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PPCS Unaudited 2007 Full Year Result

29 October 2007

See also… APPENDIX 1 - 28/10/07 PDF Format


PPCS today said a persistently strong New Zealand dollar and global pressure on the returns on a wide range of PPCS export products had contributed to the company’s result for the year ended 31 August 2007.

PPCS Chairman Reese Hart said that despite unsatisfactory profitability for the year, the underlying financial position of PPCS is sound and improving and all other key PPCS financial indicators showed a positive trend.

For the financial year ended 31 August 2007, PPCS reported a net loss before tax of NZ$40 million (unaudited).

Mr Hart noted that this loss expressed as a percentage of turnover amounted to 2 percent.

Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) were $13.3 million. Earnings Before Interest and Tax (EBIT) for the year ended 31 August 2007 were -$15.1 million.

Mr Hart said that this year would go down as a difficult one for both PPCS and the wider meat industry.

“Through the main procurement and sales period of September 2006 – July 2007, the NZ Dollar appreciated 18 percent to reach a high of 0.5875 against the Euro and appreciated by 28 percent to 0.8110 against the US Dollar. That represents a change in lamb revenues of up to NZ$14.00 per lamb.

“The result was also impacted by fixed cost structures in processing capacity that were not aligned to the current livestock supply profile and the impact of a depreciating market on the company’s historic inventory levels. Throughout the 12-month period, a continued focus on inventory management has achieved a reduction in inventory funding costs.

“The resulting lower returns were not adequately reflected in payments made to suppliers and therefore impacted on company profitability,” he said. Key Performance Indicators Positive

Mr Hart said: “The year under review has generated a positive cashflow, lower debt and an increased shareholders’ equity ratio. As at 31 August 2007:

_ Operating cashflow was $80 million stronger than previous year

_ Total borrowings were reduced by $57 million

_ Interest paid decreased from $32 million to $25 million

_ Shareholders’ Equity ratio improved from 34% to 37%

_ Debt to equity ratio improved from 191% to 169%

_ Stock and debtors was $309 million against bank debt of $208 million

_ Inventories reduced from $260 million to $200 million

_ Capital expenditure was $25 million

_ Repairs and maintenance expenditure was $46 million.

“These results reinforce that, while profitability needs to improve, the trend on these key financial performance indicators is positive,” he said.

The Board resolved not to pay a year-end rebate for the period 1 January to 31 August 2007 given the company’s current profitability.

2007 Strategic Initiatives

Mr Hart said that the current result underscores the importance of the strategic initiatives the Board undertook in 2007 to reduce costs and make ongoing improvements in performance.

“In the past 12 months PPCS implemented a number of strategic initiatives to reduce operating costs, improve efficiencies and improve marketplace returns, including:

_ Launch of a new procurement plan

_ Reconfiguration of its UK operations

_ Consolidation of its North American lamb marketing in the NZ Lamb Company

_ Restructure of its Stortford smallgoods business

_ Changing its sales profile to improve stockturn and reduce inventory costs

_ Joint commission of PricewaterhouseCoopers’ analysis

_ Investment in a joint industry project into new opportunities for lamb exports into emerging markets

_ $4 million government funding (via the Foundation for Research Science and Technology) for fast track commercialisation of automated lamb processing through joint venture Robotic Technologies Limited.

“The Board expects all these initiatives will impact positively on the next financial year,” he said.

PPCS Strategy 2008

Mr Hart said that PPCS Board has a clear strategy and commitment to return the company to its traditional profitability over the next two years.

“In the coming 12 months, PPCS will make further substantive change to the business with the objective of delivering a much improved business model and an improved balance sheet.

“The Board’s strategy for 2008 is to right-size the business so it is aligned to the current national livestock supply profile and the company’s marketing requirements.

“We will also make significant enhancements to the new procurement plan launched in May 2007 which will include long-term pricing options to match supply to market over 12-month period. That means changing the current industry model of supply commitment on a week-by-week basis towards the longer horizon needed for marketing products internationally.

“In addition, PPCS will expand its range of livestock financing products to underwrite future livestock supply.

PPCS’ marketing strategy seeks to maximise farmer returns from emerging consumer trends such as growing demand for chilled product. PPCS will look to increase its higher value chilled business by 7.5 percent in the coming year.

“PPCS will also place particular focus on measures to improve lamb returns including enhancing our Silver Fern branding programme and developing new concepts in retailready portion-controlled packs.

“These consumer-ready items will be based on cuts from lamb legs that in time will see greater demand for heavier lambs, enhancing farmer returns per lamb.

“PPCS is confident of the company being well-positioned to capture the long-term opportunities from the growing global demand for meat products,” said Mr Hart.

Background information on PPCS:

•PPCS is a leading New Zealand added-value meat exporter, which has operated from its head office in Dunedin since 1948.

•It is responsible for around a third of New Zealand’s sheep meat and beef exports and around half of New Zealand’s venison exports.

•PPCS owns 25 processing plants and employs about 9,000 staff in the peak of the processing season.

•It is a 100% farmer-owned co-operative with about 20,000 farmer suppliers.

•It has an annual turnover of approximately $2 billion.

•PPCS operates around a core belief: to market quality New Zealand consumer products to the world by meeting the requirements of the end user, and to retain the resulting profits in New Zealand.

•PPCS has an international marketing network across the United Kingdom, European Union, the Middle East, Asia and the United States.


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