelts and hides, pharmaceuticals, pet-food, by-products and processed products.

Joined company in 1979.

Has held a range of marketing roles since 1984 including venison marketing manager and two years in Silver Fern Farms’ London office (1987 – 1988).

Steve Murphy Group Operations ManagerResponsible for operations, industrial relations, health and safety, compliance,environmental and engineering.

Joined company in March 2004 from Richmond where he was General Manager Sheepmeats. Broad range of meat industry experience across livestock, operations and marketing; previously senior manager with the Mars Corporation in Australasia. Holds an Agricultural Economics degree and Diploma in Meat Technology.

Grant Howie Group Livestock ManagerResponsible for the company’s livestock procurement and developing relationships with our farmer suppliers.

Joined company in August 2008 after a Sales and Marketing career in a number of fast-moving consumer goods companies including Mainland Products, Fonterra and Cadbury Confectionery.

Grant Pearson Group Innovation ManagerResponsible for the group R&D programme, cross-business innovation projects and major capital project work. Joined company in 1986 from Canterbury Frozen Meat, where he held various engineering, processing and planning roles. Holds Honours degree in Chemical Engineering, Diploma in Business Administration; Member of Institute of Professional Engineers New Zealand.


Silver Fern Farms’ governance policies are reviewed to ensure they are consistent with best practice.

GovernanceIn line with the results of the special meeting of shareholders dated 30 July 2009, the Constitution has been amended to include provisions dealing with the appointment of directors. Specifically:

a. Silver Fern Farms will have a Board of between six and eight directors

b. five directors to be elected by holders of Ordinary Shares who are Current Suppliers and who have met the Minimum Supply Requirement prescribed by the Board (together with holders of Rebate Shares who are Current Suppliers and holders of Supplier Investments Shares) (“Farmer Elected Directors”)

c. up to three directors may be appointed by the Board (“Board Appointed Directors”).

To qualify for appointment, a director need only not be an employee of Silver Fern Farms or any of its subsidiaries.

Shareholder/Supplier – Director InteractionSilver Fern Farms acknowledges the importance of the supply base to the Co-operative. Accordingly a programme has been implemented that will see all Directors allocated a number of supplier/shareholder meetings to attend annually. The process will ensure that the need for supplier director interface is managed in a cost effective manner.

Director Nominee processAs part of the Constitution and governance change process, which established the framework for “Skills” based governance rather than “Representative” governance, the Directors have commissioned independent advice on how to best facilitate such an emphasis in the future.

Accordingly, the proposed Director nominee process will involve an independent evaluation of those nominated, against a range of skill set requirements for the business, with the independent evaluator advising shareholders of each candidate’s fit against that framework.

The Board will not be involved in the process, apart from establishing the framework and appointing the independent evaluator. The Directors believe in encouraging the creation of a pool of director capability relevant to the business. In addition to working with organisations such as the NZ Co-operative Association and the Institute of Directors to encourage director training, during 2008/2009 the company established the Burnside-Hart Co-operative Education Trust to further such an outcome. Applications for funding should be addressed to:

The Trustees c/o General Counsel PO Box 941 Dunedin.

GOVERNANCE

Silver Fern Farms Limited is a limited liability company registered under the New Zealand Companies Act 1993 and the Co-operative Companies Act 1996. The company is a co-operative owned by suppliers of livestock to the company. The company has secured bonds listed on the New Zealand Debt Securities Market (NZDX). The company’s bonds are listed under the code “SFF”.

Ordinary Shares will commence trading under the code “SFF” on Unlisted from 27 October 2009. Unlisted is a cost efficient trading facility and is not a registered stock exchange under the Securities Markets Act 1988.

Silver Fern Farms’ Constitution is available on the company’s website or on request.

Role of Board of Directors The Board of Directors is responsible for the company’s corporate governance and strategic direction. The Board is committed to undertaking this role in accordance with best practice appropriate to the company’s business. The Board is responsible for determining the company’s policies and objectives, managing risk, developing major strategies, and monitoring the performance of management. The Board has delegated certain of its powers to committees of the Board and the day-to-day management of the company to the Chief Executive.

PoliciesSilver Fern Farms’ policies are designed to enhance Silver Fern Farms’ overall performance and assist the company in reaching its objectives.

Director IndependenceSilver Fern Farms currently has three Independent Directors.

Board CompositionThe Board comprises five supplier-elected Directors and three Board-appointed Independent Directors. As at 31 August 2009 the Board comprises eight members as follows:

Eoin Garden Chairman, shareholder-elected

Richard Somerville Deputy Chairman, Independent

Tony Balfour* Independent

Trevor Burt* Independent

Joe Ferraby Shareholder-elected

Rob Hewett Shareholder-elected

Angus Mabin Shareholder-elected

Herstall Ulrich Shareholder-elected

Biographies of current Directors are set out in the Board of Directors section of this report.

*In light of Bill Luff’s retirement and the change in Constitution regarding Board composition in July 2009, the Board appointed Tony Balfour and Trevor Burt to the respective independent Board vacancies in August 2009.


New Directors receive induction training which includes written and oral presentations by the Chairman, Chief Executive and senior management team on the key strategic and operational business issues facing Silver Fern Farms. External training providers are also utilised.

Auditor IndependenceThe company requires its Auditor to maintain independence in accordance with best practice. The Audit, Risk Assessment and Mitigation Committee reviews the independence and objectivity of the Auditor.

Directors’ FeesThe current total Directors’ fee pool is $492,000 per annum.

Public release of Material InformationSilver Fern Farms has developed processes for release of material information to NZX and Unlisted markets under continuous disclosure requirements and for the public release of information and the publication of information on the company’s website.

Attendance at MeetingsDuring the financial year ended 31 August 2009, the Board met 22 times (including telephone conferences but excluding the annual meeting) as follows:

*Note: Tony Balfour and Trevor Burt were appointed in August 2009 to fill the independent Director vacancies created by the resignation of Bill Luff and the change in constitution relating to Board structure.

**The North Island Supplier council was dissolved August 2009.

CommitteesThe Board has appointed two committees, established to work on behalf of the board on specific issues, reporting back to the Board. The Audit, Risk Assessment and Mitigation committee assists the Board in matters relating to auditing, reporting and risk. It provides the Board with assurance regarding the credibility of financial reporting and assurance regarding the discharge of its responsibilities related to financial reporting and regulatory compliance. The Remuneration and Appointments committee reviews the performance of the Chief Executive, sets the remuneration of the executive team and recommends remuneration of Directors to the shareholders.

Operation of the Board The Silver Fern Farms Board meets formally 11 times each year, and as otherwise required. The Board’s Audit, Risk Assessment and Mitigation Committee is scheduled to meet quarterly or as otherwise required. The Remuneration and Appointments Committee meets at least once a year.

The Chairman and Chief Executive establish the agenda for each Board meeting. The Chief Executive prepares a monthly management report that includes a summary of the company’s activities together with financial and other reports. The Board also receives regular briefings on key strategic issues from management.

DIRECTOR BOARD BOARD ANNUAL NI FINANCE/ FINANCE/ AUDIT REMUNERATION (scheduled) (additional inc. MEETING SUPPLIERS EXECUTIVE EXECUTIVE AND teleconference) COUNCIL** (scheduled) (unscheduled) RISK

A J Balfour 1 – – – – – – –(appointed Aug 2009)

M A Borthwick 11 10 1 – – – – –

T J Burt 1 – – – – – – – (appointed Aug 2009)

R P Curd 10 8 1 – – – – –(resigned Jul 09)

D S Ferraby 12 10 1 2 – – 4 –

E R H Garden 12 10 1 – 8 1 – 1

I M Grogan 9 9 1 2 – – 2 – (resigned Jun 2009)

R J Hewett 12 8 1 – – – – –

R A Lawson 6 3 – – – – – – (elected Feb 2008, resigned Jul 2009)

W J Luff 10 7 – – 7 1 4 –(resigned Jul 2009)

A C Mabin 11 9 1 2 – – – –

T B McNab 5 6 1 – – – 2 –(retired Jan 2009)

D A Shaw 11 10 1 – – – – –(resigned Jul 2009)

R J Somerville 11 6 1 – 7 1 – 1

P H Ulrich 12 9 1 – – – – –


STATUTORY INFORMATION

DirectorsThe Directors of Silver Fern Farms as at 31 August 2009 are:

• Eoin Reay Hamilton Garden (Chairman)

• Richard John Somerville (Deputy Chairman)

• Antony John Balfour

• Trevor John Burt

• David Scott Ferraby

• Robert James Hewett

• Angus Collis Mabin

• Peter Herstall Ulrich.

Persons who ceased to hold office as directors during the period were:

• Murray Alexander Borthwick (on 30 July 2009)

• Rupert Philip Curd (on 30 July 2009)

• Ian Michael Grogan (on 11 June 2009)

• Robert Arthur Lawson (on 30 July 2009)

• William James Luff (on 30 July 2009)

• Thomas Bruce McNab (on 29 January 2009)

• David Alfred Shaw (on 30 July 2009)

Directors’ Interest in TransactionsFor the period ended 31 August 2009, no Director caused to be entered in the company’s interest register any transaction or proposed transaction with the company. Also, no director of any subsidiary of the company disclosed any such interest. disclosed any such interest.

Co-operative StatusThe following resolution was unanimously passed by the Board on 22 October 2009:

“In the opinion of the Board, Silver Fern Farms Limited has throughout the year ended 31 August 2009 been a co-operative company under the Co-operative Companies Act 1996 for the following reasons:

(a) More than 60% of the shareholders of the Company entitled to vote are transacting business with the Company and are transacting shareholders as set out in Section 4 of the said Act;

(b) The Company carries on a co-operative activity as set out in Section 3 of the said Act.”

Information DisclosureFor the period ended 31 August 2009, no Director requested to use Company information received by them in their capacity as Directors.

Board Remuneration and Appointments CommitteeThe Committee comprises T J Burt – Chairman, Board Chairman (Eoin Garden), and Board Deputy Chairman (Richard Somerville).

Audit, Risk Assessment and Mitigation CommitteeThe Committee comprises R J Somerville – Chairman, T J Burt, D S Ferraby, A C Mabin.

Directors’ InsuranceDirectors’ and officers’ liability insurance, together with cover for health and personal accident, is taken out and paid for by the company. In the event of a claim, the Directors may benefit under the terms of these policies.

DonationsDuring the financial year ended 31 August 2009, neither Silver Fern Farms nor any of its subsidiaries made any donations.

AuditorsThe amount payable by the Silver Fern Farms Group to Ernst & Young as audit fees in respect of the financial year ended 31 August 2009 was $344,000. Fees payable to Ernst & Young for consulting services in respect of the financial year ended 31 August 2009 were $115,000.


Directors’ Interests in Silver Fern Farms SharesThe shares held in Silver Fern Farms by each director and the relevant interests in Silver Fern Farms bonds of each director as at 31 August 2009 are set out in the following table.

DIRECTOR REBATE SHARES SUPPLIER REDEEMABLE SECURED BONDS INVESTMENT PREFERENCE SHARES SHARES Shares Holding Shares Holding Holding Bonds SFF030 Holding Issued as at Issued as at as at Issued as at 31 Aug 09 31 Aug 09 31 Aug 09 31 Aug 09

A J Balfour – – – – – – –T J Burt – 10 – 4,027 – – –D S Ferraby 13 15,550 – 750 – – 15,000E R H Garden – 17,500 – 15,000 – – 6,000R J Hewett – 17,500 – 13,799 – – –A C Mabin – 17,500 – 12,977 – – –R J Somerville 2,346 4,148 – 5,456 – – –P H Ulrich 315 17,210 – 3,583 – – –

Directors’ Fees

DIRECTOR POSITION DIRECTORS’ FEES

A J Balfour Director $3,117M A Borthwick Director $32,867T J Burt Director $3,117R P Curd Director $32,867D S Ferraby Director and Chairman North Island Suppliers’ Council $41,817E R H Garden Director and Chairman $86,460I M Grogan Director and Director Representative North Island Suppliers’ Council $23,933R J Hewett Director $35,983R A Lawson Director $18,700W J Luff Director and Chairman Audit Committee $38,367A C Mabin Director and Director Representative North Island Suppliers’ Council $36,400T B McNab Director $14,167D A Shaw Director $32,867R J Somerville Director and Chairman Board Executive Committee $44,983P H Ulrich Director $35,983

No Director of the Company has, since the end of the previous financial year, received or become entitled to receive a benefit other than superannuation contributions, Directors’ insurance and Directors’ fees. Various Directors were remunerated for additional duties as directors included in the figures above. No Director of any of the company’s subsidiaries received any fees or other remuneration arising from those directorships.

Remuneration of EmployeesThe following table shows the number of Silver Fern Farms employees and former employees of Silver Fern Farms and its subsidiaries who in their capacity as employees received remuneration and other benefits or entitlements (including non-recurring payments to employees on leaving the Group) during the year ended 31 August 2008, the value of which was or exceeded $100,000. The Chief Executive’s salary has been determined based on advice from an external consultant and has been set at the median of the market for the role. It contains an at-risk element which is not paid unless certain criteria have been met. The total paid in the year ended 31 August 2009 contains a payment relating to performance at year end 31 August 2008. All directors’ fees earned by the Chief Executive from external organisations are paid to Silver Fern Farms and are included in revenue.


