Meatco ‘in ICU’
16 February 2021 | Agriculture
Meatco will face liquidation if the company does not reduce costs drastically in order to make it profitable again.
This is according to a report conducted by independent analyst Rainer Ritter at the end of last year as part of the public enterprises ministry’s investigations into the operations of state-owned enterprises.
Ritter said Meatco should not be given any additional funding from government to force them to make these unpopular decisions.
The main reason for the financial crisis at Meatco is the lack of good governance, he said.
“The average operational cash flow is around N$100 million, indicating that Meatco is in ICU,” Ritter said.
The company will slaughter about 34 000 cattle this year and the low throughput exacerbates their cash flow constraints, he added.
According to him, at the end of the 2019/2020 financial year, Meatco incurred an operating loss before tax of N$123 million, and the year before that, the loss was N$93 million, despite a turnaround strategy.
He further noted that in 2004, the total debt at Meatco was N$55.5 million, and in 2007, when Kobus du Plessis became CEO, total debt stood at N$71.1 million.
“Backward integration gained momentum and reached 14.9% of total procurement in 2009. In the same year, total debt reached N$210.1 million.”
Ritter said Vekuii Rukoro took over in 2013 and debt stood at N$389.9 million, and the “madness of backward integration” gained even more momentum.
He added that this financial bleeding had a result of a total debt of N$822.8 million in 2017/2018 and Meatco was forced into a retrenchment exercise when cash flow became negative and it was difficult to borrow money.
“By international standards, the management of Meatco is not effective,” he said.
Over the last two years, the international prices achieved have deteriorated, although the exchange rate development was in favour of Meatco, Ritter said.
The accumulated losses Meatco has incurred in the northern communal areas since inception is N$376 million.
“Meatco should have requested from the beginning that the losses should be subsidised by government,” he added.
Ritter also pointed out that board fees at Meatco increased from N$227 000 in 2009 to N$467 000 in 2010, an increase of 106%. Meanwhile in 2013, board fees increased from N$736 000 to more than N$1.26 million, or by 72%.
The analyst stressed that an export abattoir requires directors with experience in meat processing and international meat value chains, which is a pre-condition to ensure long-term viability and improve competitiveness.
“The CEOs should have also gained prior experience in the meat industry – an illusion since the appointment of Du Plessis in 2007.”
“In the last six years, Meatco had five CEOs and five financial managers. In the audit opinion of the 2019/20 annual report, it was expressed that there is a material uncertainty as a going concern,” Ritter said.
He recommended that a meat industry committee should be appointed to make the industry sustainable again.
He also stressed that the future shareholding of Meatco must be resolved to create trust between the producers and Meatco.
According to Ritter, the operations north of the Veterinary Cordon Fence should also be managed by a different organisation so that Meatco can be focused, competitive, profitable and export-driven.
Furthermore, he said the Meatco abattoir should go through a benchmarking exercise to establish shortcomings and that this must be done by consultants preferably from South Africa or Australia.
He added that the recommendations on a new pricing strategy for Meatco should be discussed at its next annual general meeting, set to take place on Friday, 19 February.