Big turnaround for Affco

By PHILIPPA STEVENSON and NZPA

Meat company Affco achieved a second six months in the black, posting a $7.4 million interim profit, after tax, for the March half-year.

Chairman Sam Lewis said the profit, following on from the $6.5 million annual surplus for the year ending September, showed real progress towards a goal of sustainable returns for shareholders.

The half-year result represented a turnaround of $12.2 million on the same period last year when Affco recorded a $4.84 million deficit.

Affco's result follows a similar effort by its bigger North Island rival, Richmond, which last week reported after-tax profit of $9.8 million for the same six months, compared with a $2.3 million loss in the same period last year.

Affco chief executive Ross Townshend said Richmond was not a motivating factor for his company.

"We're not in a game. This is about getting Affco right. We are not interested in getting into some one upmanship," he said.

The turnaround was "mostly from the company's restructuring and a first significant wave of savings."

Mr Townshend said more savings were expected from existing projects, but the profit reflected other factors and a good end-of-year result was likely.

"Some part of it was cutting the costs but we have made some big steps in value-added [product] this year, and with the proportion of the product that is chilled rather than frozen."

He warned that though the second half of the year was historically more profitable, Affco faced a number of uncertainties, particularly the trading range of the New Zealand dollar.

He cautioned that predictions valuing the kiwi dollar as high as US59c later in the year could have an impact on an otherwise confident outlook for the full-year result.

Livestock supply would also be tight, although the company was partly insulated from this by its system of futures contracts for livestock supply and by "prudent provisioning."

The company was making notable gains in its market share for beef, but warned farmers it would not drop profit margins - by paying disproportionate procurement costs for animals - to chase market share.

"We will continue to pay prices that our overseas markets can support," Mr Townshend said.

The result showed little effect from the company's internationalisation drive, which included opening an Affco office in Buenos Aires to boost the company's presence in South America, and opening a joint venture meatworks in China.

"The real internationalisation benefits, such as the China project, are still to flow, and they will be in the next financial year."

Sales revenue lifted 21 per cent to $452.51 million compared with $373.25 million in the same period last year.

The operating surplus, before tax, rose to $6.55 million compared with a deficit of $5.86 million.

Affco's earnings per share were 3.62c as against a loss of 2.36c a share in the same period last year.

The company warned shareholders in February that it would not be paying a half-year dividend.

The company's accounts, provided to the stock exchange, showed assets of $208.3 million compared with $169.05 million in March 1999, and $100.54 million last September.

The main increase was in its inventories with $107.84 million compared with $78.65 million last March. Cash was down to $1.18 million compared with $5.41 million in September and $5.80 million last March.

Non-current assets were similar over the year with $125.24 million listed for March.Net assets were $104.53 million compared with $86.26 million last March.