REMUNERATION RANGE PARENT SUBSIDIARIES CESSATIONS

100,000 – 110,000 28 0 4110,001 – 120,000 23 0 2120,001 – 130,000 15 3 1130,001 – 140,000 9 1 1140,001 – 150,000 6 2 0150,001 – 160,000 4 3 0160,001 – 170,000 7 0 1170,001 – 180,000 3 2 0180,001 – 190,000 5 0 0190,001 – 200,000 3 0 0200,001 – 210,000 1 2 1210,001 – 220,000 2 0 1220,001 – 230,000 2 0 0240,001 – 250,000 0 0 1260,001 – 270,000 1 0 1270,001 – 280,000 1 0 0290,001 – 300,000 0 0 2860,001 – 870,000 1 0 0

Directors’ StatementThis Annual Report is dated 22 October 2009 and is signed on behalf of the Board by

E R H GARDEN R J SOMERVILLEChairman Deputy Chairman


CONTENTS

23 Financial Statements

27 Notes to the Financial Statements

27 Note 1 Corporate Information

27 Note 2 Summary of Significant Accounting Policies

33 Note 3 Significant Account Judgements, Estimates and Assumptions

33 Note 4 Segment Information

35 Note 5 Other Revenue

35 Note 6 Other Income

35 Note 7 Expenses

36 Note 8 Non-recurring items

36 Note 9 Income Tax

38 Note 10 Members’ Distributions Paid and Proposed

39 Note 11 Cash Flow Statement Reconciliation

39 Note 12 Inventories

40 Note 13 Livestock

40 Note 14 Trade and Other Receiveables

41 Note 15 Available For Sale Financial Assets

41 Note 16 Property, Plant and Equipment

43 Note 17 Trade and Other Payables

44 Note 18 Interest Bearing Loans and Borrowings

44 Note 19 Bonds Payable

45 Note 20 Provisions

46 Note 21 Members Shares

47 Note 22 Reserves

47 Note 23 Financial Risk Management Objectives and Policies

49 Note 24 Financial Instruments

52 Note 25 Derivative Financial Instruments

52 Note 26 Commitments and Contingencies

54 Note 27 Intangible Assets

54 Note 28 Investments in Associates

55 Note 29 Related Party Disclosure

56 Note 30 Key Management Personnel

56 Note 31 Events After the Balance Sheet Date

56 Note 32 Auditors’ Remuneration

57 Auditor’s Report

58 Five Year Historical Summary

59 Directory

FINANCIAL STATEMENTS


36 Note 9 Income Tax

INCOME STATEMENTfor the year ended 31 August 2009

PARENT CONSOLIDATED

NZD IN THOUSANDS ($000) NOTES 2009 2008 2009 2008

Continuing Operations

Sale of goods 1,962,057 1,898,267 2,001,614 1,962,820

Other revenue 5 850 368 320 390

Revenue 1,962,907 1,898,635 2,001,934 1,963,210

Other income 6 10,258 20,494 12,656 26,707

Total income 1,973,165 1,919,129 2,014,590 1,989,917

Raw materials and consumables used 1,352,884 1,214,317 1,365,931 1,266,067

Employee benefits expense 7 274,863 304,747 283,104 316,369

Depreciation and amortisation 24,197 26,043 24,679 27,025

Finance costs 7 24,184 32,050 24,257 32,389

Other operational expenses 7 300,226 263,225 312,610 273,080

Share of profits of associate – – (1,105) (667)

Profit/(loss) from continuing operations before (3,189) 78,747 5,114 75,654 member distributions, income tax and non-recurring items

Member distributions 10 153 14,478 153 14,478

Profit/(loss) before income tax and non-recurring items (3,342) 64,269 4,961 61,176

Non-recurring items – income 8 48,476 7,956 48,476 14,403

Non-recurring items – costs 8 (9,851) (51,610) (10,078) (38,961)

Total non-recurring items 38,625 (43,654) 38,398 (24,558)

Profit before income tax 35,283 20,615 43,359 36,618

Income tax expense (benefit) 9 66 (2,826) (238) (954)

Net profit for the period 35,217 23,441 43,597 37,572

Profit attributable to shareholders of the parent company 35,217 23,441 43,597 37,572

The above Income Statement should be read in conjunction with the accompanying notes.

For and on behalf of the Board, who authorised the issue of these financial statements on 22 October 2009.

E R H GARDEN R J SOMERVILLEChairman Deputy Chairman


BALANCE SHEETas at 31 August 2009

PARENT CONSOLIDATED


ASSETS – Current Assets

Cash and cash equivalents 23 593 2,531 1,554 3,845

Derivative financial instruments 25 20,577 10,786 20,577 10,786

Trade and other receivables 14 111,863 171,058 105,439 158,407

Share of company superannuation scheme – 7,222 – 7,222

Inventories 12 104,284 138,575 150,398 190,977

Livestock 13 26,416 3,149 26,416 3,149

Tax receivable 9 – 164 218 360

Available for sale financial assets 15 7,200 – 7,200 –

Assets held for sale 16 191 12,175 191 12,175

Total Current Assets 271,124 345,660 311,993 386,921

ASSETS – Non-current Assets

Available for sale financial assets 15 74 884 74 884

Investments in subsidiaries 29 71,553 71,553 – –

Investment in associates 28 4,485 10 10,702 5,609

Property, plant and equipment 16 275,579 269,695 277,763 272,384

Intangible assets 27 2,645 2,896 2,665 2,907

Total Non-current Assets 354,336 345,038 291,204 281,784

Total Assets 625,460 690,698 603,197 668,705

LIABILITIES – Current Liabilities

Bank overdraft 18 437 2,225 452 2,996

Derivative financial instruments 25 291 10,254 291 10,254

Trade and other payables 17 76,274 93,364 71,811 92,555

Provisions 20 14,972 29,002 15,094 29,108

Advances from subsidiaries 8,543 8,543 – –

Tax provision 9 – – 783 396

Interest bearing loans and borrowings 18 688 116,064 688 116,064

Bonds payable 19 -– 50,780 – 50,780

Total Current Liabilities 101,205 310,232 89,119 302,153

LIABILITIES – Non-current Liabilities

Provisions 20 11,340 10,931 11,340 10,932

Interest bearing loans & borrowings 18 108,183 332 108,183 332

Bonds payable 19 75,615 75,040 75,615 75,040

Deferred income tax 9 2,573 2,880 2,679 4,127

Total Non-current Liabilities Excluding Members’ Shares 197,711 89,183 197,817 90,431

Total Liabilities Excluding Members’ Shares 298,916 399,415 286,936 392,584

Net Assets Excluding Members’ Shares 326,544 291,283 316,261 276,121

Convertible redeemable preference shares 18,21 1,622 2,654 1,622 2,654

Supplier investment shares 21 24,754 23,937 24,754 23,937

Members’ ordinary shares 21 47,769 47,777 47,769 47,777

Total Members’ Shares 74,145 74,368 74,145 74,368

Net Assets 252,399 216,915 242,116 201,753

EQUITY – Equity Attributable to Equity Holders of the Parent

Retained earnings 197,405 157,242 191,841 143,298

Other reserves 22 54,994 59,673 50,275 58,455

Total Equity 252,399 216,915 242,116 201,753

The above Balance Sheet should be read in conjunction with the accompanying notes.


CASH FLOW STATEMENTfor the year ended 31 August 2009

PARENT CONSOLIDATED


Cash flows from operating activities

Receipts from customers 2,031,703 1,902,802 2,065,388 1,931,077

Payments to suppliers and employees (1,950,005) (1,799,072) (1,982,108) (1,837,133)

Interest received 297 278 299 300

Dividends received 552 90 552 90

Finance cost paid (25,206) (32,255) (25,279) (32,563)

Recovery from PGG Wrightson Ltd 30,000 – 30,000 –

Proceeds from wind up of company superannuation scheme 7,222 – 7,222 –

Tax refund received (Tax paid) 58 – (414) –

Net cash flows from operating activities 11 94,621 71,843 95,660 61,771

Cash flows from investing activities

Proceeds from sale of property, plant and equipment 13,779 21,900 15,333 42,870

Proceeds from sale of investments 810 110 810 110

Purchase of property, plant and equipment and intangibles (32,966) (19,986) (35,454) (21,691)

Movement in subsidiaries’ advances – 8,543 – –

Advance to associate (400) (433) (400) (433)

Investment in associate (266) – (266) –

Investment in subsidiary (300) – – –

Purchase minority interest in subsidiary – (2,120) – –

Net cash flows used in investing activities (19,343) 8,014 (19,977) 20,856

Cash flows from financing activities

Proceeds from/(to) the issue of shares – 11,315 – 11,315

Bond repayment (50,000) – (50,000) –

Repayment of borrowings (10,658) (89,862) (10,658) (91,896)

Distributions paid (11,700) (404) (11,700) (484)

Rebate shares surrendered (1,638) (1,803) (1,638) (1,803)

Supplier investment shares surrendered (403) (254) (403) (254)

Redeemable preference shares redeemed (1,032) (67) (1,032) (67)

Net cash flows used in financing activities (75,431) (81,075) (75,431) (83,189)

Net increase (decrease) in cash and cash equivalents (153) (1,218) 252 (562)

Effects of exchange rate changes on the balance of cash 3 (13) 1 (220)

held in foreign currencies

Cash and cash equivalents at the beginning of the year 306 1,537 849 1,631

Cash and cash equivalents at end of the year 156 306 1,102 849

Represented by

Cash 24 593 2,531 1,554 3,845

Bank overdraft 24 (437) (2,225) (452) (2,996)

Cash at the end of the year 156 306 1,102 849

During the year the Parent and the Group have changed the classification of retentions paid from a financing activity to an operating activity. 2008 comparatives have been restated.

The impact of the reclassification is to decrease operating cashflows by $47,884,000 (2008: $26,595,000) and increase financing cashflows by the same amount.

For both the Parent and the Group, retentions paid are defined as a cash payment to suppliers for goods and services. This activity is primarily a revenue producing activity. NZ IAS 7 Cash Flow Statements, states this activity is required to be classified as part of operating activities.

The above Cash Flow Statement should be read in conjunction with the accompanying notes.


PARENT Asset Retained Revaluation TotalNZD IN THOUSANDS ($000) Earnings Reserve Equity

Opening balance at 1 September 2007 129,200 64,188 193,388

Movement resulting from sale of land and buildings 4,601 (4,601) –

Deferred tax – 86 86

Total income and expense for the period recognised directly in equity 4,601 (4,515) 86

Net profit for the period 23,441 – 23,441

Total income and expense for the period 28,042 (4,515) 23,527

At 31 August 2008 157,242 59,673 216,915

Opening balance at 1 September 2008 157,242 59,673 216,915

Movement resulting from sale of land and buildings 4,946 (4,946) –

Deferred tax – 267 267

Total income and expense for the period recognised directly in equity 4,946 (4,679) 267

Net profit for the period 35,217 – 35,217

Total income and expense for the period 40,163 (4,679) 35,484

At 31 August 2009 197,405 54,994 252,399

STATEMENT OF CHANGES IN EQUITYfor the year ended 31 August 2009

CONSOLIDATED Foreign Asset Retained Currency Revaluation Minority TotalNZD IN THOUSANDS ($000) earnings Reserve Reserve Total Interest Equity

Opening balance at 1 September 2007 114,576 733 51,746 167,055 (35) 167,020

Movement resulting from sale of land and buildings (7,440) – 7,440 – – –

Deferred tax – – 86 86 – 86

Fair value revaluation of land and buildings – – 744 744 – 744

Translation of foreign operations – (2,294) – (2,294) – (2,294)

Transfer minority interest to retained earnings (1,331) – – (1,331) 1,331 –

Purchase minority interest – – – – (1,296) (1,296)

Total income and expense for the period (8,771) (2,294) 8,270 (2,795) 35 (2,760)recognised directly in equity

Net proft for the period 37,572 – – 37,572 – 37,572

Total income and expense for period 28,801 (2,294) 8,270 34,777 35 34,812

Attributable to:

Equity holders of the parent 28,801 (2,294) 8,270 34,777 – 34,777

Minority interest – – – 35 35

Equity transactions

Distributions (79) – – (79) – (79)

At 31 August 2008 143,298 (1,561) 60,016 201,753 – 201,753

Opening balance at 1 September 2008 143,298 (1,561) 60,016 201,753 – 201,753

Movement resulting from sale of land and buildings 4,946 – (4,946) – – -

Deferred tax – – 267 267 – 267

Translation of foreign operations – (3,501) – (3,501) – (3,501)

Total income and expense for the period 4,946 (3,501) (4,679) (3,234) – (3,234)

recognised directly in equity

Net profit for the period 43,597 – – 43,597 – 43,597

Total income and expense for the period 48,543 (3,501) (4,679) 40,363 – 40,363

At 31 August 2009 191,841 (5,062) 55,337 242,116 – 242,116

There have been no movements through the Available for Sale Reserve in either of the 2008 or 2009 financial years.The above Statement of Changes in Equity should be read in conjunction with the accompanying notes.



1 Corporate Information The financial statements of Silver Fern Farms Limited for the year ended 31 August 2009 were authorised for issue in accordance with a resolution of the directors on 22 October 2009.

Silver Fern Farms Limited (the Parent) is registered under the Companies Act 1993 and the Co-operative Companies Act 1996. Silver Fern Farms Limited is an issuer for the purposes of the Financial Reporting Act 1993 and a listed issuer on the NZ Debt Exchange.

The nature of the operations and principal activities of the Group are described in note 4.

2 Summary of Significant Accounting Policies

a Basis of preparationThe financial statements have been prepared in accordance with generally accepted accounting practice (NZ GAAP) in New Zealand and the requirements of the Companies Act 1993 and the Financial Reporting Act 1993.

The financial statements have also been prepared on an historical cost basis, except for land and buildings which are measured at fair value. Derivative financial instruments and available for sale financial assets have been measured at fair value.

The financial statements are presented in New Zealand dollars and all values are rounded to the nearest thousand dollars ($000).

b Statement of complianceThe financial statements have been prepared in accordance with NZ GAAP. They comply with New Zealand equivalents to International Financial Reporting Standards (NZ IFRS) and other applicable Financial Reporting Standards, as appropriate for profit-oriented entities. These financial statements comply with International Financial Reporting Standards (‘IFRS’).

c New accounting standards and interpretationsStandards and interpretations that have recently been issued or amended but are not yet effective have not been adopted by the Group for the annual reporting period ending 31 August 2009. These are outlined below.

NOTES TO THE FINANCIAL STATEMENTSfor the year ended 31 August 2009

Summary of Policy Date standard becomes effective

Impact on Group financial report

Application date for Group

NZ IFRS 7 Financial Instruments: Disclosure (Amendments)

Requires fair value measurements to be disclosed by the source of inputs.

Periods beginning on or after 1/1/09

The amendments are expected to only affect the presentation of the Group’s financial statements.

1/9/09

NZ IFRS 8 Operating Segments

New standard replacing NZ IAS 14 Segment Reporting, which adopts a management approach to segment reporting.


No direct impact on the amounts included in the Group’s financial statements. The amendments may have an impact on the Group’s segment disclosures.

1/9/09

NZ IAS 1 Presentation of Financial Statements (Revised)

Introduces a statement of comprehensive income along with other presentation revisions.



1/9/09

NZ IAS 23 Borrowing Costs (Revised)

All borrowing costs associated with a qualifying asset must be capitalised.



1/9/09

NZ IAS 27 Consolidated and Separate Financial Statements (Amendments)

Requires all dividends from a subsidiary, jointly controlled entity or associate to be recognised in profit or loss in its separate financial statements. The distinction between pre- and post- acquisition profits is no longer required. Payment of such dividends require the entity to consider whether there is an indi-cator of impairment.


The Group does not expect these amendments to impact the financial statements of the Group.

1/9/09

NZ IAS 32 Financial Instruments: Presentation (Amendments)

Requires certain puttable financial instruments and obligations arising on liquidation to be classified as equity if certain criteria are met.


The Group does not expect these amendments to impact the financial statements of the Group.

1/9/09


d Basis of consolidation – Purchase MethodThe consolidated financial statements comprise the financial statements of Silver Fern Farms Limited its subsidiaries and associates as at each period end (‘the Group’).

