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Turners and Growers confirms Apollo Apple talks as it plans for growth

 Turners & Growers [NZX: TUR], the fruit marketer controlled by Germany's BayWa Aktiengesellschaft, has confirmed acquisition discussions with Hawke's Bay orchard and packaging company Apollo Apples as it announces its new strategy for growth.

In a statement to the NZX the Auckland-based company confirmed a media report that it was in talks with Apollo, but said "discussions may not ultimately lead to a transaction and, if any agreement is entered into, it is expected to be conditional upon various matters."

Turners & Growers announced its new strategic blueprint after a 12 month consultation period. It said it will strengthen its focus on international trading opportunities, including outside of its key fruits of pipfruit, grapes and kiwifruit.

The company said it continued to recognise the on-going importance of it domestic business, which remained a key component of the new strategy.

Part of the strategy includes continuing to work with New Zealand Trade and Enterprise's Better by Design programme, as well as strengthening its partnership with BayWa to expand opportunities both locally and overseas.

"Having a global focus is critical to explore new markets, new products and new opportunities," Alastair Hulbert, T&G's chief executive, said in a statement. "We see great potential for us to leverage our expertise, our intellectual property and our processes to grow our international business significantly in the coming years."

The blueprint comes after a period of uncertainty for the company. Last year the former chief executive, Geoff Hipkins, quit suddenly amid media reports of a breakdown in working relationships with senior management. Hulbert took over the lead role several months later.

Reporting its first-half profits in August last year, the company forecast it was track to "exceed the profitability of 2012" when it reported a net loss of $15.3 million due to write-downs in the value of its kiwifruit orchards.

The shares, of which BayWa owns about 73 percent, were unchanged at $1.82 and have gained 10 percent in the past 52 weeks.


More by Suze Metherell

Comments and questions

Will the new strategy involve Australia?
despite the mood of disappointment, Apple and Pear Australia Ltd (APAL) has expressed its support for fruit growers as they faced the future.
“It’s a tough day for a lot of fruit growers in the Goulburn Valley who supply SPC Ardmona,” APAL CEO John Dollisson said in a release.
“While we are disappointed with the government’s decision, we have to look to the future and create new opportunities for growers.
“For example, there is huge potential for growers to diversify their pear production, plant improved varieties and aim to export their fruit – to make their businesses and their orchards more competitive and profitable.”Around 90% of Australia’s pears and 40% of its apples are grown in the Goulburn Valley region of Victoria, where the SPC factory is located. “We will be doing everything we can to support our growers there to help them plan for their future in the wake of this news.” An APAL release highlighted it was helping develop new pear varieties for Australian growers through its support for New Zealand-based breeder Prevar. The association also established the Pear Steering Committee last year to find and identify ways to help pear growers.

“The most important thing besides the relationship with growers in New Zealand, is to expand our global presence. The access and improvement we need to make from a volume point of view in Asia was a key driver for the investment for BayWa, and to strengthen our relationship with growers for instance in Washington State, in Peru, Chile, South Africa, France and so on.” Lutz adds that Turners & Growers’ profitability in the consolidation period was much better than expected and helped the balance sheet of BayWa. ... “I think we’re seeing a continuation of that mega-trend in Asia – the growing middle class with disposable income which is pre-disposed towards towards an imported quality food product.
“I talk about Asia in the wider sense here – it’s not just India and China. You can’t ignore Indonesia, Malaysia, Thailand, Singapore – great markets and growing markets for quality food product.” He says non-tariff barriers tend to “raise their ugly heads” quite frequently in Asia, as is the case with Indonesia and the bureaucracy surrounding entry. “But if you have that quality product and you have that traceability, it’s not really an issue.” Hipkins says the production base for Enza’s PVR varieties is increasing in France, northern Italy, Washington State, South Africa, Chile, Australia and New Zealand. The executive is dismissive of some industry commentary that there are too many apples for buyers to choose from in the market. .

A key addition to the Delica Australian business in 2012 was the beginning of the import arm, Delica Domestic, which has gained access to the major Australian supermarket chains. ENZAFoods, the Group’s manufacturer of processed fruit, continued to increase its sales volume of fruit ingredient products and completed a major capital investment in a new fruit ingredients factory for further growth in this sector.

Delica Australia: Following two exceptionally difficult growing years in Australia, growing conditions stabilised in the latter half of 2012. Early season products performed poorly as the 2011 weather conditions still had an impact, yet crop volumes returned to more regular levels in the mid to
late part of 2012 due to more settled weather conditions. This reflected in the revenue leap of 23% for Delica Australia. Citrus, asparagus and table grapes performed well whereas stone fruit was slightly down on 2011.
A key addition to the Delica Australian business in 2012 was the beginning of the import arm, Delica Domestic. This has been a successful venture with trading relationships established with all major Australian supermarket chains.

Fruitmark (trading name of ENZACOR Pty Ltd): Fruitmark’s contribution was disappointing in 2012 compared to the previous year. As the company focuses on importing high quality processed fruit products for the manufacturing and food service sectors and local supply of fresh cut vegetable products to the quick service restaurants, it was heavily impacted by the depressed conditions of the Australian food and fruit based beverage manufacturing market in 2012. 100% juice product consumption trended downward with consumers looking for alternatives based on water. Despite these poor market conditions and one-off restructuring requirements, the company continued to trade profitably. An area of growth for Fruitmark is sales of apple solids into the bakery, food service and infant markets. There are favourable prospects of expanding into complementary
stone fruit products from New Zealand. Additionally there are promising expectations for trading locally processed vegetables into the quick service restaurants. Profitability is expected to return to historically achieved levels in 2013.

