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PPCS Commences First Phase Of Right-Size Programme

7 November 2007

PPCS Commences First Phase Of Right-Size Programme

PPCS is proposing to close its Te Kauwhata venison processing facility and its Balclutha-based Windward operation which manufactures finished lambskin products. Chief Executive Officer Keith Cooper said that the proposed changes are part of the company’s strategic change process announced last week which seeks to deliver an improved business model and return PPCS to its traditional profitability over the next two years.

“These proposed closures are the first phase of the company’s right-sizing programme to align the company’s processing capacity to the current livestock profile and to exit non-core businesses.

“We emphasise that these proposed closures are no reflection on the commitment and skill of our people working at these plants. Rather, we are seeking to strengthen our vertically-integrated business model during a sustained period of strong currency conditions.

“We began a consultation process with employees and their representatives today at the two plants and decisions are expected within the next fortnight once that consultation has concluded,” he said.

TE KAUWHATA VENISON PROCESSING FACILITY

The proposal to close PPCS’ Te Kauwhata venison processing facility, which employs 35 staff, is based on a trend of declining deer numbers and increasing North Island venison processing capacity.

“According to Deer Industry New Zealand, the number of deer available for venison processing is expected to drop by 35 percent in the next four years from 736,000 in 2006 to 479,000 by 2009. The decrease in deer population in the Waikato area has been more pronounced than the national trend as deer farms are converted to alternate land uses.

“At the same time, North Island venison processing capacity has increased as new processor entrants have sought to take advantage of the recent improvement in venison returns.

“As a farmer-owned co-operative, PPCS maintains processing and marketing infrastructure for the benefit of its farmer-suppliers. Processing facilities such as Te Kauwhata are not viable where farmers elect not to support the assets they own or to support the ongoing marketing initiatives in which PPCS and those suppliers had previously invested.

“These factors, combined with ongoing compliance costs and site-specific configuration issues, namely a lack of on-site cool storage capacity, have underpinned the proposal to close Te Kauwhata in order to better align the company’s North Island venison processing to current deer supply trends.

“PPCS’ North Island deer suppliers can be assured that sufficient capacity exists at PPCS’ Rotorua facility to meet their processing requirements,” he said. Mr Cooper said that in the event that the Te Kauwhata facility closed, PPCS would look to provide alternative employment at its other processing facilities as opportunities arose.

WINDWARD LAMBSKIN MANUFACTURING OPERATIONS

PPCS Windward processes a range of lambskin products including floor rugs, infant care products and car seat covers.

Mr Cooper said: “The proposal to close the Windward manufacturing follows a careful review which identified that processing lambskins into finished products was no longer economic in the face of intense competition from low-cost countries and a drop in revenues of finished woolly lambskin products worldwide.

“The continued strength of the New Zealand Dollar, ongoing compliance costs, and the significant costs involved in ensuring we continue to meet the highest environmental standards for effluent discharge make continuation of New Zealand-based manufacturing of finished lambskins untenable.

“Overseas competition has seen consolidation and closure of several New Zealandbased wool tanneries in recent years which has seen New Zealand lambskins being processed into finished products in countries with low labour costs, particularly China and Thailand.

“Globally, lambskin production is dominated by countries with very large national sheep flocks, primarily for meat consumption. Those countries must then find markets for the large volumes of lambskins surplus to their domestic requirements. China alone has a national flock of 171 million sheep and India and Iran each have around 50-60 million head.

“Regardless of the future of Windward, PPCS will continue to export lamb pelts and woolly skins for which offshore demand remains,” he said. The Windward manufacturing operation consists of a tannery co-located at PPCS’ Finegand processing facility employing 11 staff and a finishing factory in Balclutha employing 14 staff.

“Under the proposal, PPCS would cease production at the Windward tannery next month. Production at the Windward finishing factory would then be expected to continue until remaining orders are completed some time early next year.

“In the event of a closure of the Windward operations, we are confident options are available to sell the Windward sales arm as a going concern to ensure continuity of supply of Windward-branded products for existing customers,” he said.


Mr Cooper said that in the event the Windward operations closed, Windward staff would be offered positions at its large PPCS Finegand processing facility in Balclutha as opportunities arose. “We are pleased we have the ability to offer continued employment for our people within PPCS, should the closure proceed as proposed,” he said.

ENDS


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