Subsidiaries are all those entities over which the Group has the power to govern the financial and operating policies so as to obtain benefits from their activities.

A list of subsidiaries appears in note 29 to the financial statements.

The financial statements of subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies.

In preparing the consolidated financial statements, all intercompany balances and transactions, income and expenses and profit and losses resulting from intra-group transactions have been eliminated in full. Investments in subsidiaries are accounted for at cost in the parent company financial statements.

Subsidiaries are consolidated from the date on which control is transferred to the Group and cease to be consolidated from the date on which control is transferred out of the Group.

Minority interests not held by the Group are allocated their share of net profit after tax in the income statement and are presented within equity in the consolidated balance sheet, separately from parent shareholder’s equity.

e Business combinationsThe purchase method of accounting is used to account for all business combinations regardless of whether equity instruments or other assets are acquired. Cost is measured as the fair value of the assets given, shares issued or liabilities incurred or assumed at the date of exchange plus costs directly attributable to the combination.

Except for non-current assets or disposal groups classified as held for sale (which are measured at fair value less costs to sell), all identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair value at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of the business combination over the net fair value of the Group’s share of the identifiable net assets is recognised as goodwill.

If the cost of acquisition is less than the Group’s share of the identifiable assets of the subsidiary, the difference is recognised as a gain in the income statement, but only after a reassessment of the identification and measurement of the net assets acquired.

f Foreign currency translation

i Functional and presentation currencyBoth the functional and presentation currency of Silver Fern Farms Limited and its New Zealand subsidiaries is New Zealand dollars ($). Each entity in the Group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency.

ii Transactions and balancesForeign currency transactions are initially recorded in the functional currency by applying the exchange rates ruling at the date of the transactions. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rates of exchange ruling at the balance sheet date.

Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate as at the date of the initial transaction. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.

All exchange differences in the consolidated financial statements are taken to the income statement for the period.

iii Foreign operations On consolidation, the assets and the liabilities of the Group’s overseas operations are translated into the presentation currency of Silver Fern Farms Limited at the exchange rates prevailing at the reporting date. Income and expense items are translated at the average exchange rates for the period. The exchange differences arising on the retranslation are taken directly to the foreign currency translation reserve, a separate component of equity.

On disposal of a foreign entity, the deferred cumulative amount recognised in equity relating to that particular foreign operation is recognised in the income statement.

g Cash and cash equivalentsCash and short-term deposits in the balance sheet comprise cash at bank and in hand and short-term deposits with an original maturity of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. Cash and bank balances are categorised as a “fair value through profit and loss” asset.

For the purposes of the Cash Flow Statement, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts. Bank overdrafts are included within interest bearing loans and borrowings in current liabilities on the balance sheet.

h Trade and other receivablesAccounts receivable is classified as a “loans and receivable” financial asset. Trade receivables, which generally have 30 – 90 day terms, are recognised and carried at original invoice amount less an allowance for any uncollectible amounts.

An allowance has been made for estimated impairments when there is objective evidence that the Group will not be able to collect the receivable. This is determined by reference to past default experience and certain other indicators that the receivable may be impaired, such as financial difficulties of the debtor or default payments or debts more than 60 days overdue. Trade receivables are monitored on a weekly basis by sales account managers. Individual debts that are known to be uncollectible are written off when identified.

i InventoriesInventories are valued at the lower of cost and net realisable value. Cost is calculated on the first-in-first-out basis. Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale.

The cost of meat and associated products includes the price of livestock, plus processing and other expenses incurred to bring it to a saleable condition and location. Costs include direct and indirect overheads.


j Livestock (biological assets)Livestock consists of sheep and cattle. The group purchases sheep and cattle for the following purposes:

Lambplan/Beefplan – Lambs and cattle are purchased from breeders and are placed with finishers until they reach optimal weights. Finishers are paid on a liveweight gain basis as livestock is delivered within specification for processing.

Other – Additional sheep and cattle are farmed on land owned or leased by Silver Fern Farms adjacent to processing facilities.

Livestock is valued at fair value which is the prevailing market price less any point of sale costs, and resulting gains or losses are recognised in profit and loss. Point of sale costs include any necessary costs to dispose of livestock, excluding costs incurred to get the livestock to market.

k Derivative financial instrumentsThe group enters into foreign currency forward exchange contracts and options to hedge trading transactions to reduce the exposure to fluctuations in foreign currency exchange rates.

Derivatives are initially recognised at fair value on the date the derivative contract is entered into, and are subsequently remeasured to fair value. Derivatives are carried as assets when their fair value is positive and as liabilities when their fair value is negative. Derivatives are classified as a “fair value through profit and loss” financial asset or liability.

Any gains or losses arising from changes in the fair value of derivatives are taken directly to profit or loss for the year.

l Non-current assets held for saleNon-current assets and disposal groups are classified as held for sale and measured at the lower of their carrying amount and fair value less costs to sell if their carrying amount will be recovered principally through a sale transaction. They are not depreciated or amortised. For an asset or disposal group to be classified as held for sale, it must be available for immediate sale in its present condition and its sale must be highly probable.

An impairment loss is recognised for any initial or subsequent write-down of the asset (or disposal group) to fair value less costs to sell. A gain is recognised for any subsequent increases in fair value less costs to sell of an asset (or disposal group), but not in excess of any cumulative impairment loss previously recognised. A gain or loss not previously recognised by the date of the sale of the non-current asset (or disposal group) is recognised at the date of derecognition.

m Investments and other financial assetsInvestments and financial assets are categorised as either financial assets at fair value through profit or loss, loans and receivables, held-to- maturity investments, or available for sale financial assets. When financial assets are recognised initially, they are measured at fair value, plus, in the case of investments not at fair value through profit or loss, directly attributable transaction costs. The Group determines the classification of its financial assets after initial recognition and, when allowed and appropriate, re-evaluates this designation at each financial year end.

Financial assets are derecognised when the right to receive the cash flows from the financial assets has expired or been transferred.

i Financial assets at fair value through profit and lossFinancial assets classified as held for trading are included in the category ‘financial assets at fair value through profit or loss’. Financial assets are classified as held for trading if they are acquired for the purpose of selling in the near term with the intention of making a profit. Derivatives are also classified as held for trading. Gains or losses on investments held for trading are recognised in profit or loss.

ii Loans and receivablesLoans and receivables include amounts due from the reserve account of the company superannuation scheme are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are carried at amortised cost using the effective interest method. Gains and losses are recognised in profit or loss when the loans and receivables are derecognised or impaired, as well as through the amortisation process.

iii Available for sale investmentsAvailable for sale investments are those non-derivative financial assets that are designated as available for sale or are not classified as any of the two preceding categories. After initial recognition available for sale investments are measured at fair value with gains or losses being recognised as a separate component of equity until the investment is derecognised or until the investment is determined to be impaired, at which time the cumulative gain or loss previously reported in equity is recognised in profit or loss.

The fair value of investments that are actively traded in organised financial markets are determined by reference to quoted market bid prices at the close of business on the balance sheet date. For investments with no active market, fair values are determined using valuation techniques. Such techniques include: using recent arm’s length market transactions; reference to the current market value of another instrument that is substantially the same; discounted cash flow analysis and option pricing models making as much use of available and supportable market data as possible and keeping judgemental inputs to a minimum.

n Investment in associatesThe Group’s investments in associates are accounted for under the equity method of accounting in the consolidated financial statements. The associates are entities in which the Group has significant influence and which is neither a subsidiary nor a joint venture.

Under the equity method, the investment in the associate is carried in the consolidated balance sheet at cost plus post-acquisition changes in the Group’s share of net assets of the associates (in the parent balance sheet, investments in associates are carried at cost). Goodwill relating to an associate is included in the carrying amount of the investment and is not amortised. After the application of the equity method, the Group determines whether it is necessary to recognise any impairment loss with respect to the Group’s net investment in associates.

The Group’s share of its associates post acquisition profits or losses is recognised in the income statement, and its share of post acquisition movements in reserves is recognised in reserves. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. Dividends receivable from associates are recognised in the parent entity’s income statement, while in the consolidated financial statements they reduce the carrying amount of the investment.


Where reporting dates of the associate and the Group are different, financial statements have been prepared by the associate for the same reporting dates as the group. Both the group and the associates use consistent accounting policies.

Where there has been a change recognised directly in the associate’s equity, the Group recognises its share of any changes and discloses this, when applicable in the consolidated statement of changes in equity.

o Property, plant and equipmentPlant and equipment is stated at historical cost less accumulated depreciation and any accumulated impairment losses. Such cost includes the cost of replacing parts that are eligible for capitalisation when the cost of replacing the parts is incurred. Similarly, when each major inspection is performed, its cost is recognised in the carrying amount of the plant and equipment as a replacement only if it is eligible for capitalisation. All other repairs and maintenance are recognised in profit or loss as incurred.

Land and buildings are measured at fair value, based on periodic but at least five yearly valuations by external independent valuers who apply the International Valuations Standards Committee International Valuation Standards, less accumulated depreciation on buildings and less any impairment losses recognised after the date of the revaluation.

Depreciation is calculated on a straight-line basis over the estimated useful life of the specific assets as follows:

• Land Improvements – 5 to 50 years

• Buildings – 5 to 50 years

• Plant and Equipment – 4 to 20 years

• Motor Vehicles – 5 to 8 years

Certain assets are depreciated on a diminishing value basis.

RevaluationsFollowing initial recognition at cost, operational land and buildings are carried at a revalued amount which is the fair value at the date of the revaluation less any subsequent accumulated depreciation on buildings and accumulated impairment losses.

Revaluations are performed on a five year cycle therefore land and buildings purchased inside the revaluation cycle are recognised at cost until they are subsequently revalued.

Fair value is determined by reference to market-based evidence, which is the amount for which the assets could be exchanged between a knowledgeable willing buyer and a knowledgeable willing seller in an arm’s length transaction as at the valuation date.

DisposalsAn item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset.

Any gain or loss arising on de-recognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the item) is included in the income statement in the year the item is derecognised.

p LeasesThe determination of whether an arrangement is or contains a lease is based on the substance of the arrangement and requires an assessment of whether the fulfilment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset.

Group as lesseeFinance leases, which transfer to the Group substantially all the risks and benefits incidental to ownership of the leased item, are capitalised at the inception of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are included in the income statement as finance costs.

Capitalised leased assets are depreciated over the shorter of the estimated useful life of the asset and the lease term. These assets are measured at cost.

Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as operating leases.

Operating lease payments are recognised as an expense in the income statement on a straight-line basis over the lease term.

Group as lessorLeases in which the Group retains substantially all the risks and benefits of ownership of the leased assets are classified as operating leases.

q ImpairmentAt each balance sheet date, the Group reviews the carrying amounts of its assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any).

For an asset that does not generate largely independent inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs.

The recoverable amount is the greater of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

If the recoverable amount of an asset (cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately.

r Trade and other payablesTrade payables, other accounts payable and accrued expenses are recognised when the Group becomes obliged to make future payments resulting from the purchase of goods and services.

Trade payables and other payables are recognised at amortised cost. They represent liabilities for goods and services provided to the Group prior to the end of the financial year that are unpaid and arise when the Group becomes obliged to make future payments in respect of the cost of goods and services. The amounts are unsecured and usually paid within 30 days of recognition.

s Intangible assetsIntangible assets acquired separately or in a business combination are initially measured at cost. The cost of an intangible asset acquired in a business combination is its fair value as at the date of acquisition. Internally generated intangible assets, excluding capitalised development costs, are not capitalised and expenditure is recognised in profit or loss in the year in which the expenditure is incurred.


Intangible assets acquired are initially measured at cost. Following initial recognition, all intangible assets are carried at cost less accumulated amortisation and any accumulated impairment losses.

The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assets with finite lives are amortised over the useful life and tested for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life is reviewed at least at each financial year-end. Currently finite life intangible assets are amortised over a period of 3 to 4 years on a straight line basis. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for prospectively by changing the amortisation period or method, as appropriate, which is a change in accounting estimate. The amortisation expense on intangible assets with finite lives is recognised in profit or loss in the expense category consistent with the function of the intangible asset.

Intangible assets with indefinite useful lives are tested for impairment annually either individually or at the cash-generating unit level. Such intangible assets are not amortised. The useful life of an intangible asset with an indefinite life is reviewed each reporting period to determine whether indefinite life assessment continues to be supportable. If not, the change in the useful life assessment from indefinite to finite is accounted for as a change in an accounting estimate and is thus accounted for on a prospective basis.

Research and software development costsResearch costs are expensed as incurred. An intangible asset arising from development expenditure on an internal project is recognised only when the Group can demonstrate the technical feasibility of completing the intangible asset so that it will be available for use or sale, its intention to complete and its ability to use or sell the asset, how the asset will generate future economic benefits, the availability of resources to complete the development and the ability to measure reliably the expenditure attributable to the intangible asset during its development. Following the initial recognition of the development expenditure, the cost model is applied requiring the asset to be carried at cost less any accumulated amortisation and accumulated impairment losses. Any expenditure so capitalised is amortised over the period of expected benefit from the related project. The carrying value of an intangible asset arising from development expenditure is tested for impairment annually when the asset is not yet available for use, or more frequently when an indication of impairment arises during the reporting period.

t Interest-bearing loans and borrowingsLoans and borrowings are measured initially at the fair value of the consideration received net of transaction costs. Subsequent to initial recognition, loans and borrowings are measured at amortised cost using the effective interest method which allocates the cost through the expected life of the loan or borrowing. Amortised cost is calculated taking into account any issue costs.

Bank loans are classified as current liabilities unless the group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date.

Silver Fern Farms Limited bonds are measured initially at fair value net of transaction costs. Subsequent to initial recognition, liabilities are measured at amortised cost with any difference between the initial recognised amount and the redemption value being recognised in the income statement over the period of the borrowing using the effective interest rate method. Interest expense is measured in the income statement using the effective interest rate method.

Borrowing costs are expensed as incurred except when they are directly attributable to the acquisition or construction of a qualifying asset. When this is the case, they are capitalised as part of the cost of that asset.

u Provisions and employee leave benefitsProvisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.

Wages, salaries, annual leave and sick leaveLiabilities for wages and salaries, annual leave and accumulating sick leave expected to be settled within 12 months of the reporting date are recognised in respect of employee’s services up to the reporting date. They are measured at the amounts expected to be paid when liabilities are settled. Liabilities for non-accumulating sick leave are recognised when the leave is taken and are measured at the rates paid or payable.

Long service leaveThe liability for long service leave is recognised and measured in the balance sheet at the present value of expected future payments to be made in respect of services provided by employees up to the reporting date. Consideration is given to the expected future wage and salary levels, experience of employee departures, and periods of service.

v Convertible redeemable preference sharesThe convertible preference shares exhibit characteristics of a liability, and are therefore recognised as a liability in the balance sheet.

