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Primary produce industries' restructures continue apace

By Peter V O'Brien

Friday 26th May 2000

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Several seemingly unrelated events in the country's basic primary produce industries over recent weeks, including activity in listed companies, confirmed continuing substantial reorganisation of the sectors.

The action has occurred in dairy produce, meat and horticulture and looks as though it could continue for some time.

Meat company Richmond Ltd reported a $9.8 million profit for the six months ended March 31, a massive improvement on the $2.3 million loss in the corresponding period of the previous year, although the full year to September 1999 saw an improvement to an annual loss of $852,000 after unusual items of $5.11 million net of tax.

Richmond is classified as a "listed" company in the sense the company has public bondholders and reports through the Stock Exchange, in its words, "to maintain the disciplines and practices of a fully listed company and to ensure a fully informed market for its shareholders, bondholders and suppliers."

The interim report said the significant turnaround in operating performance was attributed to the benefits of increased operating scale and close management attention to the bottom line.

It was also partly the result of climate, favourable exchange rates and the condition of stock presented by farmers.

Chairman Bob Croker said it was fair to say both the company and its suppliers had done well in the past six months. Mr Croker added that Richmond was beginning to see the benefits of earlier rationalisation initiatives, particularly in beef, where the company first acquired Lowe Walker and then consolidated to four major beef sites.

Richmond's result was a solid improvement on recent performance but the company needs to do better, given total shareholders' equity of $109.46 million, a point endorsed on Mr Croker's comments.

The group's net real value could have been more, given the response to the takeover offer from Richold in March, an offer that seems likely to be unsuccessful, given the negative reaction from principal shareholder PPCS, which increased its holding after notification of the offer.

Richold's offer for the recovering meat processor was indicative of the changes in the industry following widespread restructuring.

Auckland-based Affco Holdings also had a turnaround in the six months ended March 31, going from a $4.87 million loss in 1999 to a profit of $7.4 million in the latest period.

The full year ended September 1999 saw a surplus of $6.5 million. Affco has been on the reorganisation road for the past two years and the benefits are now coming through.

Affco referred to the restructuring as a "re-engineering programme" and added a reference to the company's "internationalisation," a term meaning the sourcing of overseas product to meet its customers' 12-months' demand.

Chief executive Ross Townshend said New Zealand did not have a year-round production capability. The company was sourcing the overseas product to complement the New Zealand seasonal production, not replace it.

That seemed another fundamental change in an industry's approach, because it was unlikely old-style meat companies would have considered the concept not so many years ago.

Then we move to the dairy industry, particularly the decision of corporate dairy farmer Tasman Agriculture's proposal to sell its New Zealand farming assets to farmers and investor syndicates, establish a rural development company, a management company, a finance company to offer finance packages to approved buyers of the farms under the restructure and a share buyback at $1.20 a share.

It was only in February that Tasman Agriculture said sale of its smaller dairy units had begun, following the decision to sell its smaller farms, not considered suitable in its corporate portfolio.

Tasman's latest announcement said the company's recognition that the value of its substantial agriculture assets was not reflected in the share price underlay the proposal.

The intended restructure gave the company the ability to repay capital to shareholders through the off-market pro rata 1:5 offer at $1.20 compared with a closing share price of 88c on May 24.

Tasman's shares closed at 88c last Friday, still well below the $1.35 net asset backing a share shown in the accounts for the six months ended November 30,1999, but that has to be related to the point that a 1:5 payment of $1.20 means a person buying five shares at 88c would outlay $4.40, get a cash payment of $1.20 and be left with four shares.

Tasman Agriculture was disappointed in February at the failure of the proposal to form a mega co-operative through the merger of Kiwi and New Zealand Dairy Group, a matter Federated Farmers still has on the boil with its call for shares in the Dairy Board to be transferred from dairy companies to dairy farmers.

The longstanding arguments in the dairy industry were mirrored in horticulture and referred to at the annual meeting of applegrower Grocorp Pacific.

Chairman Grant Sinclair said the apple industry had the worst features of a political compromise and growers certainly did not have the innovative, responsive and vigorously efficient marketing arrangements they desperately needed.

Others involved in the apple industry have disagreed with these views and the argument goes on.

Changes in the kiwifruit industry and the float of juice processor Frucor, sold out of the then Apple & Pear Marketing Board to an Australian-based interest two years ago, were other examples of substantial changes in primary produce industries.

Assuming fishing is considered a traditional "primary industry," the sale of Brierley Investments' Sealord was another.

A falling dollar added more spice to the mix, given the industries' export activities.

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