Affco applies first aid as analysts pick over bones

By PHILIPPA STEVENSON agricultural editor

Troubled meat company Affco has begun to staunch the flow from its haemorrhaging management team.

Yesterday, the company said it had made two internal appointments.

Manufacturing services manager Brian Cuff is to be operations manager and international key accounts manager Murray Roberts will head sales and marketing.

The reassignments follow the abrupt departure of chief executive Ross Townshend, days after an upbeat annual meeting in February. He is being followed by marketing manager Tony Johnston, operations manager David Hall, and development manager Peter Wethey.

Former finance manager Graham List, consulting to the company since retiring in November, also left in February.

Executive chairman Sam Lewis said yesterday that his board had unanimously endorsed a review, targeting head office and operational costs.

The planned $25 million rebuild of the Imlay plant at Wanganui was not part of the review, he said.

Mr Lewis is winning praise from industry commentators for handling the tottering company's latest crisis, but some have questioned the role of all the directors in its plight.

"Everyone's pointing the finger at Townshend, and that's probably appropriate, but no one has asked why has this been allowed to happen," one observer said.

"Why was it not picked up earlier? If the board has taken action now, why did it let it go so long?"

Affco's board needed to be challenged on the rundown state of some of its six plants, and for allowing a culture of extravagance in the company, he said.

Last year, when market conditions and the exchange rate suggested the company should have made up to $30 million, it lost nearly $5 million, once asset sales and other one-off contributions were removed from results.

The internationalisation programme had been expensive, and plant operations had lost focus on basic yields and cost structures.

Affco also needed urgent capital input. Imlay was badly run down and Horotiu, near Hamilton, was a big old plant with low throughput.

It appeared that major shareholder Peter Spencer, with a near 20 per cent holding in Affco, had good reason to be "stirring it up," a source said.

Mr Townshend, who joined Affco two years ago, is criticised for assuming that the meat industry had the same drivers as the dairy industry from which he hailed.

The dairy industry had a captive supply base and Machine-driven processing, which allowed for economies of scale. But in the meat industry small companies could do well because the costs of the greater throughput in bigger plants could outweigh benefits.

The necessity of the amount of restructuring has been questioned, as have the results of centralising management.

"The centralisation process, which was a dairy industry model, took a lot of autonomy away from the site managers. You can understand why they did it but a company has to develop management skill, and to do that you've got to allow people to make decisions, make mistakes and learn from them."

It has been suggested Affco has lost direction.

"Richmond has competency in both lamb and beef. Affco is still doing beef the way it has been done for 20 years. It's in a time warp."

He believed Mr Lewis was right to break down costly structures and for going "back to basics and getting plant managers to be accountable."

But the company's biggest problem was it had not been open about its plans and was now being penalised by the sharemarket. Affco's share price closed at 31c, down from 42c in February.

Mr Lewis was trying to re-establish funding lines in a hostile environment.

Amalgamation between Richmond and Affco, said to be favoured by Mr Spencer, appeared logical but was unlikely to be sanctioned by the Commerce Commission.

More benefits might come from a merger with Anzco Foods, which Affco already partners in the NZ Lamb Company in North America, and NZ Beef Japan.

Anzco managing director Graham Harrison said there had been no discussions between the companies.

He said Affco had a tough task ahead. "Sam Lewis is making all the right noises, that's all I can say."