The convertible redeemable preference shares are measured initially at cost, being the fair value of the consideration received net of issue costs associated with the borrowing. After initial recognition, these shares are subsequently measured at amortised cost using the effective interest method which allocates the cost through the expected life of the loan or borrowing. Amortised cost is calculated taking into account any issue costs.

w Members’ ordinary sharesThe Co-operative’s share capital includes the amount of shares issued to the members of the Co-operative. From time to time, existing members leave the Co-operative and new members join the Co-operative. Members who leave the Co-operative are entitled, after a length of time, to have their share capital amounts repaid to them. New members are required to subscribe to shares in the Co-operative.

Silver Fern Farms Limited has two classes of ordinary shares: Rebate Shares, which are issued to suppliers who supply stock under Silver Fern Farms rebate system and Supplier Investment Shares, which are issued to all suppliers of stock to Silver Fern Farms (subject to certain restrictions).


All ordinary shares have a nominal value of one dollar per share. Supplier Investment Shares are paid to ninety cents by the supplier with the balance of ten cents being paid by way of a dividend from retained earnings.

Rebate Shares carry full voting rights subject to the shareholder being a Current Supplier (as defined in Silver Fern Farms’ Constitution) at the time of voting. Supplier Investment Shares carry voting rights in relation to director elections only. Ordinary shares participate equally on winding up.

The current maximum shareholding for Rebate Shares and Supplier Investment Shares is 17,500 and 15,000 respectively.

Silver Fern Farms’ ordinary shares are eligible to receive a dividend subject to profitability, although any such dividend is likely to be restricted to fully paid Supplier Investment Shares. Rebate shareholders are eligible to receive a rebate based on the profit earned from stock supplied.

Due to the Co-operative’s above obligations, the Co-operative share capital meets the definition of a financial liability as per NZ IAS 32: Financial Instruments Disclosure and Presentation, and hence, the issued and paid up capital is classified as a financial liability.

x Segment reportingA business segment is a distinguishable component of the entity that is engaged in providing products or services that are subject to risks and returns that are different from those of other business segments. Management has assessed the reportable business segments under NZ IAS 14 Segment Reporting. A geographical segment is a distinguishable component of the equity that is engaged in providing products or services within a particular economic environment and is subject to risks and returns that are different than those of segments operating in other economic environments.

y Revenue recognitionRevenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised:

i Sale of goodsRevenue is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer and can be measured reliably. Risks and rewards are considered passed to the buyer at the time of shipment.

ii Interest incomeRevenue is recognised as the interest accrues (using the effective interest rate). This is the rate that exactly discounts estimated future cash receipts through the expected life of the financial instrument to the net carrying amount of the financial asset.

iii DividendsRevenue is recognised when the shareholders’ right to receive the payment is established.

z Income tax and other taxesCurrent tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities based on the current period’s taxable income. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the balance sheet date.

Deferred income tax is provided on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

Deferred income tax liabilities are recognised for all taxable temporary differences except:

• where the deferred income tax liability arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and

• when the taxable temporary difference is associated with investments in subsidiaries, associates or interests in joint ventures, and the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred income tax assets are recognised for all deductible temporary differences, carry-forward of unused tax assets and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and the carry-forward of unused tax assets and unused tax losses can be utilised except:

• when the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; or

• when the deductible temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, in which case a deferred tax asset is only recognised to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.

The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised.

Unrecognised deferred income tax assets are reassessed at each balance sheet date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered.

Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date.

Income tax relating to items recognised directly in equity are recognised in equity and not in the income statement.

Deferred tax assets and deferred tax liabilities are offset only if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred tax assets and liabilities relate to the same taxable entity and the same taxation authority.


aa Other taxesRevenues, expenses and assets are recognised net of the amount of GST except:

• When the GST incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and

• Receivables and payables, which are stated with the amount of GST included.

The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the balance sheet.

Cash flows are included in the cash flow statement on a gross basis and the GST component of cash flows arising from investing and financing activities, which is recoverable from, or payable to, the taxation authority as part of operating cash flows.

Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority.

3 Significant Accounting Judgements, Estimates and Assumptions

In applying the Group’s accounting policies, management continually evaluates judgements, estimates and assumptions based on experience and other factors, including expectations of future events that may have an impact on the Group. All judgements, estimates and assumptions made are believed to be reasonable based on the most current set of circumstances available to management. Actual results may differ from the judgements, estimates and assumptions. Significant judgements, estimates and assumptions made by management in the preparation of these financial statements are outlined below:

i Significant accounting judgements

Recovery to deferred tax assetsDeferred tax assets are recognised for deductible temporary differences as management considers that it is probable that future taxable profits will be available to utilise these temporary differences.

Impairment of non-financial assets The Group assesses impairment of all assets at each reporting date by evaluating conditions specific to the Group and to the particular asset that may lead to impairment. These include product performance, technology, economic and political environment and future product expectations. If an impairment trigger exists, the recoverable amount of the asset is determined. This involves value in use calculations which incorporate a number of key estimates and assumptions.

ii Significant accounting estimates and assumptions

Long service leave provisionAs discussed in note 2(u), the liability for the long service leave is recognised and measured at the present value of the estimated future cash flows to be made in respect of all employees at balance date. In determining the present value of the liability, attrition rates and pay increases through promotion and inflation have been taken into account.

Estimate of useful lives of assetsThe estimation of useful lives of assets has been based on historical experience as well as manufacturers’ warranties (for plant and equipment), lease terms (for leased equipment) and turnover policies (for motor vehicles). In addition, the condition of the assets is assessed at least once a year and considered against the remaining useful life. Adjustments to useful life are made when considered necessary.

Stock margin calculationAt each half and full year accounting period meat inventory is valued using the discounted selling price method. This method uses the last sales price, or committed sales price, and converts these factors back to New Zealand dollars, less expenses incurred to bring the inventory to a saleable location. A margin deduction is made from stock on hand based on the margin achieved on sales during the year.

4 Segment Information The Group’s primary segment reporting format is business segments as the Group’s risks and rates of return are affected predominantly by differences in the products produced. Secondary format is geographical segments.

The operating businesses are organised and managed separately according to the nature of the products provided, with each segment representing a strategic business unit that offers different products and serves different markets.

The meat segment is a producer of beef, lamb, mutton and venison products for the international and domestic market.

The associated products segment produces by-products that are sold locally and internationally.

Prices between business segments are set at an arm’s length basis in a manner similar to transactions with third parties.


i Business segmentsThe following tables present revenue and profit information and certain asset and liability information regarding business segments for the years ended 31 August 2009 and 2008.

2009 2008 Associated Associated NZD IN THOUSANDS ($000) Meat Products Total Meat Products Total

Revenue

Sales to external customers 1,661,340 340,274 2,001,614 1,601,971 360,849 1,962,820

Unallocated revenue – – 61,452 – – 41,500

Share of associate income – – 1,105 – – 667

Total consolidated revenue 2,064,171 2,004,987

Result 24,378 4,993 29,371 87,919 20,124 108,043

Finance costs (20,133) (4,124) (24,257) (26,356) (6,033) (32,389)

Members’ distributions (153) (14,478)

Profit before income tax and 4,961 61,176 non-recurring items

Non-recurring items 38,398 (24,558)

Profit before income tax 43,359 36,618

Income tax expense/(benefit) (238) (954)

Net profit for the year 43,597 37,572

Assets and liabilities

Investments in associates 7,766 2,936 10,702 5,609 – 5,609

Segment assets 552,649 39,846 592,495 539,588 123,508 663,096

Total assets 560,415 42,782 603,197 545,197 123,508 668,705

Segment liabilities 267,639 19,297 286,936 319,461 73,123 392,584

Total liabilities 267,639 19,297 286,936 319,461 73,123 392,584

Other segment information

Capital expenditure 34,105 1,476 35,581 18,397 4,211 22,608

Depreciation and amortisation 23,655 1,024 24,679 21,991 5,034 27,025

Impairment losses – – – 7,492 1,715 9,207

ii Geographical segmentsThe Group’s geographical segments are determined by the Group’s assets and operations.

The following table presents revenue, expenditure and certain asset information regarding geographical segments for the years ended 31 August 2009 and 2008.

2009 2008NZD IN THOUSANDS ($000) New Zealand Other Total New Zealand Other Total

Revenue

Sales to external customers 1,652,410 349,204 2,001,614 1,629,841 332,979 1,962,820

Unallocated revenue and share of 50,811 11,746 62,557 33,398 8,769 42,167associate income

Total consolidated revenue 1,703,221 360,950 2,064,171 1,663,239 341,748 2,004,987

Other segment information

Investment in associate 3,787 6,915 10,702 16 5,593 5,609

Segment assets 562,339 30,156 592,495 608,714 54,382 663,096

Total assets 566,126 37,071 603,197 608,730 59,975 668,705

Capital expenditure 35,712 139 35,851 22,608 – 22,608


5 Other Revenue

PARENT CONSOLIDATED

NZD IN THOUSANDS ($000) 2009 2008 2009 2008

Interest revenue 298 278 299 300

Dividend revenue 552 90 21 90

Total other revenue 850 368 320 390

6 Other Income

PARENT CONSOLIDATED

NZD IN THOUSANDS ($000) 2009 2008 2009 2008

Rental revenue 372 313 372 313

Net foreign exchange gains – 17,699 – 18,023

Net gain on disposal of available for sale investments – 18 – 18

Gain on sale of property, plant and equipment 298 – 1,068 –

Sundry income 9,588 2,464 11,216 8,353

Total other income 10,258 20,494 12,656 26,707

7 Expenses

PARENT CONSOLIDATED

NZD IN THOUSANDS ($000) 2009 2008 2009 2008

Employee benefits expense

Wages and salaries 262,254 288,500 270,473 299,249

Wages and salaries capitalised (1,662) (1,296) (1,662) (1,296)

Workers’ compensation costs 10,997 13,690 11,005 14,492

Superannuation costs 3,274 3,853 3,288 3,924

Total employee benefits expense 274,863 304,747 283,104 316,369

Finance costs

Bank facility fees 4,800 4,636 4,800 4,640

Bank interest cost 13,746 18,651 13,819 18,986

Other interest cost 3,298 – 3,298 –

Interest in forward points (8,519) (4,166) (8,519) (4,166)

Bond interest cost and similar expenses 10,859 12,929 10,859 12,929

Total finance costs 24,184 32,050 24,257 32,389

Other operational expenses

Audit fees 205 198 344 330

Bad debt expense 281 129 385 367

Energy costs 25,877 32,529 26,847 33,318

Internal freight 7,144 7,331 11,823 7,331

Leasing costs 3,234 4,152 3,536 4,152

Loss on sale of plant, property and equipment 91 51 (445) 1,202

Loss on fair value of financial instruments 339 – 339 –

Loss on foreign exchange 36,428 – 36,435 6

Management fee – 57 – 74

Redundancy costs 718 – 718 –

Rental costs 2,810 3,083 3,455 4,021

Research and development 280 210 280 233

Write-down of assets – – – 13

Other operating costs 222,819 215,485 228,893 222,033

Total other operational expenses 300,226 263,225 312,610 273,080


8 Non-recurring items

PARENT CONSOLIDATED

NZD IN THOUSANDS ($000) 2009 2008 2009 2008

Gains on disposal 4,976 7,956 4,976 14,403

Settlement received from PGG Wrightson Ltd 42,000 – 42,000 –

Other income 1,500 – 1,500 –

Total income 48,476 7,956 48,476 14,403

Restructuring costs 767 4,568 767 6,907

Plant closure costs – 165 527 165

Plant closure costs – terminating payments – 22,682 – 22,682

Impairment of investments 4,800 – 4,800 –

Loss on disposal 3,984 – 3,984 –

Assets written down in value 300 24,195 – 9,207

Total expenses 9,851 51,610 10,078 38,961

Total non-recurring items income (expense) 38,625 (43,654) 38,398 (24,558)

Settlement of PGG Wrightson Limited Liability The 2008 Annual Report Note 29 Events after the Balance Sheet date described a liability owed to the Company by PGG Wrightson (PGW) as a result of PGW’s inability to perform its obligations under an agreement to subscribe for a 50% shareholding in Silver Fern Farms Limited and enter into various related contracts.

On 24 April 2009 Silver Fern Farms and PGW agreed terms of a full and final settlement following PGW’s default on the equity transaction agreed in 2008. PGW paid the Company $30m in cash and issued the Company ten million ordinary shares in PGW (fully paid and ranking equally with all other PGW shares on issue).

At balance date the ten million ordinary shares in PGW have been recorded at market value. An impairment of $4,800,000 has been recognised within impairment of investments, reflecting the fall in value of the shares from $1.20 per share issue price to $0.72 per share market value.

9 Income TaxThe major components of income tax expense are income statement, current income tax, deferred income tax and amounts charged or credited directly to equity.

