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PPCS vague on meat war cost

Hugh Stringleman

Friday 14th November 2003

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Twin pretax profits of more than $20 million for the year ended September 30 gave a measure of the future financial strength of the PPCS and Richmond meat company combination.

South Island co-operative PPCS currently holds 63% of North Island listed company Richmond and consolidated the latter's performance as a subsidiary for the first time. PPCS hailed a $2 million "contribution" from Richmond, being 63% of the dividend from five months of trading, from April 1 until September 30.

In the PPCS expenses was the considerable, but unquantified, cost of bank borrowings for the $100 million foray, which is now in its sixth year of dispute.

"Without those holdings costs our profit would have been higher," PPCS chairman Jim Pringle conceded.

PPCS has repeatedly said that the costs of the Richmond exercise will not affect South Island farmers' pool returns for the livestock supplied, processed and exported.

That being the case, Richmond would need to generate net profits in excess of the loan servicing costs plus considerable legal costs. On the basis of the 2003 year Richmond performance, better than break even is achievable for PPCS in the future, assuming a forthcoming rationalisation of overheads.

But a big imponderable for PPCS in the current season is Richmond's competitive position in the lower North Island, where 10% fewer lambs will be available for slaughter. Alliance Group has opened a new lamb plant in Dannevirke, spending just a fraction of the cost of the PPCS battle for Richmond.

Richmond declared a surplus before tax of $20.9 million and a net surplus of $12.9 million. Assuming that could be repeated and all of it would be distributed, PPCS could receive $8 million for a full year, which would cover the costs of borrowing $100 million.

However, in the previous year Richmond made a net loss of $6.5 million. PPCS itself declared a pretax profit of $21.6 million, including the $8.3 million above-schedule rebate to farmers announced earlier. The PPCS turnover was $1.37 billion and that of Richmond was $1.22 billion.

Alliance, meanwhile, has announced a massive $37.6 million net profit on turnover of $1.14 billion in the year to September 30. The net profit is more than twice that of its South Island rival co-operative, PPCS, and is 34% bigger than Alliance achieved in the previous year. Listed meat company Affco has returned to profitability with an after-tax $16.2 million result, but will not pay a dividend. The Talley family has reached an agreement with Peter Spencer's Toocooya Nominees to increase the Talleys' stake in Affco to 40%.

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