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Meat men scorn Talley's move

By Chris Hutching

Friday 16th May 2003

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Talley's Fisheries is still negotiating with Invercargill City Council to buy 37ha of land where it says it will build a $30 million meat-processing plant in the heart of Alliance Group's territory in Southland.

The announcement was made a few weeks ago by enthusiastic Invercargill mayor Tim Shadbolt but Talley's executives have proved difficult to contact to talk about the proposal, prompting concern and scepticism from rivals and meat-worker unions.

Farmers might relish the prospect of a new procurement war next summer but industry insiders said this week that it may do little to create more jobs in the long term and could destabilise an industry weary of frequent restructuring.

The Fortex collapse in 1993 remains strong in the memory of southern farmers who lost money.

"This is not about them [Talley's] wanting more product. This is tit for tat over what's been going on up north," an industry source said.

She was referring to Alliance Group's $850,000 purchase last year of a former meat plant at Dannevirke, where its main rival, listed meat giant Affco also operates. Affco is 26% owned by Talley's.

The revamped Alliance plant in Dannevirke already has resource consents and will have capacity to process about 800,000 lambs next season.

Alliance's rationale is to increase its lamb supply in winter. (An Ashburton company, Canterbury Meat Packers, is adding to procurement pressure with a new plant near Marton and it will seek a similar amount of stock.)

Alliance Group chief executive Ernie Poole said yesterday that changing ownership of the main meat processors had cast doubt on international marketing arrangements via jointly owned New Zealand Farmers, and the company was moving to protect its supply of lambs.

Meanwhile, Invercargill City Council chief executive Richard King said his council welcomed all newcomers who want to set up business in the city but would not subsidise one player at the expense of others, noting there were already four significant established meat processors in the region.

"Negotiations with Talley's are going favourably and they've given me the impression they want to get going as soon as possible and that it will be a relatively small but high-technology plant," Mr King said.

Although the Talley's/Affco target is primarily Alliance Group, other players may potentially be affected, such as Invercargill-based Blue Sky Meats, although shareholders recently demonstrated their loyalty when they turned down a relatively generous takeover offer.

Blue Sky chairman Barry Thomas said the proposed $30 million capital outlay was significant and it was surprising that Talley's was seeking product in the region.

Dunedin-based PPCS, in the throes of a drawnout takeover of listed North Island meat company Richmond, might also be affected to a lesser extent because it operates one plant near Invercargill (it has closed several processing plants in the South Island in recent years).

"We're just watching this one but it seems like a case of robbing Peter to pay Paul in terms of job creation," PPCS chief operating officer Keith Cooper said.

The logistics of setting up a new processing plant ­ such as obtaining resource consents and making procurement arrangements with stock and station firms ­ generally takes many months. There are further delays if Talley's plans to export product because assessment for export can only be carried out once the plant is operating.

The Talley's move comes against a background of improving fortunes for meat companies, although economic forecasters are cautious about future commodity prices.

A couple of weeks ago Affco reported a dramatic turnaround for the half-year ending March 2003 with an after-tax profit of $10.8 million on sales of $442 million ­ compared with a $14.7 million loss for the comparable period last year.

But the company passed on a dividend. It has market capitalisation of $98 million at the current 18c a share and is continuing to reduce debt.

Richmond also posted a healthy interim result last week with an after-tax profit of $14.2 million for the six months ending March (compared with the $1.5 million loss for the same period last year), on revenues of $663 million.

The company expects a full-year after-tax result of about $22 million and it announced a 5c a share dividend ­ not payable on the 6.87 million shares owned by PPCS and subject to a forfeiture order by the High Court arising from the takeover battle with Richmond minority shareholders supported on some counts by the company itself.

The number of Richmond shareholders has reduced to 500, down from 2000 a year ago, as PPCS continues to extend the offer.

The final outcome of the takeover is likely to be determined by the High Court during a hearing in Wellington starting on July 28.

The year-end PPCS result to August 2002 revealed a profit of $8.4 million on revenue of $1 billion (compared to $36 million on revenue of $1.6 billion the previous year).

Alliance reported a $31.3 million profit on turnover of $1.2 billion in the year ending September 2002.

Because the two companies are farmer-owned co-operatives their accounting methods may not be comparable with the listed processors.

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