Falling co-product prices prompt changes

The sale of Wallace Group’s tanning, rendering and composting operations in the Waikato, Northland and Manawatu is the latest step in the consolidation process of what is often termed the fifth quarter of the meat industry. Since it began in the late nineteenth century the industry has had to invest significant capital in facilities which were not just designed to process animals for meat production, but also to dispose of the parts of the carcase left over from its primary purpose, otherwise known as by-products or more politely co-products.  

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Meat company results only average for 2017 – will 2018 be any better?

ANZCO’s lacklustre result for 2017, posted last month, concludes the financial reporting for last year by the three major processors which publish their results. ANZCO’s pre-tax profit was $1.8 million which compares disappointingly with Alliance Group’s $16.7 million profit and Silver Fern Farms Cooperative’s 15 month profit of $7.8 million.

ANZCO is now 100% Japanese owned

One of Japan’s two largest meat processing and marketing companies, Itoham Yonekyu Holdings, has received OIO consent to increase its shareholding in ANZCO Foods from 65% to 100%. It will acquire the shares currently held by ANZCO’s management (18.24%) and Japanese food company Nissui (16.76%) as a carefully planned transition which will see founder and chairman, Sir Graeme Harrison, retire at the company’s AGM in March.

ANZCO’s profit disclosed in Itoham’s statement

Japanese food company Itoham Foods announced last week an increase in its shareholding in New Zealand meat processor and exporter ANZCO Foods from 48.28% to 65%. As a result of the transaction it will be able to consolidate ANZCO’s revenues and earnings into its annual accounts.

 

$40 million worth of shares are being bought from three entities: another leading Japanese food manufacturer Nippon Suisan Kaisha, chairman Graeme Harrison, and JANZ Investments, owned by Graeme Harrison and ANZCO staff members. The sale will see the minority shareholders reducing their shareholdings on a pro rata basis with Harrison’s effective holding falling from approximately 20% to 14%.

 

A side effect of the announcement to the Tokyo Stock Exchange was the disclosure of ANZCO’s annual result for the 2014 year which would not normally be announced to the Companies Office until late March. This demonstrates a small drop of $25.6 million (1.92%) in sales, but a two thirds reduction in operating income and a $6.2 million or 50.8% fall in net profit. This fell from $12.22 million to just over $6 million.

 

The figures do not give any details of the reasons for the profit reduction, although a 9.4% increase in total assets suggest an increase in inventories may be a factor. The profit represents a 0.48% return on sales and 2.7% on net assets which is less than ideal, albeit a continuation of ANZCO’s track record of posting a profit, apart from 2012 when the whole meat industry lost money.

 

The main question is why Itoham has decided to increase its ownership percentage in a New Zealand meat exporter now when it has been content to remain a fairly passive shareholder since 1995 when Harrison put together a consortium of investors to buy ANZCO from the Meat Board and Huttons Kiwi.

 

The answer appears to be a combination of factors, notably Harrison’s stated intention to retire at an appropriate time presumably in the relatively near term. In 2009 Mitsubishi Corporation became Itoham’s largest shareholder which can now access 28,000 staff in Mitsubishi’s Living Essentials Group involved in all stages of the distribution chain throughout the world with a focus on emerging markets.

 

Itoham’s announcement to the Tokyo Stock Exchange signals its intention to grow its business outside Japan by becoming “the most trusted manufacturer of processed meat in Asia”. Itoham’s investment with ANZCO is seen as an integral step to achieving this goal. ANZCO is seen as an ideal platform for expanding red meat sales to the world’s growth markets which contrasts with Itoham’s previous focus on the Japanese domestic market for sausage and processed meats.

 

Correspondingly the main business focus of Nissui which also bought its shares in 1995 is on marine products including a 50% shareholding in Sealord, processed foods and chemicals. Therefore its holding in ANZCO is less aligned with its core businesses.

 

At this point there will be no change to ANZCO’s board of directors or management with Graeme Harrison and Mark Clarkson remaining as Chairman and Managing Director respectively. In time it seems inevitable that consolidation of ownership and retirements will result in further changes.

Boot camp to inspire development of New Zealand Inc

This week a high powered Boot Camp, attended by a group of key New Zealand agribusiness executives, will take place at Stanford University, California, with facilitation by Professor of Marketing Baba Shiv whose research expertise is in neuroeconomics.