Affco's slash and earn policy cuts deep

By PHILIPPA STEVENSON

Like a steak with the Heart Foundation tick, meat company Affco looks trimmed of all visible fat after moving its head office from a central Auckland high-rise to decidedly downmarket rural Horotiu.

The shift over the summer break into the former site office of Affco's Waikato processing plant after nearly 100 years in Auckland is the final slash of the knife taken to company costs over the past two years.

Head office staff numbers had been cut by about half to 65 in the process, but few of them were willing to swap harbour views for green fields, and 40 new staff are among those shoehorning themselves into the no-frills offices beside State Highway 1 north of Hamilton.

Chief executive Tony Egan said many of the newcomers had meat industry experience, albeit not of the avalanche of product Affco handles compared with their former employers such as smaller Waikato companies Wallford Meats and his old company, Greenlea Premier Meats.

The office shift at the height of the industry season had gone better than expected because meat volumes were lighter in the weeks of Christmas and New Year, but was still a nightmare, he said.

When the Business Herald visited the office this week, order looked to have just prevailed over chaos. Computer equipment was still piled in corners and paintings stacked against walls.

Affco expects to save $1 million a year by the move but only if it sub-leases its eight floors in the 14-storey Affco House in Swanson St, Auckland, to which it is tied for eight more years.

Bayley's agent Nigel McNeill, who has marketed the property, said it would have been leased quickly to a language school but the building owners did not want what they regarded as a second-rate tenant.

Records show the $10.6 million building is owned by Customhouse Building, whose directors are four Singaporeans.

Egan said yesterday that Affco had sought a judicial declaration that a language school was a commercial tenant in accord with the terms of its lease.

A New Zealand-owned language school was prepared to lease all eight floors if the ruling, expected this week, went Affco's way, he said.

Another agent said that when Affco announced its shift last year, English language schools were the biggest users of buildings of similar vintage, but they were not popular with other tenants. Students were hard on facilities such as lifts and their waiting around for classes was not welcomed.

In another sign of the "back to basics" approach fronted by chairman Sam Lewis, Affco has changed the longtime venue of its annual meeting - this year on January 30 - from Ellerslie Racecourse to a Hamilton hotel.

Lewis says in the annual report that the "old Affco" has been taken apart "and today we have a new Affco, with a new management team, new financial structures and a stable shareholder base".

The report records 57 employees earning more than $100,000, with a top payment of $520,000, compared with 73 last year and a top of $1.2 million.

Thirty-one of the 57 no longer work for the company and 28 of them received severance payments.

The company compulsorily acquired small shareholdings of fewer than a thousand shares last year, as well as having a one-for-one rights issue that raised $27 million. The result is a share register cut from 12,375 shareholders with 225 million shares to 6567 with 541.5 million shares.

Four shareholders now have more than 60 per cent of the company: Talley's Fisheries holds 26.3 per cent; Peter Spencer of Toocooya Nominees, who joined the board in November, has 20.8 per cent; Hugh Green investment has 9.9 per cent; and GAM International Growth Fund holds 6.6 per cent.

In the plain annual report devoid of colour and just 44 pages long - 20 fewer than last year - Lewis says the office relocation is a watershed for a company that has decided to position itself for the future in rural New Zealand.

Affco had an after-tax loss of $12.3 million, including non-recurring restructuring costs of $2.8 million, for the year to September on revenue down more than $210,000 to $991.9 million.

Lewis says that after a drawn-out period, the company is looking to the future with confidence. But the expected entry of South Island companies into the North Island marketplace demands that Affco remain flexible and responsive.

Yesterday Egan said the long takeover battle for Hawkes Bay rival Richmond by South Islander PPCS had "given Affco the opportunity to focus on itself and get its assets working".

An expected livestock procurement clash this season is widely predicted to topple at least one North Island meat company but Egan said prices paid for stock so far reflected the rising exchange rate, which does not favour meat exporters.