Affco, Richmond warn of lower first-half profits

By Hugh Stringleman

Friday 1st March 2002

Badly in need of a circuit breaker of good news, Affco Holdings instead served up prudence and hope at this week's annual meeting.

Executive chairman Sam Lewis repeated the cost-control mantra emphasised by former chief executive Ross Townshend. Mr Lewis, however, has dispensed with frills such as Patagonian lamb exporting and Chilean beef market development while digging in for a long haul to profitability with the Chinese cattle processing joint venture.

"A significant programme of structural change," begun on Mr Townshend's hurried departure a few days after last year's AGM, still has some way to run and Mr Lewis will stay in his dual governance and management role for probably another six months.

The problem for Affco now, he explained, was that farmers were making too much money and were therefore content to hold back livestock to make use of unseasonal bounties of pasture and aim for higher slaughter weights.

The half-year result to March 31 will be below earlier expectations and the full-year prediction of $14 million profit contained in a November 2001 prospectus will require a charmed run in the second half.

Mr Lewis was not about to match rival Richmond's rather bold assertion this week of an "outstanding second half in prospect."

Farmers would need their stock killed in due course and the present high livestock schedule payments would come down, Mr Lewis cautiously ventured.

Affco's "problem" bears most heavily on the four major shareholders which recently backed a capital-raising programme. They are Peter Spencer's Toocooya Holdings, Talley's Fisheries, Green & McCahill and Dairy Meats NZ, which collectively account for 54% of the company's 270 million shares.

Many of the remaining shareholders are supplying farmers who are profiting hugely from the present export climate.

Maybe that was why they asked few questions and seemed contented and supportive of directors' and executives' efforts in Affco's prolonged struggle for profitability.

The potential for a circuit breaker lies with Talley's, which has bought shares on-market recently to expand its holding to 16.7%. Beyond vague comments about corporate restructuring and marketing co-operation, new director Michael Talley did not say much at the meeting.

Speaking to journalists after the meeting, Mr Lewis hinted that a big announcement might be forthcoming.

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