PARENT CONSOLIDATED

NZD IN THOUSANDS ($000) 2009 2008 2009 2008

Income tax expense

Current income tax charge 243 – 1,210 624

Adjustments in respect of current income tax of previous years – 108 (130) 108

Deferred income tax

Relating to origination and reversal of temporary differences (177) (2,934) (1,318) (1,686)

Income tax expense/ (benefit) reported in the income statement 66 (2,826) (238) (954)

Amounts charged or credited directly to equity

Revaluation of buildings (267) (86) (267) (86)

Income tax expense reported in equity (267) (86) (267) (86)


Numerical reconciliation between aggregate tax expense recognised in the income statement and tax expense calculated per the statutory income tax rate. A reconciliation between the tax expense and the product of accounting profit before income tax multiplied by the Group’s applicable income tax rate is as follows:

PARENT CONSOLIDATED

NZD IN THOUSANDS ($000) 2009 2008 2009 2008

Accounting profit/(loss) before non-recurring items and tax (3,342) 64,269 4,961 61,176

Non-recurring items 38,625 (43,654) 38,398 (24,558)

Total accounting profit before income tax 35,283 20,615 43,359 36,618

At the parent entity’s statutory income tax rate of 30% (2008: 33%) 10,585 6,803 13,008 12,084

Adjustments in respect of current income tax of previous years – 108 (130) 108

Interest, dividends and tax thereon – 17 – 18

Capital gain on sale of asset (2,361) (3,332) (2,361) (3,332)

Non-deductible loss on sale of buildings 837 1,146 837 1,146

Non-deductible entertainment expenditure, legal expense and rebates 506 1,588 506 1,588

Other non-deductibles (10,973) 7,719 (10,973) 5,296

Non assessable investment in associate (450) – (450) –

Attributable foreign income (3) – (3) –

Write off of foreign withholding tax 243 – – –

Utilisation of previously unrecognised losses – (16,875) – (19,840)

Losses not recognised for deferred tax – – – 1,978

Other differences 1,682 – (672) –

Aggregate income tax expense 66 (2,826) (238) (954)

Recognised deferred tax assets and liabilities

PARENT CONSOLIDATED 2009 2009 2008 2008 2009 2009 2008 2008 Current Deferred Current Deferred Current Deferred Current Deferred Income Income Income Income Income Income Income Income

NZD IN THOUSANDS ($000) Tax Tax Tax Tax Tax Tax Tax Tax

Opening asset/(liability) 164 (2,880) 272 (5,899) (36) (4,127) 387 (5,899)

Charged to income (243) 177 (108) 2,933 (1,080) 1,318 (732) 1,686

Charged to equity – 267 – 86 – 267 – 86

Other payments/movements 79 (137) – – 551 (137) 309 –

Closing asset/(liability) – (2,573) 164 (2,880) (565) (2,679) (36) (4,127)

Tax expense in income statement – 66 – (2,826) – (238) – (954)

Amounts recognised in

the balance sheet:

Deferred tax asset – 15,676 – 13,632 – 15,676 – 13,632

Deferred tax liability – (18,249) – (16,512) – (18,355) – (17,759)

Closing asset/(liability) – (2,573) – (2,880) – (2,679) – (4,127)


Deferred income tax at 31 August 2009 relates to the following:

BALANCE SHEET PARENT CONSOLIDATED

NZD IN THOUSANDS ($000) 2009 2008 2009 2008

i Deferred tax liabilities

Property, plant and equipment 17,425 16,512 17,531 17,759

Fair value of promissory note recognised 824 – 824 –

Gross deferred tax liabilities 18,249 16,512 18,355 17,759

Set-off of deferred tax assets (15,676) (13,632) (15,676) (13,632)

Net deferred tax liabilities 2,573 2,880 2,679 4,127

ii Deferred tax assets

Livestock procurement provision 225 353 225 353

ACC provision 3,101 3,299 3,101 3,299

Bad debts provision 169 87 169 87

Restructure accruals 243 960 243 960

Annual/long service leave 4,120 3,724 4,120 3,724

IRD investigation adjustments 232 275 232 275

Stock provision 67 682 67 682

Bonus adjustment/administration provision 81 150 81 150

Livestock fair value adjustment 37 – 37 –

Other accruals 331 – 331 –

Losses carried forward 7,070 4,102 7,070 4,102

Gross deferred tax assets 15,676 13,632 15,676 13,632

Set-off of deferred tax liabilities (15,676) (13,632) (15,676) (13,632)

Net deferred tax assets – – – –

Unrecognised temporary differences At 31 August 2009, there are no unrecognised temporary differences associated with the Group’s investments in subsidiaries or associates, as the Group has no liability for additional taxation should unremitted earnings be remitted (2008: $nil).

10 Members’ Distributions Paid and Proposed

PARENT AND CONSOLIDATED

NZD IN THOUSANDS ($000) 2009 2008

Recognised amounts

Declared and paid during the year:

Dividends on redeemable preference shares 127 166

Dividends on supplier investment shares – 2,560

Rebate shares issued 26 11,752

Total members’ distributions paid and proposed 153 14,478

PARENT


Imputation credit balance

Balance at beginning of the year 40,358 40,133

Imputation credits attached to dividends received during the year – 29

Income tax payments during the year – –

Other adjustments (591) 198

Resident withholding tax interest received – –

Income tax refund during the year (72) (2)

Imputation credits attached to dividends paid during the year (1,318) –

Bonus adjustment/administration provision – –

Losses carried forward – –

Balance at end of the year 38,377 40,358


At balance date the imputation credits available to the shareholders of the parent were:

PARENT


Through direct shareholding in the parent 38,377 40,358

Through indirect interest in subsidiaries 170 170

11 Cash Flow Statement Reconciliation

Reconciliation from the net profit after tax to the net cash flows from operations

PARENT CONSOLIDATED

NZD IN THOUSANDS ($000) 2009 2008 2009 2008

Net profit for the period 35,217 23,441 43,597 37,572

Adjustments for:

Depreciation and amortisation 24,197 26,043 24,679 27,025

Non cash portion bond interest 802 307 802 308

Foreign exchange movements in cash – 13 – 220

PGG Wrightson Ltd shares in settlement (12,000) – (12,000) –

Impairment of investments 5,100 – 4,800 –

Non-cash investment in associate (1,500) – (1,500) –

Interest accrual 1,622 – 1,622 –

Net (gain)/loss on disposal of property, plant and equipment 268 (7,956) 46 (12,699)

Net (gain)/loss on changes in fair market value of derivatives (19,755) (2,913) (19,755) (2,913)

Write down of land and buildings – 6,912 – 6,912

Company superannuation contributions – 810 – 810

Gain on sale of shares – (18) – (18)

Movement in minority interest – – – 35

Research and development charge - associate – 130 – 130

Share of associate income – – (617) (667)

Members’ distribution 153 2,962 153 2,962

Write-down/(reversal of impairment) of investment in (1,059) 12,180 (1,059) – subsidiary and associate

33,045 61,911 40,768 59,677

Changes in assets and liabilities:

(Increase)/decrease in inventories 11,024 (17,298) 16,145 (59,495)

(Increase)/decrease in trade and other receivables 66,817 (13,041) 59,423 16,030

(Decrease)/increase in tax balance 124 (2,825) (652) (953)

(Decrease)/increase in provisions, trade and other payables (16,389) 43,096 (20,024) 46,512

61,576 9,932 54,892 2,094

Net cash flows from operating activities 94,621 71,843 95,660 61,771

12 Inventories

PARENT CONSOLIDATED

NZD IN THOUSANDS ($000) 2009 2008 2009 2008

Meat and associated product inventory 93,519 130,068 139,633 182,470

Consumables and packaging 10,765 8,507 10,765 8,507

Total inventories 104,284 138,575 150,398 190,977

The amount expensed in other operating costs for obsolete packaging, including that resulting from Project Rightsize, was nil

(2008: $533k) for the Parent and Group.


13 Livestock



Opening balance 3,149 3,758

Net movements in livestock 23,392 (609)

Changes in livestock fair value less estimated selling cost (125) –

Closing balance 26,416 3,149

Livestock consists of sheep and cattle.

The Group purchases sheep and cattle through Lambplan and Beefplan as part of its normal operations and also carries livestock on its own works’ farms. Sheep and cattle are valued at fair value which is the market price for procurement. Lambplan and Beefplan are described in the accounting policy for livestock note 2(j). At the end of the year 145,246 (2008: 12,305) head of livestock were held.

14 Trade and Other Receivables

PARENT CONSOLIDATED

NZD IN THOUSANDS ($000) 2009 2008 2009 2008

Trade receivables 57,544 108,754 83,550 142,658

Allowance for impairment loss (562) (292) (658) (292)

56,982 108,462 82,892 142,366

Related party receivables

Associates 1,290 890 1,290 890

Subsidiaries 33,052 47,667 – –

34,342 48,557 1,290 890

Other prepayments and receivables 20,539 14,039 21,257 15,151

Total trade and other receivables 111,863 171,058 105,439 158,407

Trade receivables are non-interest bearing and are generally on 30-90 day terms. An allowance has been made for estimated impairments from the sale of goods, determined by reference to past default experience.

Included in the above balance is an amount receivable for vendor finance on a property that was sold during the year. The principal of the receivable will be received in August 2011, with interest payable quarterly from August 2010 at a rate of 12% per annum.

The carrying amount of trade receivables disclosed above is a reasonable approximation of fair value.

a Share of company superannuation scheme On 16 May 2008 the Board of Silver Fern Farms Limited resolved to wind up the company superannuation scheme. The superannuation scheme was terminated on 23 August 2008. It was resolved that the reserve account of the scheme would be split on a 50:50 basis amongst the members and the company. At balance date $7,222,000 due from the wind up of the superannuation scheme had been received, leaving no balance outstanding at 31 August 2009.

b Allowance for impairment loss An impairment loss of $281,000 (2008: $315,000) and $385,000 (2008: $315,000) has been recognised by the Parent and Group respectively in the current year. These amounts have been included in the other expenses (note 7).

Movements in the provision for impairment loss were as follows:

PARENT CONSOLIDATED

NZD IN THOUSANDS ($000) 2009 2008 2009 2008

Opening balance 292 582 292 582

Charge for the year 281 315 385 315

Amounts written off (11) (605) (19) (605)

Closing balance 562 292 658 292


At 31 August, the aging analysis of trade receivables is as follows:

+91 0 – 30 31 – 60 61 – 90 Days NZD IN THOUSANDS ($000) Total Days Days PDNI* PDNI*

2009

Consolidated 82,892 82,504 363 – 25

Parent 56,982 56,828 154 – –

2008

Consolidated 142,366 113,952 22,091 4,885 1,438

Parent 108,462 81,814 20,903 4,431 1,314

* Past due not impaired (‘PDNI’).

Receivables past due but not considered impaired are: Consolidated $25,000 (2008: $6,323,000); Parent ($nil) (2008: $5,745,000). Payment terms on these amounts have not been re-negotiated however credit has been stopped until full payment is made. Each operating unit has been in direct contact with the relevant debtor and is satisfied that payment will be received in full.

Other balances within trade and other receivables do not contain impaired assets and are not past due. It is expected that these other balances will be received when due.

The maximum exposure to credit risk is the fair value of receivables. Collateral is not held as security, nor is it the Group’s policy to transfer (on sell) receivables to special purpose entities.

Detail regarding foreign exchange exposure and interest rate risk exposure is disclosed in note 23.

15 Available For Sale Financial Assets



At fair value

Shares – New Zealand unlisted 74 884

Shares – New Zealand listed 7,200 –

Total available for sale financial assets 7,274 884

Current 7,200 –

Non-Current 74 884

Total available for sale financial assets 7,274 884

Available for sale financial assets consist of investments in ordinary shares, and therefore have no fixed maturity date or coupon rate.

The fair value of unlisted available for sale investments has been estimated based upon an assessment of the underlying net asset value of the company and its future prospects. The fair value of listed available for sale investments has been determined directly by reference to published price quotations in an active market.

16 Property, Plant and Equipment

a Reconciliation of the carrying amounts at the beginning and end of the period

PARENT Plant and Work in NZD IN THOUSANDS ($000) Land Buildings Equipment Vehicles progress Total

Year ended 31 August 2009

At 1 September 2008, net of accumulated depreciation 39,461 119,807 97,157 707 12,563 269,695

Additions 1,083 10,408 24,032 189 – 35,712

Disposals (38) (531) (12,845) (1,328) – (14,742)

Assets capitalised during the year – – – – (5,622) (5,622)

Transfers (to)/from assets held for sale 1,072 – – – – 1,072

Depreciation charge for the year (74) (5,538) (17,108) (272) (88) (23,080)

Depreciation on disposals 10 180 11,058 1,296 – 12,544

At 31 August 2009, net of accumulated depreciation 41,514 124,326 102,294 592 6,853 275,579

Cost or fair value 51,680 225,464 365,079 7,061 6,853 656,137

Accumulated depreciation and impairment (10,166) (101,138) (262,785) (6,469) – (380,558)

Net carrying value 41,514 124,326 102,294 592 6,853 275,579


b Reconciliation of the carrying amounts at the beginning and end of the period

CONSOLIDATED Plant and Work in NZD IN THOUSANDS ($000) Land Buildings Equipment Vehicles progress Total


At 1 September 2008, net of accumulated depreciation 39,124 120,693 99,061 943 12,563 272,384

Additions 3,340 8,606 23,654 251 – 35,851

Disposals (38) (639) (13,624) (1,774) – (16,075)

Assets capitalised during the year – – – – (5,622) (5,622)

Transfers (to)/ from assets held for sale 1,072 – – – – 1,072


Depreciation on disposals 10 311 11,807 1,588 – 13,716

Exchange adjustment – (20) (47) (15) – (82)





c Reconciliation of the carrying amounts at the beginning and end of the period

PARENT Plant and Work in NZD IN THOUSANDS ($000) Land Buildings Equipment Vehicles progress Total


At 1 September 2007, net of accumulated depreciation 50,985 130,216 112,190 1,082 13,370 307,843

Additions 1,430 4,685 15,254 102 – 21,471

Disposals (5,109) (7,805) (18,147) (903) (496) (32,460)

Transfers (to)/ from assets held for sale (7,773) (1,945) (2,457) – – (12,175)

Impairment – – (6,912) – – (6,912)


Depreciation on disposals 77 596 15,177 820 – 16,670





d Reconciliation of the carrying amounts at the beginning and end of the period

CONSOLIDATED Plant and Work in NZD IN THOUSANDS ($000) Land Buildings Equipment Vehicles progress Total


At 1 September 2007, net of accumulated depreciation 53,828 134,065 115,069 1,373 13,370 317,705

Additions 1,430 4,897 15,786 186 – 22,299

Disposals (8,316) (13,756) (27,986) (1,608) (332) (51,998)

Transfers (to)/ from assets held for sale (7,773) (1,945) (2,457) – – (12,175)

Impairment – – (6,912) – – (6,912)


Depreciation on disposals 77 3,534 23,893 1,493 – 28,997

Exchange adjustment 27 27 138 – – 192






e Assets held for sale

PARENT / CONSOLIDATED PARENT/CONSOLIDATED

2009 2008 Cost/ Accum. Book Cost/ Accum. Book

NZD IN THOUSANDS ($000) Valuation Deprec. Writedown Value Valuation Deprec. Writedown Value

Freehold land (at valuation) 191 – – 191 7,788 (15) – 7,773

Freehold buildings (at valuation) – – – – 3,484 (1,539) – 1,945

Plant and equipment – – – – 8,370 (5,132) (781) 2,457

Vehicles – – – – – – – –

Total assets held for sale 191 – – 191 19,642 (6,686) (781) 12,175

f Impairment

PARENT/CONSOLIDATED PARENT/ CONSOLIDATED


Impairment loss recognised – 6,912

The impairment recognised in 2008 related to plant and equipment identified as a result of Project Rightsize. An independent valuation was obtained to determine fair value. All impaired plant and equipment was sold during the year which crystallised the impairment loss.

Land and buildings were valued by an independent valuer, F Spencer BBS (VPM) SPINZ, ANZIV, AREINZ of Logan Stone, with an effective date of 1 September 2006. If land and buildings were measured using the cost model the carrying amounts would be as follows:

PARENT CONSOLIDATED

NZD IN THOUSANDS ($000) 2009 2008 2009 2008

Cost 222,471 199,959 223,913 200,741

Accumulated depreciation (111,303) (113,072) (111,841) (113,305)

Net carrying amount 111,168 86,887 112,072 87,436

g Carrying value of plant and equipment under finance leases The carrying value of plant and equipment held under finance leases and hire purchase contracts at 31 August 2009 is $531,000

(2008: $575,000).

h Expenditure recognised in the course of constructionIncluded in Work in Progress at 31 August 2009 is an amount of $4,158,000 (2008: $1,700,000) relating to buildings and site

developments currently under construction.

