Lack of focus contributes to Zespri's losses in EU

Media Release Thursday, 4 March 2004

Lack of focus contributes to Zespri's losses in Europe

Zespri's $1million loss in Europe is a warning sign of a company losing sight of its key marketing objective, says Seeka Kiwifruit Industries Limited's managing director Tony de Farias.

Zespri has revealed that they have lost in excess of $1 million dollars operating their year-round supply strategy. Zespri says the losses are due to their inability to source sufficient Italian kiwifruit during the New Zealand off season to fulfil their selling programme. New Zealand kiwifruit growers will pay for these losses in the form of lower dividends from Zespri and the associated risk-management company Kiwifruit International Limited.

"Kiwifruit growers are now seeing the costly result of Zespri being distracted by local issues, rather than staying focused on their vital marketing function," says de Farias.

"The kiwifruit industry has enjoyed a sustained period of strong returns. Combine this with Zespri's lack of transparency, and we have an environment where Zespri can easily conceal losses to their supplying growers. The sheer size of Zespri's losses in Europe means they now have been forced to tell the industry. The question worrying growers is how often they have been able to hide other losses. It also brings in question Zespri's governance structures and their ability to manage operations in a commercial environment.

"Zespri's result in Europe is of concern to all growers. The New Zealand kiwifruit industry needs a company totally committed to marketing kiwifruit. Unfortunately we are once again seeing Zespri spending a lot of time and energy on local issues, rather than fully managing their marketing function.

"Zespri is currently trying to directly contract with each individual grower. While their objective of securing long-term supply is excellent, their method of using direct grower contracts means Zespri is once again focussing on what is happening in New Zealand. Direct contracts also bring additional costs to growers, while failing to harness the efficiencies generated by the current commercial supply structure.

"Seeka and our supplying growers have proposed a single collective contract which not only gives Zespri a secure supply of fruit, it will also reduce costs. Most importantly a single collective contract means Zespri can totally focus on marketing kiwifruit," says de Farias.

END For more information on Seeka's proposal to Zespri regarding direct grower contracts see the attached Media Release dated 1 March 2004.

Background information Processing more than 15 per cent of New Zealand's total kiwifruit production, Seeka is New Zealand's largest integrated kiwifruit supplier servicing the Bay of Plenty's major growing regions of Te Puke, Tauranga and Katikati.

For harvest 2004, Seeka will be employing more than 1200 people to get 11 million trays of kiwifruit picked, packed, stored and then shipped to Zespri's international markets.

Seeka's outstanding record for corporate governance, plus transparent business processes, lead to Seeka being selected for the NZAX First XV - as one of the first 15 companies to be listed on the NZAX.

Media Release Monday, 1 March 2004

Seeka proposes cornerstone supply contract to Zespri

The country's largest kiwifruit processing company, Seeka Kiwifruit Industries Limited, is proposing a cornerstone supply arrangement to Zespri under an integrated three-year rolling contract. In a deal that is estimated to be worth $240 million, Seeka in partnership with its growers is offering to supply Class I kiwifruit exclusively for Zespri for at least the next three years.

Seeka's proposed contract with Zespri would be a landmark endorsement of Zespri's marketing operations, says Seeka's managing director Tony de Farias.

"For the next three seasons, Seeka is offering to supply all available Class I kiwifruit to Zespri. This includes exclusive use of our Class I facilities. This gives Zespri the certainty of supply of a significant share of New Zealand kiwifruit production, and it is this certainty of supply that Zespri needs to continue marketing New Zealand kiwifruit around the world," says de Farias.

"The integrated contract will strengthen Zespri's relationship with a significant grower group. In addition the contract offers Zespri a secure long-term relationship with New Zealand's largest post harvest business," he says.

Starting from harvest 2004, Zespri is directly offering growers three-year rolling contracts to secure fruit supply beyond the conventional year-by-year contracting system. These contracts commit growers to exclusively supply Class I kiwifruit to Zespri on an ongoing three year term. In return the grower is offered a loyalty payment, which Zespri estimates will be in the region of $0.10 per tray.

"While Zespri's direct grower contracts is a mechanism to secure fruit supply, managing the myriad of individual grower contracts brings an additional expense to Zespri. To simplify the system, Seeka wants to collectively contract with Zespri on behalf of our 400-plus growers," says de Farias.

"As from harvest 2004, only growers committed to supplying all of their Class I kiwifruit to Zespri for the next three years will be able to use Seeka's services. There is no stronger way we could show our support for Zespri's excellent marketing programme. "Seeka's offer to Zespri endorses Zespri as the best marketer of New Zealand kiwifruit, while strengthening the industry's proven supply system.

"It really is a win-win situation for Zespri and for the grower. The benefits for Zespri will be lower costs while fully meeting their need to secure fruit supply, plus they will secure exclusive use of New Zealand's largest packing facilities. In return for our integrated contract, our growers will receive Zespri's full loyalty incentive. Also, because we will be operating a more-efficient supply service, we should be able to capture additional cost savings which can be passed on to the grower.

"Even if the industry was to be deregulated, Seeka envisages that we would maintain an integrated supply contract with Zespri to continue our support of their excellent marketing programme," says de Farias.

END

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