KEY POINTS:
The lure of riches from milk has proved too tempting for listed meat company Affco.
Affco announced yesterday it had formed a new subsidiary, Dairy Trust, to become a milk processor with annual turnover eventually expected to be in the hundreds of millions of dollars.
It intends to
seek an NZX listing next year, although there was no indication yesterday of the shares to be offered to the public.
The initial plan was for Dairy Trust to buy three sites from Affco in Northland, Waikato and Wanganui to build and operate as dairy processing facilities and to buy another site in Southland.
Affco is majority owned by fishing company Talley's, which also has dairy interests. Talley's already holds 30 per cent of Waikato dairy company Open Country Cheese and has an ice cream business in the South Island.
Dairy Trust said it was talking to a few investors who would take a key shareholding.
Andrew Talley - a director of Affco, Dairy Trust and Talley's Holdings - said confidentiality agreements prevented him from naming the potential investors. But he said they knew dairying. On the potential turnover of Dairy Trust once it was fully up and running, Talley said: "It's likely to be [in] the hundreds of millions."
He said Dairy Trust would look at developing more plants, but would be a comparatively small player in the industry. "It's not intended that it'll be anything close to rivalling Fonterra or of concern to Fonterra."
He said Talley's would restrict its interest in Dairy Trust to its involvement through Affco.
Sam Lewis, Affco's chairman, said the board decided to establish Dairy Trust after considering growth options. Affco would only be an investor in, rather than operate, Dairy Trust.
Lewis said the move into milk was not a sign of a lack of confidence in meat. He said that in the past few years, Affco had expanded its meat operations into the South Island "fairly significantly".
"So you'd hardly say we're not growing our meat business either."
He said the establishment of Dairy Trust was "a natural progression of the food business" and Affco would have the ability to exploit synergies between dairy farming and meat processing, such as dairy animals being sent for slaughter.
Timing of the new dairy processing developments at the initial four sites would depend on capital requirements, additional feasibility work and regulatory consent requirements.
Dairy Trust could not say what its product mix would be but expected it would be involved in milk powder given the industry's activities were heavily weighted towards this.
Besides the sites bought from Affco, Dairy Trust will also buy buildings, plant and equipment.
Affco said the scheme was likely to be subject to shareholder approval. The company's shares closed yesterday up 1c at 37c.
News about Dairy Trust comes after the Business Herald learned of plans for a separate fund aiming to raise tens of millions of dollars from farmers and investors to invest in New Zealand farming. Details are expected to be announced next month.
Meat to milk
* Meat company Affco has established a new subsidiary Dairy Trust.
* The plan is that it will operate four dairy plants initially.
* A Dairy Trust listing is proposed for next year.