17 Trade and Other Payables

PARENT CONSOLIDATED

NZD IN THOUSANDS ($000) 2009 2008 2009 2008

Trade payables 46,498 42,228 48,587 47,386

Other payables 21,060 42,555 23,224 45,169

Subsidiaries 8,716 8,581 – –

Total trade and other payables 76,274 93,364 71,811 92,555

Trade payables are non-interest bearing and are normally settled on 30 day terms. Livestock purchases are paid in 6-11 days, except for 10% of the purchase price under the rebate system which is paid 120 days after purchase. Other payables are non-interest bearing and have an average term of 3 months. Interest payable is normally settled quarterly throughout the financial year.


18 Interest Bearing Loans and Borrowings

PARENT CONSOLIDATED

Average EffectiveNZD IN THOUSANDS ($000) Interest Rate (%) Maturity 2009 2008 2009 2008

Overdrafts

NZ bank overdraft (9.5m) 11.36% On demand 437 2,225 452 2,225

GBP bank overdraft (GBP 1.5m) 7.20% On demand – – – 771

Total overdrafts (current) 437 2,225 452 2,996

Current

Obligations under finance leases Current 146 145 146 145

Secured loan 4.51% Current 542 – 542 –

Secured bank loan (USD 55.0m) 4.19% Nov-08 – 78,014 – 78,014

Secured bank loan (EUR 9.0m) 5.99% Nov-08 – 18,833 – 18,833

Secured bank loan (19.0m) 9.80% Nov-08 – 19,000 – 19,000

South Taranaki District Council loan 7.50% Apr-09 – 72 – 72

Total interest bearing loans and borrowings – current 688 116,064 688 116,064

Non-current

Obligations under finance leases 183 332 183 332

Secured loan 4.51% Sep-10 108,000 – 108,000 –

Total interest bearing loans and borrowings – non-current 108,183 332 108,183 332

Redeemable preference shares

Redeemable preference shares 8.95% Dec-11 1,622 2,654 1,622 2,654

a Fair values and securityThe carrying amount of the Group’s current and non-current borrowings approximate their fair value. For interest rate, foreign exchange and liquidity risk, refer note 23.

The Group grants to Westpac Banking Corporation, as security agent for the banking syndicate, a security interest in all of its personal property and a fixed charge over all of its non-personal property, as security for the due payment of the secured money and for the due performance and observance of, and compliance with, the secured obligations.

The security interest and the fixed charge created by the deed are each first ranking charges except where the security agent otherwise consents in writing.

Each group company jointly and severally guarantees to the security agent unconditionally and irrevocably the due payment of the secured money, and the due performance of, and compliance with, the secured obligations.

Each group company acknowledges and agrees with the provisions set out in the terms the General Security deed.

b Defaults and breaches There were no breaches of covenants as at 31 August 2009.

The shareholders funds covenant was in breach at December 2008 as a result of the rapid decline of the New Zealand dollar against the US dollar and resulting mark to market adjustments on foreign exchange contracts. The non-compliance related only to banking facilities and not to either of the SFF020 or SFF030 Bonds on issue at the time. A waiver was received for this breach.

During the 2008 financial year, the company received automatic bank waivers in the event that earnings over interest coverage ratios were not met up to and including 31 August 2008.

19 Bonds Payable

Average Effective PARENT CONSOLIDATEDNZD IN THOUSANDS ($000) Interest Rate (%) Maturity 2009 2008 2009 2008

Bond issue SFF020 (50.0m) 9.00% Mar-09 – 50,780 – 50,780

Bond issue SFF030 (75.0m) 11.35% Dec-10 75,615 75,040 75,615 75,040

Total bonds payable 75,615 125,820 75,615 125,820

Current – 50,780 – 50,780

Non-Current 75,615 75,040 75,615 75,040

Total bonds payable 75,615 125,820 75,615 125,820

The carrying amount of the Group’s current and non-current bonds payable approximate their fair value. For interest rate and liquidity risk, refer note 23.


During the 2008 financial year, the company received a waiver from the bond Trustee in the event that earnings over interest coverage ratios were not met up to and including 31 August 2008.

During the 2008 financial year, the Earnings Before Interest and Taxation (EBIT) covenants in respect to the bank facilities and SFF020 bond were in breach until August 2008. The Earnings Before Interest, Taxation, Depreciation and Amortisation (EBITDA) ratio on the SFF030 bond however, was compliant from 29 February 2008.

During the 2008 financial year, the SFF030 bond covenant was in breach and in accordance with the terms of the SFF030 bond issue the interest stepped up by 1.25% to 11.50% from 15 September 2007. Having satisfied the covenant at 29 February 2008 the interest rate then reverted to 10.25% from 15 March 2008. There was no change to interest applicable to the SFF020 bond as a result of the breach.

There were no breaches of covenants as at 31 August 2009.

20 Provisions

PARENT Livestock Accident Procurement Employee NZD IN THOUSANDS ($000) Future Costs Provision Entitlements Restructuring Total

At 1 September 2008 6,225 1,175 21,188 11,345 39,933

Arising during the year 343 750 2,035 600 1,693

Utilised (1,343) (1,175) (2,700) (11,334) (14,517)

Excess provision released – – (797) – (797)

At 31 August 2009 5,225 750 19,726 611 26,312

Current 2009 – 750 13,611 611 14,972

Non-Current 2009 5,225 – 6,115 – 11,340

Total provisions 5,225 750 19,726 611 26,312

Current 2008 – 1,175 16,482 11,345 29,002

Non-current 2008 6,225 – 4,706 – 10,931

Total provisions 6,225 1,175 21,188 11,345 39,933

CONSOLIDATED Livestock Accident Procurement Employee NZD IN THOUSANDS ($000) Future Costs Provision Entitlements Restructuring Total

At 1 September 2008 6,225 1,175 21,295 11,345 40,040

Arising during the year 343 750 2,050 600 1,693

Utilised (1,343) (1,175) (2,700) (11,334) (14,502)

Excess provision released – – (797) – (797)

At 31 August 2009 5,225 750 19,848 611 26,434

Current 2009 – 750 13,733 611 15,094

Non-Current 2009 5,225 – 6,115 – 11,340

Total provisions 5,225 750 19,848 611 26,434

Current 2008 – 1,175 16,588 11,345 29,108

Non-current 2008 6,225 – 4,707 – 10,932

Total provisions 6,225 1,175 21,295 11,345 40,040

a Accident future cost provisionThe Group participates in the ACC Partnership Programme, Full Self Cover Plan. The provision for the future cost of accidents relates to the estimated future cost of accidents incurred by employees that the Group will have to bear. These payments are ongoing throughout the lifetime of the rehabilitation period.

ACC Partnership Programme: Overview

Responsibilities and AccountabilitiesThe General Manager Human Resources is responsible for the development and ongoing review of injury management policy and procedures in consultation with relevant parties. This includes the establishment and monitoring of the partnership programme contract with ACC and notification to them of changes in the Silver Fern Farms Limited injury management operations or personnel.

Risks are managed by ensuring the manager has a working knowledge of the relevant legislation and information and communication requirements. Rehabilitation is managed as soon as practicable through liaising with treatment providers, claims administrators and the claimant.


Assumptions and methodology used:The chain ladder is used to project the ultimate number of claims expected from each accident period using historic cumulative rations of claims. An approach called the Payments Per Claim Incurred (PPCI) Method has been used to determine suitable expected claim payment patterns for the average claim.

In the development of Claim Payment Patterns and projecting claim payment liabilities the following economic assumptions have been made:

• Pre valuation date claim inflation has been taken as 50% (2008: 50%) of movements in the Consumer Price Index (CPI) and 50% (2008: 50%) of the movements in the Average Weekly Earnings (AWE) Index. This assumes that increases in claim costs are equally affected by general price increases and by wage increases.

• Post valuation date claim inflation has been taken as 4% (2008: 4%) pa. Most claims are of a short to medium term duration and we are currently in an environment where inflation and wage increases are likely to run above the norm in the short to medium term.

• The Discount Rate used is 4.5% (2008: 6.8%) pa. This is approximately the average gross yield on Government Bonds of short to medium term duration consistent with the duration of the liabilities.

• The actuarial assessment of the provision for future claims was prepared by Marcelo Lardies (BSc Hons) of AON New Zealand Limited, effective 31 August 2009. The assessment is dated 14 September 2009 (2008: 5 September 2008).

b Employee entitlementsIncluded in employee entitlements is wages and salaries payable, annual leave due and long service leave payable. Wages, salaries and annual leave are measured at the amounts expected to be paid when liabilities are settled. Long service leave is recognised at the present value of expected future payments to be made in respect of services provided by employees up to the reporting date. These provisions will reduce as the entitlements fall due.

An independent actuarial valuation was undertaken as at 31 August 2009 to estimate the present value of long service leave.

The present value of the long service leave obligations depends on a number of factors that are determined on an actuarial basis using a number of assumptions. Two key assumptions used in calculating the liability include the discount rate and the salary inflation factor. Any changes in these assumptions will impact on the carrying amount of the liability. The interest rates on NZ Government bonds with terms of maturity that match closely to the estimated future cash outflows have been considered in determining the discount rate. The historical salary patterns have been considered in determining the salary inflation factor after obtaining advice from an independent actuary.

The actuarial assessment of the provision for the long service leave liability was prepared by Greg R Lee (BSc FIA, Fellow of the New Zealand Society of Actuaries) of AON New Zealand Limited, effective 31 August 2009. The assessment is dated October 2009.

c Other provisionsThe livestock procurement provision relates to incentive payments made in addition to schedule payments for certain classes of livestock. Payments are made on a six monthly basis and annual basis. The restructuring provision was established for restructuring costs relating to the reconfiguration of plants embarked upon under Project Rightsize. The residual in the restructuring provision will be utilised during the 2009/2010 financial year.

21 Members’ Shares

Redeemable Supplier Ordinary Preference Investment

NZD IN THOUSANDS ($000) Shares Shares Shares Total

Balance as at 1 September 2007 49,581 2,720 12,876 65,177

Shares issued during the year 76 7 11,367 11,450

Shares surrendered (1,880) (73) (306) (2,259)

Balance as at 31 August 2008 47,777 2,654 23,937 74,368

Shares issued during the year 1,631 – 1,283 2,914

Shares surrendered (1,639) (1,032) (466) (3,137)

Balance as at 31 August 2009 47,769 1,622 24,754 74,145

Called / uncalled

47,769m Ordinary Shares of $1 each 47,769 – – 47,769

Uncalled Shares – – – –

Issued and fully paid 47,769 – – 47,769


Silver Fern Farms Limited has two classes of ordinary shares: Rebate shares which are issued to suppliers who supply stock under Silver Fern Farms Limited’s rebate system and Supplier Investment Shares, which are issued to all suppliers of stock to Silver Fern Farms (subject to certain restrictions). All ordinary shares have a nominal value of one dollar per share. Supplier Investment Shares are paid to ninety cents by the supplier with the balance of ten cents being paid by way of a dividend from retained earnings. Ordinary shares are currently classified as a financial liability as Silver Fern Farms does not have the unconditional right to refuse redemption.

Rebate Shares carry full voting rights subject to the shareholder being a Current Supplier (as defined in Silver Fern Farms Limited’s constitution) at the time of voting. Supplier Investment Shares carry voting rights in relation to director elections only. Ordinary Shares participate equally on winding up.

The maximum shareholding for Rebate Shares and Supplier Investment Shares is 17,500 (2008: 17,500) and 15,000 (2008: 15,000) respectively.

Silver Fern Farms Limited’s ordinary shares are eligible to receive a dividend subject to profitability, although any such dividend is likely to be restricted to fully paid Supplier Investment Shares. Rebate shareholders are eligible to receive a rebate based on the profit earned from stock supplied.

Redeemable Preference Shares were issued on 1 December 2002. A dividend of 6% (or as otherwise determined by the board) plus any available imputation credits, is paid on the anniversary of their issue. Redeemable Preference Shares may next be redeemed at the option of the holder on 1 December 2011 and every three years thereafter.

Shareholders contribute to the company by way of $1 ordinary and $1 redeemable preference shares. Redeemable Preference Shares are currently finite and subject to a fixed term with rights of renewal.

Refer to note 31 for details of changes to the Capital base of the company subsequent to balance date.

22 Reserves

Nature and purpose of reservesThe asset revaluation reserve is used to record increments and decrements in the fair value of land and buildings to the extent that they offset one another. The foreign currency translation reserve is used to record exchange differences arising from the translation of the financial statements of foreign subsidiaries. The available for sale reserve is used to record increments and decrements in the fair value of available for sale financial assets such as shares.

23 Financial Risk Management Objectives and Policies The Group’s principal financial instruments, other than derivatives, comprise trade debtors, trade creditors, bank loans, redeemable preference shares, finance leases, and cash. The Group also enters into derivative transactions consisting principally of forward currency contracts. The purpose is to manage the foreign currency risks arising from the Group’s operations.

It is, and has been throughout the period under review, the Group’s policy that no trading in financial instruments shall be undertaken.

The main risks arising from the Group’s financial instruments are interest rate risk, liquidity risk, foreign currency risk and credit risk. The board reviews and agrees policies for managing each of these risks and they are summarised below.

The Group also monitors the market price risk arising from all financial instruments. The Group’s accounting policies in relation to derivatives are set out in note 2k.

a Interest rate riskInterest rate risk is the risk that the value of a financial instrument will fluctuate due to changes in market interest rates. The Group’s exposure to market risk for changes in interest rates relates primarily to the Group’s long-term debt obligations. The Group’s policy is to manage its interest cost using a mix of fixed and variable rate debt. Interest rate swaps have not been used to manage interest rate risk. The Group’s policy is to keep between 30% and 100% of its borrowings at fixed rates of interest. At 31 August 2009, approximately 79% (2008: 46%) of the Group’s borrowings were at a fixed rate of interest. If interest rates on borrowings as at 31 August 2009 had fluctuated by plus or minus 0.5%, the effect would have been to increase or decrease the surplus after tax and equity for both the parent and group by $540,000 (2008: $738,000).

