Affco dividend hangs on vets' strike

By PHILIPPA STEVENSON agricultural editor

The prospect of Affco shareholders receiving their first dividend in three years hinges on how quickly an end is brought to the strike now closing most of the company's plants.

Yesterday, at the company's annual meeting in Auckland, Affco chairman Sam Lewis hailed the group's improved profitability but said it had not translated into returns to investors.

Low stock numbers in the second half of last year had affected Affco's earning ability, preventing it from declaring an annual dividend, but the board was "constructively considering" an interim one.

However, the strike by Ministry of Agriculture and Forestry veterinarians, which began last Friday and could run at least until March 6, could prevent an interim payment.

Mr Lewis defended a charge by investment analyst Brian Gaynor that the business' low margins, and very low level of positive cashflow, would restrain the company's ability to support a dividend.

Mr Gaynor said Affco had generated only $800,000 in positive cashflow in the past two years.

After the meeting, chief executive Ross Townshend said the strike had the potential to erode "a sizeable slug" of the company's half-year result.

Significant throughput was being lost but the full cost was difficult to quantify at this point. The effects on the European chilled lamb market, especially in the high-value French trade, were harder to calculate.

"We are likely to be very short of supply to French lamb markets, in particular," Mr Townshend said. "This year happens to be the first for a hell of a long time when prices for Easter are higher than at Christmas, and our supply is limited by this action."

The company also feared the impact that the reduction of supply would have on its customers.

"It's pretty unacceptable as far as they are concerned, and they are not concerned whether it's MAF's fault or the vets' fault. It's Affco's fault."

He told the meeting that Affco's future lay in its international plans.

"It is the way to overcome the limitations on our current business, and the limited growth opportunities we have here in New Zealand," he said.

Demand exceeded New Zealand farmers' ability to supply, and major customers wanted to deal with fewer suppliers, year-round.

The company was sourcing product from other countries, including Australia and Argentina, and it expected that strategy to start delivering this year.

He said the new Affco trading office in London was profitable in its first month and the office in Buenos Aires would be profitable within a month or two. He expected China would contribute in the current year.

This strategy went down well with shareholder and former Federated Farmers president Brian Chamberlin, now resident in Australia, who had attended to complain about the lack of dividends.

"But having heard the explanation regarding the international investment," he said, " I'm probably prepared to wait another year."