Richmond powers ahead of its rivals

Hugh Stringleman, Agribusiness writer

Friday 9th November 2001

The country's largest meat company, Richmond, boosted net profit 77% while sprinting away from its rivals on turnover.

In the year to September 30, Richmond achieved a net profit of $20.7 million on revenue of $1.425 billion, which was $296 million or 26% above the previous year.

The result covers an eventful year in which the company listed on the Stock Exchange and raised $50 million by way of capital notes (in February), included a full year of lamb supply from the merged Waitotara meat company and finally had to accept a major shareholding by South Island meat co-operative PPCS.

PPCS paid $3.60 a share in the first stage of a progressive purchase of a controlling share in Richmond from Active Equities, having been repulsed twice previously.

However, Richmond's full-year dividend of 10c a share will not be considered adequate by either PPCS nor Richmond's own directors and managers. The board's dividend policy is to achieve 30-40% of "normalised" annual earnings but this year it will release only 20%.

Chief executive John Loughlin is on record deploring the low profit margins in the meat industry and last year he managed to achieve 1.9c (ebit) in the dollar of revenue. He wants three times that level and believes the company's share price could rise to $4.

The greatest achievement of his four-and-a-half years as chief executive, he said, was raising value for shareholders in the previously troubled meat industry, something that dogged PPCS chief Stewart Barnett will encourage. PPCS recently declared a doubled surplus of $36 million on $1 billion turnover.

It used to be said in the meat industry that either farmers made money or the companies, but the extraordinary 2000-01 season achieved profits for both.

Alliance Group has yet to declare but surely will improve on last year's $17.1 million of net profit on $920 million turnover. Troubled Affco has signalled a similar result to last year's $15 million profit, also on $1 billion turnover.

New Affco cornerstone shareholder Talleys has lifted its stake from 11% to 16.7% by spending $3.5 million on 12 million shares, at 29c a share.

Mr Loughlin has also tried to put last season's prices for livestock in perspective for any over-enthusiastic farmers.

At the Hawke's Bay Show, before Labour Weekend, he warned that short supplies of prime lambs and killable deer in the winter may have damaged valuable year-round business (with European supermarkets) which underpins returns for 12 months. Farmers were only able to produce perhaps 50% of market demand for weeks on end, he said.

Meat exporters scrambled for livestock and pushed the
farmgate price of lambs above $100, and venison prices above $10/kg carcaseweight. At least 10% of these values came from companies' capital and not the market, he said.

While it was great to see sheep, beef and deer farmers doing well, Mr Loughlin said, they should not get carried away with peak prices. The 2000/2001 season average of $73.30 for lambs was more than $20 above the average from the previous season and the whole industry would need to co-operate to ensure a repeat performance this season.

Nonetheless, prospects were good that a repeat could be achieved, he said. He predicted a prime beef average remaining around $3.80/kg carcaseweight and lambs values steady, although less would be contributed by pelt returns.

Richmond's share price has risen steadily over the past two years, from $1.40 as an unlisted company before southern aggressor PPCS made its second attempt at a takeover, to $2.75 earlier this week.

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