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Grower Returns Forecast to Increase

MEDIA RELEASE 23 May 2008

Grower Returns Forecast to Increase Following Challenging 2007 Season

ZESPRI today announced an indicative range of grower returns forecast for the 2008/09 season, which will be keenly welcomed by the New Zealand kiwifruit industry.

Fruit and service payments per tray supplied (excluding the loyalty premium) are forecast to increase by a range of $0.45 to $0.85 per tray for ZESPRI™ GREEN, $0.55 to $0.95 per tray for ZESPRI™ GREEN ORGANIC and $0.50 to $0.90 per tray for ZESPRI™ GOLD.

Indicative amounts for 2008/09 2007/08 / Actuals
ZESPRI™ GREEN $6.75 to $7.15 / $6.30
ZESPRI™ GREEN ORGANIC $8.70 to $9.10 / $8.15
ZESPRI™ GOLD $9.30 to $9.70 / $8.81

The ZESPRI Board is aiming to deliver a loyalty premium per class 1 tray of $0.15 for the 2008/09 season, compared with $0.10 for the 2007/08 season. The loyalty premium is paid to growers who are party to ZESPRI’s three-year rolling contract.

Chief Executive Tony Nowell said the forecast improved return and loyalty premium would be welcomed, particularly from GREEN growers who have been hardest hit by the impacts of foreign exchange movements in 2007/08. “Average fruit and service payments per tray last year were down by 14 percent on the prior year. The increase in forecast payments for the 2008/09 season is attributable to improved in-market pricing, size profile and foreign exchange situation, but is offset to some degree by increased shipping costs. Improvements to the size profile of this year’s crop reflects considerable effort by growers to match the optimum market profile signalled by ZESPRI."

Mr Nowell also said the industry had managed an exceptional start to the current season with another record crop of good quality, great tasting, early fruit arriving into an encouraging market environment. “We’re extremely encouraged by the positive start to this season with fruit being harvested, packed and loaded with minimal constraints,” he said. “This again reflects the efforts of growers and post-harvest suppliers towards best-practice harvesting and packing to meet ZESPRI’s premium quality standards."

President of New Zealand Kiwifruit Growers, Graham Wiggins, congratulated growers on increasing fruit size profile and improving picking quality, noting that apart from the reducing exchange rate these were key reasons for the forecast return increasing. “I am encouraged by the increase in fruit and service payments but recognise that growers’ on-orchard and post-harvest costs have risen significantly,” said Graham. “The whole industry must continue the industry’s war on costs to drive for extra value and cost efficiencies on-orchard and throughout the supply chain."

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Financial results for the year ended 31 March 2008 The turnaround in returns comes as ZESPRI announces its final season results for the year ending 31 March 2008. ZESPRI reported a consolidated net profit after tax of $19.7 million for the year ended 31 March 2008, compared with $22.1 million the prior year. This 11 percent reduction on the previous period is due mainly to a structural change in ZESPRI’s margin. From 1 April 2007, ZESPRI lowered the margin it takes on net sales from 7 percent to 6 percent, and on the net return to suppliers from 7 percent to 6 percent. The profit before tax was favourably impacted by $4.7 million of income from the sale of ZESPRI™ GOLD licences.

Foreign exchange movements had a significant impact over the prior year, removing $80 million or $0.80 per tray from grower returns. ZESPRI’s hedging policy helped to some extent, but the continued strengthening of the New Zealand Dollar during 2007/08 impacted heavily on ZESPRI’s US Dollar and Japanese Yen income streams.

Net global kiwifruit sales increased 3 percent from $1.125 billion in 2006/07 to $1.164 billion in 2007/08. Fruit and service payments (including the loyalty premium) increased by 1 percent from $654.3 million to $660.5 million. When spread over the larger crop, this equated to a 14 percent reduction in per-tray fruit and service payments, from $8.07 to $6.93 per tray supplied.

New Zealand-sourced kiwifruit volumes sold increased by 15 percent to 92.4 million trays from 80.1 million trays in 2006/07. This larger-than-normal variance was partly due to the high fruit loss volumes experience during the 2006/07 season.

Tony Nowell said that despite the challenges of the past season, ZESPRI generated record returns in its key markets. “Record sales volumes and returns were generated in Japan, Korea, Taiwan, Hong Kong, Singapore, Malaysia and China. Europe sold record volumes of kiwifruit and generated a record market contribution in total but, with intense price competition from Chile along with a smaller size profile compared with the prior season, contribution per tray was lower than for the previous year."

Mr Nowell said costs across our industry are increasing, particularly from fuel, freight and wage increases, and foreign exchange impacts over the past year have dragged down five-year average returns significantly. “Healthy returns will be driven by ZESPRI-controlled revenue growth, a disciplined focus on expenditure right across our industry and the adoption of best-practice orchard management techniques,” he said. “ZESPRI has implemented a number of efficiencies for the 2008 season and we remain focused on initiatives to add further value and reduce costs. We will continue to work with our supply partners and growers to encourage industry-wide adoption of practices that will drive improved returns for growers."

The Company intends to declare a final dividend for payment in August 2008 of 33 cents per fully paid share, in addition to the interim dividend (paid in December 2007) of 35 cents per share. A special dividend of 12.67 cents was paid in March 2008, this being the company’s 50 percent share of the proceeds from the sale of GOLD licences. This brings the total dividend for the 2007/08 year to 80.67 cents per share, compared with 82 cents in 2007/08, both representing 100 percent of available profits.


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