Affco red ink ends with big cost cuts

By LIBBY MIDDLEBROOK

Radical cost reductions have pulled one of the country's biggest meat processors out of the red.

North Island meat processor Affco New Zealand had after-tax profits of $6.5 million for the year ended September 30, against losses of $72.8 million the previous year.

Chief executive Ross Townshend said the company benefited from its cost improvements in the second two quarters, which boosted end-of-year after-tax profits to $6.5 million after losses of $4.8 million in the first two quarters.

"It's a very pleasing result. The result for the second six months was our cost reduction programme kicking in. If we hadn't done it we'd still be in the red," he said.

Cost reductions included centralising administration, laboratory and finance work, along with a dramatic decrease in shipping and roading costs. Reconfiguring Affco's road transport system brought savings of $3.5 million.

Affco achieved operating earnings before interest and tax of $13.4 million, against losses of $61.5 million in the 1997-98 year.

Earnings per share were 3.2c compared with minus 35.6c last year, while operating revenue was down 11 per cent to $837 million from last year's $945 million. The company will not pay a dividend.

Sales revenue was down 12 per cent to $827 million ($942 million).

Mr Townsend said prices for pelts and hides, and the United States' decision to put tariffs and quotas on sheepmeat imports, had affected profits.

"We were disappointed by the US deal and we've had some problems with pelts and hides, but we've seen pleasing demand from a wide range of markets."

He said demand had improved in Asia, Russia and Brazil, and prices for beef were expected to firm during the next nine months.

Affco was one of the only meat processors to improve its performance in the 1998-99 year.

The largest meat processor, Richmond, had operating profits before restructuring costs and tax of $5.9 million, 53 per cent lower than the previous year's $12.5 million.

South Island meat processor PPCS had pre-tax profits of $14.6 million, down 49 per cent.