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Dairy Meats To Look At Sale Option

15 October 2004

“Market Dynamics” Force Dairy Meats To Look At Sale Option

Dairy Meats New Zealand Ltd. the co-operatively-owned processor and marketer of calf products has invited expressions of interest from parties for the purchase of its principal assets.

The company is in discussion with prospective buyers and expects to come back to its shareholders with firm proposals within a few weeks.

Dairy Meats says changes in market dynamics have led to the move.

Dairy Meats Association Inc – later to become Dairy Meats New Zealand - was established in 1988. The need then was to ensure that bobby calves were moved promptly and efficiently off farm, processed and marketed with the returns maximised and transparent.

DMNZ chairman Bill Baylis said today that the company was originally established primarily as a service to farmers, because none of the meat processing companies at that time had the motivation or the capability to ensure bobby calves could be collected, processed and marketed to the dairy industry’s requirements.

In its early years Dairy Meats was arranging the processing virtually all New Zealand’s bobby calves. Last year that figure was little over 50 percent.

DMNZ owns no plants of its own and contracts processing on a toll basis with AFFCO Holdings Ltd. in the North Island and Alliance, CMP Kokiri and Prime Range Meats in the South.

Over time, changes to legislation and what were perceived as improved profit opportunities have seen processors increasingly looking to procure calves for processing direct from farmers.

And by taking a strictly commercial approach to procurement, processing companies have been able to secure a growing share of the market, thus diminishing DMNZ’s supplier base.

Reduced volumes have inevitably put increasing pressure on DMNZ’s unit procurement and processing costs. The company has a number of added value activities, but these have been insufficient to offset the effects of declining volumes.

The company’s revenues are further being pressured because an increasing number of companies are selling into what is a very narrow market segment, thus shifting market power in buyers’ favour.

“The plan fact is that DMNZ does not have a long term future if it is unable to attract sufficient market share to offset its processing cost disadvantage,” the company’s chairman Bill Baylis said today.

“Despite the best efforts of a dedicated staff the company is losing ground and the prosects of reversing that position are remote at best.

“The company employs some $30 million of shareholders’ money. It is an investment no longer justified by the return it delivers,” Mr Baylis said.

He said staff of the company had been notified and would be kept abreast of developments.

Mr Baylis said that the transitional arrangements have been so structured as to ensure farmer suppliers of DMNZ will not be inconvenienced. He stressed the company was in a strong financial position. It expected to process around 40 000 more calves to complete the current season.

He said the majority of the company’s assets were in cash debtors and stock and would thus not be difficult to realise. The company would be an attractive proposition to prospective buyers.

ENDS

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