At balance date, the Group had the following mix of financial assets and liabilities exposed to New Zealand variable interest rate risk that are not designated in cash flow hedges:

PARENT CONSOLIDATED

NZD IN THOUSANDS ($000) 2009 2008 2009 2008

Financial Assets

Cash and cash equivalents 593 2,531 1,554 3,845

Financial Liabilities

Bank overdrafts (437) (2,225) (452) (2,996)

Bank loans (108,542) (115,847) (108,542) (115,847)

Advance from subsidiary (8,543) (8,543) – –

Net exposure to interest rate risk (116,929) (124,084) (107,440) (114,998)


b Foreign currency riskForeign Currency Risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign exchange rates. The Group has exposure to foreign currency risk as a result of transactions denominated in foreign currencies arising from normal trading activities. Where exposures are certain, or able to be forecast with reasonable accuracy, it is the Group’s policy to hedge these risks as they arise. The Group uses foreign exchange contracts to manage these exposures. If exchange rates on the foreign currency balances of derivatives and other financial instruments as at 31 August 2009 had fluctuated by plus or minus 0.5%, the effect would have been to increase or decrease the surplus after tax by $447,000 (2008: $215,000) for both the Parent and the Group.

The impact upon net exposures of other financial instruments is detailed below:

CONSOLIDATED

NZD IN THOUSANDS ($000) AUD CAD EUR GBP JPY SGD USD

As at 31 August 2009

Cash 7 2 95 233 12 233 160

Debtors 383 2,068 22,535 39,460 – 495 26,755

Foreign debt – – – – – – –

Foreign payables – marine freight and commission – – (1,307) (925) – – (1,521)

Net exposure to currency risk 390 2,070 21,323 38,768 12 728 25,394

Foreign exchange cover – 17,450 66,100 32,470 – – 194,490


Cash 58 125 71 5 7 – 136

Debtors 499 5,012 28,653 135 27 616 56,419

Foreign debt – – (18,832) – – – (78,014)

Foreign payables – marine freight and commission (2) – (1,367) – – – (6,084)

Net exposure to currency risk 555 5,137 8,525 140 34 616 (27,543)

Foreign exchange cover – 8,318 134,207 10,300 – – 189,790

As part of Silver Fern Farms Limited’s normal business operations the company engages in forward exchange cover. This cover also manages the company’s foreign currency risk in relation to inventory.

c Credit riskCredit risk is the risk that a third party will default on its obligation to the Group, causing the Group to incur a loss. Financial instruments which potentially subject the Group to credit risk consist of bank balances, accounts receivable, foreign exchange contracts and other instruments.

The Group manages this risk by only trading with recognised, creditworthy third parties.

It is the Group’s policy that all customers who wish to trade on credit terms are subject to credit verification procedures. In addition, trade and other receivable balances are monitored on an ongoing basis with the result that the Group’s exposure to bad debts is not significant. There are no significant concentrations of credit risk within the Group. The carrying amount of financial assets that would otherwise be past due or impaired, whose terms have been negotiated is $266,000 (2008 : $100,000). No collateral is held on the above amounts.

At balance date, the Group had the following net financial assets and liabilities exposed to credit risk:

PARENT CONSOLIDATED

NZD IN THOUSANDS ($000) 2009 2008 2009 2008

Bank balances 156 306 1,102 849

Accounts receivable 111,863 171,058 105,439 158,407

Foreign exchange contracts 20,286 532 20,286 532

Amount due from superannuation scheme – 7,222 – 7,222

Net exposure to credit risk 132,305 179,118 126,827 167,010

d Liquidity riskLiquidity risk is the risk that Silver Fern Farms will encounter difficulty raising liquid funds to meet commitments as they fall due.

Liquidity risk is managed to meet known and reasonable unforeseen funding requirements by arranging and structuring long term funding for the company from debt lenders and optimising flexibility and spread of debt maturity within the funding risk limits established by the treasury policy statement.

Refer to note 24(b) for a contractual analysis of financial liabilities.


e Price riskThe Group is exposed to equity price risks arising from equity investments. Equity investments are held for strategic rather than trading purposes. The Group does not actively trade these investments.

If equity prices had been 5% higher or lower the impairment for the year ended 31 August 2009 would have increased or decreased by $360,000 (2008: nil).

f Capital management The company recognises its corporate and financial governance responsibilities for the efficient and prudent management of capital to ensure sufficient cashflow (internal or external) is available to execute business strategy and plans, despite potential periods of unfavourable cashflow movement whilst maximising shareholder returns and profitability of the business. Capital management includes consideration of appropriate levels of issued ordinary, rebate, supplier investment and redeemable preference shares, retained earnings and reserves together with bank and other borrowing initiatives.

Capital optimisation is considered in light of industry “best practices” for a company the size and business type of Silver Fern Farms and the risk bearing ability and tolerance levels of the underlying business, shareholders and lenders. Financial risk management actions are undertaken to minimise the cost of funds through proactive interest rate risk management within approved treasury policy risk control limits that meet debt lender(s) and shareholder requirements.

Certain capital requirements are imposed on the Company by the banking syndicate. Minimum Shareholder Funds and Debt to Equity ratios are regularly monitored. Refer to note 18b for details of breaches of these covenants in the current year.

24 Financial InstrumentsDetail of the significant accounting policies and methods adopted, including the criteria for recognition and the basis in which income and expenses are recognised, in respect of each class of financial asset and financial liability instrument, are disclosed in the Statement of Accounting Policies.

a Categories of Financial Instruments

PARENT CONSOLIDATED

NZD IN THOUSANDS ($000) Category 2009 2008 2009 2008

Financial Assets

Cash and bank Fair value through profit and loss 593 2,531 1,554 3,845

Derivatives Fair value through profit and loss 20,577 10,786 20,577 10,786

Trade & other receivables Loans and receivables 111,863 178,280 105,439 165,629

Available for sale financial assets Available for sale financial assets 7,274 884 7,274 884

Total financial assets 140,307 192,481 134,844 181,144


Bank overdraft Fair value through profit and loss 437 2,225 452 2,996

Derivatives Fair value through profit and loss 291 10,254 291 10,254

Trade & other payables Recorded at amortised cost 76,274 93,364 71,811 92,555

Members’ shares Recorded at amortised cost 74,145 74,368 74,145 74,368

Bonds payable Recorded at amortised cost 75,615 125,820 75,615 125,820

Borrowings Recorded at amortised cost 108,871 116,396 108,871 116,396

Total financial liabilities 335,633 422,427 331,185 422,389

Net Exposure (195,326) (229,946) (196,341) (241,245)


b Maturity Profile in Contractual Cashflow Order

PARENT Between Between 6 months 6 – 12 1 – 5 >5 NZD IN THOUSANDS ($000) or less months years years Total


Financial Assets

Cash and cash equivalents 593 – – – 593

Derivatives 20,577 – – – 20,577

Trade and other receivables 107,102 1,400 4,260 – 112,762

Available for sale financial assets 7,200 – 74 – 7,274

Total financial assets 135,472 1,400 4,334 – 141,206


Bank overdraft 437 – – – 437

Derivatives 291 – – – 291

Trade and other payables 76,274 – – – 76,274

Secured loans 2,437 2,437 108,203 – 113,077

Bonds payable 3,844 3,844 78,843 – 86,531

Redeemable preference shares 1,622 – – – 1,622

Supplier investment shares – – – 24,754 24,754

Members’ ordinary shares – – – 47,769 47,769

Total financial liabilities 84,905 6,281 187,046 72,523 350,755

Net maturity 50,567 (4,881) (182,712) (72,523) (209,549)

CONSOLIDATED


Financial Assets

Cash and cash equivalents 1,554 – – – 1,554

Derivatives 20,577 – – – 20,577

Trade and other receivables 100,678 1,400 4,260 – 106,338

Available for sale financial assets 7,200 – 74 – 7,274

Total financial assets 130,009 1,400 4,334 – 135,743


Bank overdraft 452 – – – 452

Derivatives 291 – – – 291


Secured loans 2,437 2,437 108,203 – 113,077

Bonds payable 3,844 3,844 78,843 – 86,531

Redeemable preference shares 1,622 – – – 1,622




Net maturity 49,552 (4,881) (182,712) (72,523) (210,564)


PARENT Between Between 6 months 6 – 12 1 – 5 >5

NZD IN THOUSANDS ($000) or less months years years Total


Financial Assets


Derivatives 10,786 – – – 10,786

Trade and other receivables 171,058 – 7,222 – 178,280

Available for sale financial assets – – 884 – 884

Total financial assets 184,375 – 8,106 – 192,481


Bank overdraft 2,225 – – – 2,225

Derivatives 10,254 – – – 10,254


Secured loans 116,396 – – – 116,396

Bonds payable 6,094 56,094 86,531 – 148,719

Redeemable preference shares – – 2,654 – 2,654




Net maturity (43,958) (56,094) (81,079) (71,714) (252,845)

CONSOLIDATED


Financial Assets


Derivatives 10,786 – – – 10,786

Trade and other receivables 158,407 – 7,222 – 165,629

Available for sale financial assets – – 884 – 884

Total financial assets 173,038 – 8,106 – 181,144


NZ bank overdraft 2,996 – – – 2,996

Derivatives 10,254 – – – 10,254


Secured loans 116,396 – – – 116,396

Bonds payable 6,094 56,094 86,531 – 148,719

Redeemable preference shares – – 2,654 – 2,654




Net maturity (55,257) (56,094) (81,079) (71,714) (264,144)

As at 31 August 2009 the Parent and Group each reported financial liabilities in excess of financial assets. Over time, inventory that is not recorded as a financial asset will convert to trade receivables. Bank funding facilities will be rolled over at their expiry date. Longer term members’ ordinary shares, classified as financial liabilities by virtue of their terms of issue will remain on issue, convert to ordinary shares or be redeemed and replaced based on a shareholder’s livestock supply.

The financial instruments in the table above are prioritised in order of payment.

Members who leave the Co-operative are entitled, after a length of time, to have their share capital amounts repaid to them. This requires the recognition of the outstanding shares as a financial liability. Due to the uncertain timing of the surrender of shares, and the small levels of redemption each year, Members’ Ordinary Shares have been classified as having a maturity date of over five years.

c Fair values of financial instrumentsSet out below is a comparison of carrying amounts and fair values of all of the Group’s financial instruments that are carried in the financial statements at other than fair values.

The Fair Value for Members’ Ordinary Shares has been calculated by applying a discount factor of 10% (2008: 10%), with an estimated repayment date of 10 years (2008: 10 years).

The carrying values of all other financial assets and financial liabilities recorded in the financial statements approximates their fair values.


PARENT AND CONSOLIDATED Carrying amount Fair valueNZD IN THOUSANDS ($000) 2009 2008 2009 2008

Financial liabilities

Members’ ordinary shares 47,769 47,777 18,417 18,420

SFF030 Bonds 75,615 75,040 74,839 68,466

Silver Fern Farm bonds were issued and are redeemable at $1 per unit, however at balance date the fair value is represented by the market price as traded through the New Zealand Debt Securities market.

25 Derivative Financial Instruments



Current Assets

Forward currency contracts 20,577 10,786

Current Liabilities

Forward currency contracts (291) (10,254)

Net derivative financial instruments 20,286 532

Derivative financial instruments are used by the Group in the normal course of business in order to hedge exposure to foreign exchange rates. The Group has entered into forward exchange contracts and options which are economic hedges but do not satisfy the requirements for hedge accounting.

Foreign currency riskInformation regarding foreign currency risk exposure is set out in note 23.

Credit riskCredit risk arises from the potential failure of counterparties to meet their obligations at maturity of contracts. This arises on derivative financial instruments with unrealised gains.

PARENT AND CONSOLIDATED Notional Average forward Amounts exchange rateNZD IN THOUSANDS ($000) 2009 2008 2009 2008

Sell USD / Buy NZD Maturity 0 – 12 months 194,490 189,790 0.6306 0.7232

Sell NZD / Buy USD Maturity 0 – 12 months – 169,112 – 0.7327

Sell GBP / Buy NZD Maturity 0 – 12 months 42,470 10,300 0.4056 0.3700

Sell CAD / Buy NZD Maturity 0 – 12 months 17,450 8,318 0.7197 0.7326

Buy EUR / Sell NZD Maturity 0 – 12 months – 149,697 – 0.4906

Sell EUR / Buy NZD Maturity 0 – 12 months 86,100 202,207 0.4575 0.4885

USD IN THOUSANDS ($000)

Buy USD / Sell EUR Maturity 0 – 12 months – 74,000 – 0.7100

Buy EUR / Sell USD Maturity 0 – 12 months – 148,000 – 0.6891

These contracts are fair valued by comparing the contracted rate to the market rates for contracts with the same length of maturity. All movements in fair value are recognised in profit or loss in the period they occur.

26 Commitments and Contingencies

a Operating lease commitments – Group as lessee The Group has entered into commercial leases on certain motor vehicles and items of machinery, office space, processing and coolstore facilities where it is not in the best interest of the Group to purchase these assets. These leases have an average life of between 4 and 15 years with renewal terms included in the contracts. Renewals are at the option of the specific entity that holds the lease. There are no restrictions placed upon the lessee by entering into these leases. Future minimum rentals payable under non-cancellable operating leases as at 31 August are as follows:

PARENT CONSOLIDATED

NZD IN THOUSANDS ($000) 2009 2008 2009 2008

Within one year 7,402 7,240 7,501 7,288

After one year but not more than five years 14,015 16,880 14,521 16,915

More than five years 10,789 11,956 10,896 11,956

Total operating lease commitments 32,206 36,076 32,918 36,159


b Finance lease and hire purchase commitments The Group has finance leases for various items of plant and machinery, these leases have no terms of renewal or purchase options and escalation clauses. Future minimum lease payments under finance leases and hire purchase contracts together with the present value of the net minimum lease payments are as follows:



Minimum payments Minimum payments

Within one year 146 145

After one year but not more than five years 215 396

Total minimum lease payments 361 541

Less amounts representing finance charges (32) (64)

Present value of minimum payments 329 477

c Operating lease commitments – Group as lessor The Group has entered into commercial property leases of the Group’s surplus office and manufacturing buildings. These properties held under operating leases are measured under the fair value model as the properties are held to earn rentals. These non-cancellable leases have remaining non-cancellable lease terms of between one and six years. Future minimum rentals receivable under non-cancellable operating leases at 31 August are as follows:

PARENT CONSOLIDATED

NZD IN THOUSANDS ($000) 2009 2008 2009 2008

Within one year 185 199 185 199

After one year but not more than five years 58 301 58 301

More than five years – – – –

Total operating lease commitments 243 500 243 500

d Contingent asset At 31 August 2009 the Parent and Group had no contingent assets. At 31 August 2008 there was a contingent asset due from PGG Wrightson Limited. Refer note 8 for additional details of funds received.

e Capital commitments At 31 August 2009 the Parent and Group have capital commitments of $7,890,000 (2008: $11,089,000) principally relating to the completion of operating facilities.

f Contingent liabilities Silver Fern Farms Limited has the following contingent liabilities at 31 August 2009:

Discounted bills of exchange for the Group and Parent at 31 August were $27,485,000 (2008: $31,781,000). Subsequent to balance date $24,910,000 (2008: $31,781,000) of cash has been received leaving discounted bills of $2,575,000 (2008: $nil) for the Group and Parent as at the date of these financial statements.