Talley says they will be limited to the restaurant trade:
Frozen foods, cheese and fresh vegetables are among the goods affected, and cereals may also be on the hit list.

Talley's joint managing director Michael Talley says the company has been "delisted" from house brand tenders by supermarket giant Coles, to give preference to Australian suppliers, and Woolworths - that name again - was following a similar policy. This is a serious situation as it will have an impact on the company's farmers' contracts and jobs at New Zealand factories. Talley's are left with catering sales only in Australian institutions and restaurants. The reaction from this side of the Tasman has been swift. Prime Minister John Key says he will raise the issue of two major Australian supermarket chains running a Buy Australia campaign with Australian Prime Minister Tony Abbott in Sydney today. It was undetermined whether the campaign was a breach of the Closer Economics Relations (CER) trade pact, he said. Labour have come out and said it is.

It is suprising that T&G are still talking about their relationship with growers and of having kiwifruit as one of their "key fruits". The experience of the members of our society ( The Forgotten Growers or could that be " Turners forgets Growers" ) is that they do not care about growers. As far as we can tell they now have no kiwifruit growers other than their own plantings.

The new German owners were so keen to get approval to invest that they told the OIO that they would get into bed with Zespri ( now under investigation by the SFO). That meant they effectively had to surrender their intellectual property rights in their own PVR kiwifruit varieties. This is the same company that entered into Service Level Agreements with Zespri under which Zespri dictated the terms as to price , volume and market access to the detriment of it's kiwifruit growers and returns to its shareholders.

The TFG Society INc has been established to assist growers in contract negotiations and advice in dealing with T & G and other fruit exporters borne out of this unfortunate experience of being sacrifical lambs.

At least four key long-term factors underlie the increase in fruit and vegetable trade:
A growing middle class in emerging market countries has demonstrated a strong demand for product quality, variety, convenience, and the benefits of healthy and nutritious fruits and vegetables, further boosting trade in these products. Second, technological innovations, most notably in communication and transportation, have lowered the transaction costs of international trade, thus making imports more affordable. For example, retailer Ahold adopted Google Apps Premier Edition to provide a single Web-based communication system among its global employees that includes a messaging platform, calendar sharing, video capability, and automatic language translation. Third, the global consolidation of the grocery industry has encouraged increased coordination and integration of grower/shipper operations and improved supply chain efficiency, an enormous benefit for highly perishable products such as fruits and vegetables. Retail chains like Walmart and Carefour have opened hundreds of stores in developing country markets and source globally year round. Finally, barriers to horticultural trade have been reduced through the 1995 World Trade Organization (WTO) Agreement on Agriculture and a number of regional preferential trading arrangements. Within North America, NAFTA has helped create a liberalized trading environment and is a contributing factor in the large increase in fruit and vegetable trade among the United States, Canada, and Mexico. Since NAFTA was signed, the U.S. has concluded 12 additional preferential trade agreements with 17 countries, including the 3 recently implemented agreements with Korea, Colombia, and Panama. .

The Baywa acquisition of T&G and Direct Capital’s investment in Mr. Apple were generally seen as positive; more consolidation is expected:

- “The Baywa acquisition is good. They bring a lot of expertise and knowledge in pipfruit and that is a positive thing.” CEO, Industry stakeholder, Feb 2013
- “Baywaentering the market has been hugely positive, as it brings a genuine apple business to New Zealand.  I expect there to be more consolidation in the market and those guys to be focussing on IP.  The seeds of growth are there.” CEO, Sales and Marketing Company, Feb 2013
-“When the big guys get involved, you see much more plantings and exporting.  You get Direct Capital investing in the industry.  It’s a good sign that they see growth and potential in the sector. With the fragmented industry post‐deregulation, they obviously see the opportunity to consolidate it a bit more.  And see more sensible marketing in markets like Asia.” CEO, Grower/Shipper, Feb 2013
- “I think there is more than one apple company out there that would sign the cheque if they were approached by the big guys.  Some of these guys will start to merge.It makes sense.  Then if there is 50-60% of volume under one umbrella then we can get grunt in‐market and with promotions. Then it's cents per carton instead of dollars.” CEO, Grower/Shipper, Feb 2013
- “Aggregation is good. Mr Apple and Fernridgenow have more clout and it's easier to get scale in the market with a stronger position with price, position and supply.  it's good.  It shows there  is confidence to invest in a growing market.  it's worth spending 
money.  There is now a global network to support their business. 
Now there may be investmentin the land.” CEO, Industry 
representative, Jan 2013
- “There is no long term strategy by moving between exporters and 
packhouses and playing a trading game.  We need to deal with 
fewer people and work more in‐depth in‐markets and see what 
needs to happen to grow.  By merging and working together 
more we can gain scale
Apples aren’t big enough yet. We need 
to keep planting, consolidating, and focusing on key markets and 
really showing some strategic thinking, which hasn’t been 
happening.” CEO, Grower/Shipper, Feb 2013
- “With Maui investment into [Freshmax], we can again look to 
significant acquisitions in 2012 to further expand our business 
profile." David Smith said in a statement. Paul Chrystall, 
managing director of Maui, said the fruit and produce industry 
was undergoing significant change and growth in both Australia 
and New Zealand.” Idealog, Jan 2012 .