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Interim Loss For AFFCO Holdings

29 May 2002

A loss for AFFCO Holdings Ltd for the first half to 31 March, 2002, has been attributed to the company’s difficulty in weathering adverse trading factors and significant restructuring costs and initiatives undertaken in the period.

The company has reported a $14.7 million loss for the interim half year, compared with a $0.7 million surplus for the period last year. Executive Chairman Sam Lewis said the result indicated that the challenges continue for AFFCO and that while there is still a great deal of hard work ahead, restructuring work was well underway to improve the company’s performance. A restructured AFFCO would be better placed to operate in a volatile and competitive environment, he said.

“The impact of a number of factors has highlighted the need to quicken the pace of restructuring and cost reduction initiatives to better enable the company to withstand these conditions,” said Mr Lewis.

“Measures to address these issues have already been implemented across the company. Significant progress has been made in the past few months to reduce fixed costs and improve plant efficiencies.”

AFFCO’s operating revenues totalled $497 million, while the loss before interest and taxation stood at $10.7 million.

Mr Lewis said many of the special trade factors and risks that were referred to in AFFCO’s registered prospectus of November 2001, had materialised in the first half.

It is important to note that the difficult procurement conditions of the last three months of the 2001 financial year were also present in the first three to four month of this year.

“Both the intense domestic competition for livestock and the wet climatic conditions over the summer contributed to this interim result. This crystallised in reduced margins in order to attract sufficient quantities of livestock.

“At the same time, the ongoing strategic review highlighted our unacceptably high level of fixed costs, particularly in head office, administration and at plants.”

Mr Lewis said work aimed at minimising the impact of the company’s high cost structures - particularly at the shoulders of the season - has intensified.

“Head office and administrative staff numbers have been reduced by two thirds of the levels of a year ago. Additional efficiencies and cost saving measures continue to be introduced at plant level. These initiatives are in the process of improving performance but have carried some significant redundancy costs.”

Mr Lewis said the current restructuring of AFFCO has had a significant impact on the company’s performance in the first half, and has continued into the second half. It is anticipated that the restructuring programme will be concluded by the end of this financial year.

“The company is currently working on a range of positive initiatives aimed at improving operating performance. AFFCO is expected to benefit from capital expenditure at its Moerewa, Rangiuru, Wairoa and Manawatu operations which will be commenced this half. These upgrades, which include the introduction of hot boning at a number of plants are being finalised now for an immediate start,” he said.

“It is worth noting that despite the disappointing result, AFFCO’s major shareholders remain committed to the company and are working closely with management to improve prospects for the future,” said Mr Lewis.

During the period, a cash rights issue was fully underwritten by the four major shareholders, and was successfully completed. The opportunity was also taken to tidy up small shareholdings of less than 1,000 shares, as part of this exercise.

Mr Lewis said he was confident that the foundations have been firmly laid for an improved future outlook, although in this industry that will not be without its difficulties.

Ends

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