At the end of the year the company had received various ACC claims which the company disputes. If the claims are pursued and are successful then the company will be liable, though the sum is currently non-quantifiable and has therefore not been provided for.

g Guarantees The Group has the following bank guarantees at 31 August 2009:

Details Entity Issuer In favour of Amount

Stock Exchange bond Parent Westpac NZSX NZD $75,000

Shipping guarantee Parent HSBC CMA CGM USD $72,000

Guarantee of overdraft facility for SFF(UK) Limited Parent HSBC HSBC Bank PLC NZD $4,750,000

Import guarantee Subsidiary RP Agency GBP $40,000

Import VAT guarantee Subsidiary VAT Authority EUR $38,000


27 Intangible Assets

PARENT SOFTWARE GROUP SOFTWARE

NZD IN THOUSANDS ($000) 2009 2008 2009 2008

Opening balance net of accumulated amortisation and impairment 2,896 3,092 2,907 3,092

Additions – internal development 1,271 1,105 1,323 1,116

Disposals (21) – (21) –

Amortisation (1,522) (1,301) (1,565) (1,301)

Amortisation on disposals 21 – 21 -–

Closing balance net of accumulated amortisation and impairment 2,645 2,896 2,665 2,907

Cost (gross carrying amount) 11,756 10,507 12,119 10,518

Accumulated amortisation and impairment (9,111) (7,611) (9,454) (7,611)

Net carrying amount 2,645 2,896 2,665 2,907

28 Investments in Associates The Group has ownership in the following companies:

CONSOLIDATED Principal Activity Place of Incorporation 2009 2008

NZ Lamb Group

New Zealand Lamb Company (North America) Limited Holding company New Zealand 31.5% 31.5%

New Zealand Lamb Holdings Limited Sale of lamb Canada 31.5% 31.5%

New Zealand Lamb Company Limited Sale of lamb Canada 27.2% 27.4%

Australian Lamb Company Limited Sale of lamb Canada 10.9% 10.9%

Australian Lamb Company, Incorporated Sale of lamb USA 10.9% 10.9%

New Zealand Lamb Co-operative, Incorporated Sale of lamb USA 29.0% 29.4%

New Zealand Lamb Processing, Incorporated Sale of lamb USA 37.7% 37.7%

Other Associates

Robotic Technologies Limited Manufacturing New Zealand 50.0% 50.0%

Livestock Logistics Nationwide Limited Transport New Zealand 50.0% –

Farm Brands Limited Processing New Zealand 50.0% –

a Investment details

PARENT CONSOLIDATED

NZD IN THOUSANDS ($000) 2009 2008 2009 2008

Unlisted

NZ Lamb Group 1,325 – 7,709 5,593

Robotic Technologies Limited 10 10 57 16

Livestock Logistics Nationwide Limited – – – –

Farm Brands Limited 3,150 – 2,936 –

Total investments in associates 4,485 10 10,702 5,609

b Movements in the carrying amount of the Group’s investment in associates

CONSOLIDATED


Opening balance 5,609 4,751

Share of profits of associate 1,105 667

New investments 3,150 –

Exchange revaluations 44 704

Partial reversal of impairment 1,059 –

Share of dividends (531) –

Increase/(decrease) in shareholding 266 (513)

Closing balance 10,702 5,609


c Summarised financial information The following table illustrates summarised financial information relating to the Group’s associates:

CONSOLIDATED


Extract from the associates’ balance sheets:

Current assets 109,924 84,800

Non-current assets 18,671 15,342

Total assets 128,595 100,142

Current liabilities 73,770 44,408

Non-current liabilities – 11,339

Total liabilities 73,770 55,747

Net assets 54,825 44,395

Share of associates’ net assets 15,005 10,970

Less impairments (4,303) (5,361)

Total investment in associates 10,702 5,609

Extract from the associates’ income statements:

Revenue 519,950 435,942

Net Profit 4,558 3,308

Share of associates’ net profit 1,105 667

29 Related Party Disclosure

a SubsidiariesThe consolidated financial statements include the financial statements of Silver Fern Farms Limited (the parent entity) and the significant subsidiaries listed in the following table.

Country of % Equity interestNAME Incorporation 2009 2008

Richmond Group Holdings New Zealand 100% 100%

Richmond (NZ) Singapore Pte Ltd Singapore 100% 100%

Richmond New Zealand Ltd UK 100% 100%

Silver Fern Farms NV Belgium 100% 100%

Silver Fern Farms GmbH Belgium 100% 100%

Venison Rotorua Limited New Zealand 100% 100%

Farm Enterprises Limited New Zealand 100% 100%

Waitotara Europe BV New Zealand 100% 100%

Silver Fern Farms (UK) Limited UK 100% 100%

B. Brooks (Norwich) Limited UK 100% 100%

PPCS USA Inc USA 100% 100%

Global Technologies Limited New Zealand 100% 50%

b Ultimate ParentSilver Fern Farms Limited is the ultimate New Zealand parent entity and the ultimate parent of the Group. Silver Fern Farms Limited is incorporated in New Zealand.


c Transactions with related partiesThe following table provides the total amount of transactions that were entered into with related parties for the relevant financial year (for information regarding outstanding balances on related party trade receivables and payables at year-end, refer to notes 14 and 17 respectively):

PARENT 2009 2008 Purchases Purchases Sales to from Sales to from related related Other related related Other NZD IN THOUSANDS ($000) parties parties transactions parties parties transactions

Subsidiaries 309,647 – – 287,348 – –

Farm Enterprises Limited – advance to parent – – – – – 8,543

Farm Enterprises Limited – rent paid – – – – – 210

Global Technologies Limited – forgiveness of debt – – – – – 2,988

Directors – current – 4,992 – – 6,621 –

Directors – resigned during the year – 3,776 – – 532 –

Associates 97,610 – 400 44,770 317 –

The transactions with Directors are conducted on the same terms and conditions as all other suppliers.

Terms and conditions of transactions with related partiesSales to and purchases from related parties are made in arm’s length transactions at both normal market prices and normal commercial terms. There have been no guarantees provided or received for any related party receivables. Related party receivables are non interest bearing. There have been no related party bad debts throughout the year.

30 Key Management Personnel

Compensation for Key Management Personnel

PARENT CONSOLIDATED

NZD IN THOUSANDS ($000) 2009 2008 2009 2008

Short-term employee benefits 2,708 2,093 2,708 2,093

Directors’ fees 482 513 482 513

Contributions to defined contribution plans 23 208 23 208

The composition of the key management personnel group has changed during the current year.

31 Events After the Balance Sheet Date

Associates Restructure Effective 27 September 2009, certain companies in the NZ Lamb Group restructured their activities. The restructure results in Silver Fern Farms taking ownership in the new “Super Co-ops” which are the new vehicles for trading in USA and Canada. Silver Fern Farms was not required to provide additional capital as a result of the restructure.

Capital Raising Subsequent to year end, the deadline for the conversion of Rebate Shares and Suppliers Investment Shares to Ordinary Shares closed. 42.9 million shares were converted to Ordinary Shares and an additional $22,200,000, less transactions costs, was raised in new capital. The new Ordinary Shares will commence trading on the Unlisted Exchange on 27 October 2009.

Sale of PGG Wrightson Limited Shares On 15 October 2009 Silver Fern Farms sold 10,000,000 shares held in PGG Wrightson Limited for total consideration of $7,300,000.

32 Auditor’s Remuneration

PARENT CONSOLIDATED

NZD IN THOUSANDS ($000) 2009 2008 2009 2008

Ernst & Young New Zealand: Audit/review of consolidated entities 205 198 344 330

Ernst & Young New Zealand: Tax compliance 30 18 30 –

Ernst & Young New Zealand: Assurance related 115 28 115 72

Total remuneration to Ernst & Young 350 244 489 402

Total remuneration to auditors other than Ernst & Young – – – 4


AUDITOR’S REPORT

To the Shareholders of Silver Fern Farms Limited

We have audited the financial statements on pages 23 to 56. The financial statements provide information about the past financial performance of the company and group and their financial position as at 31 August 2009. This information is stated in accordance with the accounting policies set out on pages 27 to 33.

This report is made solely to the company’s shareholders, as a body, in accordance with Section 205(1) of the Companies Act 1993. Our audit has been undertaken so that we might state to the company’s shareholders those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s shareholders as a body, for our audit work, for this report, or for the opinions we have formed.

Directors’ ResponsibilitiesThe directors are responsible for the preparation of financial statements which comply with generally accepted accounting practice in New Zealand and give a true and fair view of the financial position of the company and group as at 31 August 2009 and of their financial performance and cash flows for the year ended on that date.

Auditor’s ResponsibilitiesIt is our responsibility to express an independent opinion on the financial statements presented by the directors and report our opinion to you.

Basis of OpinionAn audit includes examining, on a test basis, evidence relevant to the amounts and disclosures in the financial statements.

It also includes assessing:

• the significant estimates and judgements made by the directors in the preparation of the financial statements; and

• whether the accounting policies are appropriate to the circumstances of the company and group, consistently applied and adequately disclosed.

We conducted our audit in accordance with generally accepted auditing standards in New Zealand. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatements, whether caused by fraud or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements.

Ernst & Young provides taxation and other assurance services to the company and group.

Unqualified OpinionWe have obtained all the information and explanations we have required.

In our opinion:

• proper accounting records have been kept by the company as far as appears from our examination of those records; and

• the financial statements on pages 23 to 56:

• comply with generally accepted accounting practice in New Zealand; and

• comply with International Financial Reporting Standards; and

• give a true and fair view of the financial position of the company and group as at 31 August 2009 and their financial performance and cash flows for the year ended on that date.

Our audit was completed on 22 October 2009 and our unqualified opinion is expressed as at that date.

Christchurch

FIVE YEAR HISTORICAL SUMMARYas at 31 August 2009

NZD IN MILLIONS ($m) NOTES 2009 2008 2007 2006 2005

Income Statement

Total income 2,014.6 1,989.9 1,846.2 2,027.6 2,029.7

Operating earnings before interest and tax (EBIT) 29.4 108.0 (6.6) 43.2 31.6

Net operating profit before tax 5.1 75.7 (36.9) 11.4 8.3

Non-recurring items 38.4 (24.6) (31.9) 17.7 12.8

Income tax benefit 0.2 1.0 (7.1) 2.1 (1.3)

Net profit after tax 43.8 52.1 (75.7) 31.4 19.9

Less member distributions (0.2) (14.5) (3.4) (11.9) (14.3)

Net profit after member distributions 43.6 37.6 (79.1) 19.5 5.6

Financial Position

Total assets 603.2 668.7 658.9 762.1 741.5

Net working capital 1 222.5 250.8 244.8 326.1 276.8

Net debt 2 183.4 241.4 332.2 393.2 381.0

Total equity including members’ shares 316.3 276.1 232.2 261.8 237.1

Cash flow

Net cash flows from operating activities 95.7 61.8 85.4 35.2 19.5

Key Ratios

EBIT to total income 3 1.5% 5.4% -0.4% 2.1% 1.6%

Return on assets 4 4.9% 16.2% -1.0% 5.7% 4.3%

Return on equity 5 13.8% 18.9% -32.6% 12.0% 8.4%

Equity ratio 6 52.4% 41.3% 35.2% 34.3% 32.0%

NOTES:

1 Current assets less current liabilities (exclusive of net debt items)

2 Total interest bearing debt debt less cash and cash equivalents

3 EBIT / total income

4 EBIT / total assets

5 Net profit after tax / closing equity (including members’ shares)

6 Equity (including members’ shares) / total assets

Certain comparatives within the five year historical summary have been reclassified for comparative purposes, to ensure consistency with the current year.

The Group adopted NZ IFRS on 1 September 2007. Only information from 2007 onwards is compliant with NZ IFRS. In accordance with exemptions available under NZ IFRS 1, all previous information is compliant with previous NZ GAAP.


Board of Directors• Eoin Garden

Chairman

• Richard SomervilleDeputy Chairman

• Tony Balfour

• Trevor Burt

• Joe Ferraby

• Rob Hewett

• Angus Mabin

• Herstall Ulrich.

Senior Management• Keith Cooper

Chief Executive

• Kevin WindersChief Financial Officer

• Glenn TyrrellGroup Sales and Marketing Manager

• Grant HowieGroup Livestock Manager

• Steve MurphyGroup Operations Manager

• Grant PearsonGroup Innovation Manager

Head OfficeSilver Fern Farms Limited218 George Street, PO Box 941, Dunedin 9054, New ZealandT: +64 3 477 3980F: +64 3 474 1087E: [email protected]

Operations CentreSilver Fern Farms HastingsPlunket Street, PO Box 940, Hastings 4156, New ZealandT: +64 6 872 6660F: +64 6 872 6715

Innovation CentreSilver Fern Farms Christchurch199 – 201 Cashel Street, PO Box 283, Christchurch 8140, New ZealandT: +64 3 379 6900F: +64 3 366 4412

Group CommunicationsBrent MelvilleT: +64 3 474 6595E: [email protected]

Websitewww.silverfernfarms.co.nz

International OfficesSilver Fern Farms has an international marketing network including offices or representatives in Belgium, Germany, Greece, Hong Kong, Italy, Japan, Korea, Middle East and UK. Contact details are available on the company’s website www.silverfernfarms.co.nz

Shareholder EnquiriesFor enquiries regarding Ordinary Shares, Supplier Investment Shares, Rebate Shares and Redeemable Preference Shares, contact:Silver Fern Farms LimitedPO Box 941, Dunedin 9054, New ZealandT: 0800 362 362F: +64 3 474 1087E: [email protected]

NZDX Listed SecuritiesSFF030 (previously PPCS030) issued in December 2006 a total of $75 million bonds maturing December 2010.

Listed SecuritiesUnlistedPO Box 5422Lambton QuayWellington 6145T: 0508 UNLISTED (0508 865478)

Share RegistrarLink Market ServicesPO Box 91976Auckland 1142T: +64 9 375 5993F: +64 9 375 5990

Bondholder EnquiriesBond RegistrarComputershare Investor Services LimitedPrivate Bag 92119, Auckland 1020, New ZealandT: +64 9 488 8777F: +64 9 488 8787E: [email protected]

BankersThe Hongkong and Shanghai Banking Corporation LimitedWestpac New Zealand LimitedRabobank New Zealand BranchCommonwealth Bank of AustraliaThe Bank of Tokyo-Mitsubishi UFJ Limited

AuditorErnst & Young

Tax AdvisorsPricewaterhouseCoopers

Legal AdvisorsHarmos Horton Lusk

DIRECTORY


sff annual report 2009

Documents

financial year

silver fern farms brand

silver fern farms chairman

integrated market

market strategy

watershed year

marketled food company

past trading year