Upheavals leave leaner operation

By PHILIPPA STEVENSON

Affco executive chairman Sam Lewis is reluctant to admit that he has occupied the big corner office on Affco House's 14th floor.

He doesn't want too much read into it. The move was purely practical.

But whether he likes it or not, there is as much symbolism in the room's reoccupation as there was in the way that he kept it empty for much of last year.

At the least, it shows that the farmer-cum-director has settled into the management role 12 months after the sudden exit of chief executive Ross Townshend pitched Affco into major upheaval.

When Mr Townshend left the pleasant office, with its superb views of downtown Auckland, 10 other high-paid executives followed hard on his heels.

Affco's annual report shows 73 employees earned $100,000 or more. By comparison its bigger rival, Richmond, had just 37 staff getting similar amounts. Mr Townshend worked just five months of the year and got $1.25 million, including redundancy, while Richmond chief executive John Loughlin put in a full year for around $570,000.

When Mr Lewis, the company's chairman, took over the Affco executive position, he emphasised a back-to-basics approach.

He said last October that the big office was to be left vacant "to make people think of getting on and doing the job for me".

Mr Lewis was paid $120,000 for that job last year, as well as $80,000 in director's fees.

Affco's annual meeting is on Wednesday. After a tumultuous year, the company and its new-look headquarters have that back-to-basics air.

The only executive appointment during the year was that of Tony Egan, who joined the company as chief operating officer in July.

Mr Lewis claimed that $9 million a year had been cut from head-office costs, most of it in salaries. Twenty of the 73 on $100,000-plus salaries no longer work for the company, according to the latest annual report. The next is expected to show the list pared to around 16.

Staff have been concentrated on fewer floors in the Swanson St building and paper signs pinned on walls identify which department huddles behind which room partition.

It's more like the purely functional offices of a provincial factory, and raises the question of how pared-back Affco's head office could become. And it's hard to say what central Auckland offers a company where the processing is carried out in eight sites from Northland to Manawatu, and the marketing done by telephone.

It's also hard to predict how long Mr Lewis, 57, will stay in the job. He lived out of a hotel room for eight months but now has an apartment in which to hang his business suits on the few weekends he returns to his Otorohanga farm.

But that move, too, could be simply more practical than significant. The company, he says in the annual report, has "deliberately turned down the volume" on its activities.

"We are determined to be a performance-led organisation, showcasing our successes rather than our aspirations."

He was as reticent as ever when the Business Herald queried his future as an executive.

The board had recently considered a new appointment - in his absence - "but at this point in time I'm still in the chair," he said.

He skirted the question of how long that would last, saying "this is a bit of a unique company and the meat industry is a bit different from other industries. The board sees that it is working at the moment and given their wishes, it's probably appropriate leadership at this point in time."

The management structure would be reviewed again next month, he said. He downplayed the company's year of upheaval, which also included the sale of meat marketing subsidiary Mathias Meats, the closure of its North American office, and the exit of Citibank from its banking syndicate. The constant change had been necessary.

It could prove significant for Affco's long-term outlook that in October, South Island food company Talley's became a major shareholder, injecting more than $6 million to lift its stake to 11.3 per cent. It has since raised its shareholding to 16.7 per cent, and brothers Michael and Andrew Talley are now on Affco's board.

Four major companies - Peter Spencer's Toocooya Nominees, Green and McCahill, Dairy Meats and Talley's - now own more than half of Affco. Farmer suppliers making up many of the other 12,000 shareholders.

Mr Lewis said it was too early to assess the impact of Talley's contribution.

But there were many possibilities for the two companies in logistics, other systems and in moves towards being a multi-product business, he said.

"I'm certain their shareholding will be good for the company. It's positive but it will take some time to develop the opportunities."

He says in the annual report that the company remains committed to year-round supply to its overseas business, but the emphasis had changed to strengthening its domestic base.

But both arms of the strategy have taken knocks.

The flagship of Affco's international operations is the $24 million WuLiangYe Affco Golden Ox plant in Chengdu, China. It has the capacity to process 200 head of beef a shift, or 100,000 cattle a year, as well as 40,000 goats annually.

But lack of stock has closed it for extended periods, and Affco, whose 30 per cent ownership of the plant came mostly from an investment of staff time and the supply of equipment made redundant from sites here, has written off $2.8 million on the asset, and $567,000 in unrealisable costs.

Mr Lewis said the plant had operated for about a month processing cattle for the recent Chinese New Year but it was not expected to operate again until April. There were some hopeful signs, though.

"There are some cattle starting to appear over there and if we kill what's anticipated it will be between twice and seven times what we've killed in one year."

Stock have also been slow coming off farms to keep Affco's giant works humming here.

Economic Service director Rob Davison said rain throughout the country meant lambs were not finishing well and so were slow to head to the works, while farmers with a plentiful supply of cattle feed were holding back beef stock to put more weight on them. The kill for both was around 12 per cent below the same period last year.

Meat companies were under pressure from lack of stock, and when the build-up of animals was released they would be under a different pressure from the higher costs of holding large volumes of frozen product, Mr Davison said.

It also raised marketing issues. "They can't put a later season product all on the market at once," he said.

Mr Lewis acknowledged the stock problems but declined to comment on whether Affco was still on target for the forecast net profit of $14.1 million for the year to September.

The figure would be a significant improvement on last year, when Affco was just $574,000 in the black at a time when the other three other major meat companies reported record profits.

But its annual report also suggests that the nearly century-old company had put itself on a stronger financial footing than North Island rival Richmond.

Mr Lewis summed up the achievement in trademark economical terms. "Another year in the meat industry. One year older. A lot more experience behind me and the company. It just shows you can never stop learning."