Disappointing Full Year Result For Affco Holdings

9 November 2001 For immediate release

DISAPPOINTING FULL YEAR RESULT FOR AFFCO HOLDINGS LIMITED

AFFCO Holdings Limited has announced a disappointing profit after tax for the full 2000/2001 year (to 30 September 2001) of $574,000 but the company is now positioned to be "guardedly optimistic" about the future.

The North Island meat processing company reported a troubled year with management changes and the adverse effect of a number of external factors, particularly in the first half. It says these combined to slow the pace of the company's recovery towards acceptable returns for its shareholders.

The full year result was $178,000 below the interim and down $14.6 million on last year.

Operating revenues were $1.2 billion (up by $209 million on last year). Earnings before interest and taxation declined by $11.4 million to $11.7 million.

Total equity has increased by $2 million to $115.9 million, while total tangible assets reduced by $7 million to $248 million.

No dividend will be declared.

AFFCO Executive Chairman, Sam Lewis, said that despite a difficult and frustrating period, the inherent strength of the company was still obvious.

"While the Board feels the disappointment of this result as keenly as shareholders, we do take comfort in the knowledge that the company has now thoroughly and realistically addressed its position in a highly competitive and challenging industry. "This process has included the restructuring of the AFFCO Group's trading and distribution activities including the closure of AFFCO USA and the divestment of the Mathias Group. We have also reviewed AFFCO's capital structure, its commitment to upgrade both the Imlay and Wairoa plants, and have re-evaluated a number of other projects including the joint venture operations in Chengdu, China. I believe that AFFCO has emerged from the 2001 year with a strong focus on cost control, empowering people, efficient plants and a clear strategic direction.

Mr Lewis said the industry itself faced many challenges as confidence in New Zealand food products rose strongly in the face of adverse developments in Europe during the year. At year-end international markets looked softer, partly as a result of the tragic events in the United States in September.

Mr Lewis cited a number of elements of the company's performance and working capital improvement programme as reasons for future optimism.

"We have made head office cost reductions of $9 million on an annualised basis, and improved our working capital position by $28 million year on year. In addition, a special logistics project has been implemented to reduce AFFCO's supply chain operating structure by up to $6 million annually."

Mr Lewis said the company has refocused strongly on its core business.

"Operationally, AFFCO is performing at high levels. Processing is at the heart of our business, and the momentum in this area is being reasserted."

Mr Lewis also pointed to a number of capital restructuring initiatives at year's end, which he says will significantly strengthen the company.

"The share placement shortly after year end to diversified South Island food company Talley's Group has given us a significant shareholder with great experience in food processing, marketing and distribution.

"In addition, the confidence of our existing major shareholders was emphasised by the announcement of a fully underwritten rights issue, while the finalisation of a new seasonal funding facility with our syndicate of banks will give us greater flexibility and strength in the procurement area."

Mr Lewis said that as a result of the initiatives taken during the year, AFFCO was now better placed to take advantage of the positive outlook for New Zealand food products in international markets.

"We have been as rigorous as any company in affirming our core business, and positioning AFFCO for a future of growth, profitability and international success," he said.

Contact: Sam Lewis Executive Chairman 09 355 5708

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