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Dinosaur meat industry puts on speed to adapt to new era

Friday 8th December 2000

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By Peter V O'Brien

Meat companies' reports are still being sprinkled with references to restructuring, change and expansion, suggesting the old-established industry continues to see the need to adapt to a more sophisticated world market for food products.

Affco chairman Sam Lewis said his company's increase in net profit from 1999's $6.52 million to $13.15 million, both including unusual items, made it clear the benefits of the "intensive restricting programme were now flowing through to the bottom line."

Mr Lewis said the company had taken more than $45 million in annualised costs out of the business in the past two years, strengthened processing capability through technology investments and reshaped stock procurement through futures contracts and other new procurement initiatives.

Earlier this year the company's interim report added the term "internationalisation" to its vocabulary, to describe the sourcing of overseas product to meet customers' 12- month demand.

Affco chief executive Ross Townshend expanded on the concept in the latest report, saying the company was strongly positioned for growth with its internation-
alisation strategy "well on track."

He said the opening in May of the company's 30% owned joint venture in China was "one of several milestones" during the year. "This joint venture gives us a local, tariff-free, first world standard, supply presence in a vast domestic market where the Affco brand already enjoys high recognition because of our exports.

"While there have been some initial challenges in securing sufficient stock for processing, those are now resolved and the operation is running like clockwork. We are very confident about the opportunities this joint venture provides for growth."

Mr Townshend may be proved correct in time but more than one New Zealand company has found operating within China difficult.

Affco had also opened a South American office in Buenos Aires and an office in London, which brought the number of offices in international markets to 14. Their main task was to source "premium quality product" for sale of customers in the US, Canada, Hong Kong, Japan and the UK.

In a far cry from the days when our meat companies shipped New Zealand lamb to the UK in carcase form, Mr Townshend said Affco was leveraging its South American presence in a trial to supply organic Patagonian lamb into the UK market.

Most Patagonian lambs met organic certification due to low stocking rates on farms and climatic conditions that did not support parasites, conditions not easy to duplicate in New Zealand.

Referring to the New Zealand scene, Mr Townshend said prospects looked good, with demand strong for lamb, forecasts of significantly better supply and a still low currency. The last point was ironic, because in Affco's interim report issued in May he cautioned that "predictions placing the New Zealand dollar as high as 59c against the US dollar later in the year could have an impact on an otherwise confident outlook for the full-year result."

The predictions had come from sources other than Affco. Someone could have incurred a financial mess if they acted on them. The dollar was worth just over 44c US on Tuesday, having recovered from a relationship in the high 30s in recent days.

Affco's shares fell 4c to 43c on the day of the announcement but that was still a considerable improvement on the 27c recorded on the last trading day of 1999.

Change was also the theme at South Island-based processor Alliance Group.

Chief executive Owen Poole said the past year had seen an "unprecedented level of change" within the company.

Alliance fancies the term "reconfiguration" in its reports to describe reorganisation of individual plants, a term Affco has also used even in relation to its transport function.

Mr Poole said some of the benefits planned from the reconfiguration programme had already been achieved.

Alliance's ordinary shares are not listed, but unsecured notes are quoted on the Stock Exchange.

Richmond's references to change came with the announcement the company was proposing an issue of capital notes of up to $50 million in the first half of 2001, with an initial issue of $30 million and rights to accept over subscriptions for another $20 million. The offer would coincide with the listing of the company's existing ordinary shares on the Stock Exchange.

Richmond said the issue would strengthen the balance sheet, diversify its funding base and position it for "further industry change and the next stage of it development as a food company."

Chief executive John Loughlin said debt would be better structured to suit seasonal needs and the company would gain greater flexibility in funding the next stages of its development. He said Richmond had taken "enormous strategic steps" with its programme of consolidation and reconfiguration.

The meat industry may have been later than other industries to see the need for change, but it has done so and gives the impression the process is unlikely to falter.

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