Richmond warns of profit shortfall

By LIAM DANN primary industries editor

Meat company Richmond has announced a major profit downgrade, saying it will fall significantly short of forecasts for the year to September 30.

The company had targeted a profit of $13 million for the year. It did not say how far short it expected to fall.

Chief executive Richard Carver said the high kiwi dollar and increased competition had made parts of the business unprofitable.

"In the first three or four months of trading, in sheep meats, we have lost a significant amount of money," he said. "The dollar looks like it is heading to 70USc and beyond. We are simply not competitive at those levels."

There was risk that the whole economy was headed for a big slowdown, he said.

The currency risk in the meat industry would be borne by farmers.

The problem for meat companies was that the dollar had risen much faster than losses could be passed on.

"It is very hard for meat companies to maintain margins," he said. "Currency has been going up every week."

Farmers knew that overseas markets were strong so they had high expectations, Carver said.

Increased competition caused by shortages of lambs and new processing capacity in the North Island had compounded the problem.

Late storms last spring meant lambing percentages were down. Southern meat company Alliance opened its first North Island plant in Dannevirke this season.

Additional processing capacity was also generated as traditional North Island groups, such as Affco and Richmond, made efficiency gains.

"The scramble for lambs at the start of the season was excessive," Carver said.

New season lamb prices were higher than the previous season when the currency alone meant they should have been 60c a kilogram lower, he said. The price paid was never backed up by market returns.

"To get it down to where we can make a margin has taken a long time. We are only just getting into that area now."

The bad news for the meat industry comes at a time when in most major markets exporters are getting historically high prices.

"Lamb has never been higher in the UK, never been higher in the USA. Beef prices in Asia are close to historical highs," Carver said. "Our overseas export markets are nearly fully priced."

With little upward movement left in international prices Richmond would look to find cost savings and efficiencies to boost margins, he said.

Though no redundancies were planned the company was looking closely at the need to replace staff who left.

* At rival meat company Affco's annual meeting in Hamilton yesterday, chairman Sam Lewis said the board was considering paying a dividend this year.

Affco has not paid a dividend for seven years.

The company, which celebrates 100 years in business this year, has undergone substantial restructuring, sold its Auckland offices and relocated its head office to its Horotiu plant near Hamilton.

Chief executive Tony Egan said the changes, implemented after last year's meeting, had worked.

But he also expressed concern over the rapid rise of the NZ dollar and the need for Affco to set its livestock schedule to continue to give the company a sustainable margin.