Affco result gets mixed response

BY PHILIPPA STEVENSON agricultural editor

Meat company Affco's second consecutive full-year profit signals a sustained return to profitability, says chairman Sam Lewis.

Market analysts agreed on the improved outlook for the company but said that yesterday's result was disappointing. The company's share price dropped 6c from the previous day's 48c after the announcement.

Affco reported an after-tax profit of $15.1 million, up $8.6 million on its previous year's result of $6.5 million.

The result was $7.7 million up on half-year earnings of $7.4 million and came against a fall off in stock numbers available for processing, it said.

Mr Lewis said the result was "a sure sign that Affco has turned the corner and is now heading for sustainable profits and continued growth through the company's internationalisation programme focused on demand-led planning."

Affco had a $2.5 million operating loss and $70.3 million provision for restructuring in the 1997-98 financial year.

This year's result came off operating revenues of $993.3 million, $156.4 million ahead of last year.

Mr Lewis said that in the past two years, the company had reduced annual costs by more than $45 million, strengthened processing capability and reshaped stock procurement.

But again no dividend would be declared, although the board would review that nearer the annual meeting in February after trading conditions for the initial months of the new season were known, he said.

Analyst John Cairns of Caville White said the result was disappointing given the company's first half- year operating profit of $11.9 million. In the second half, operating profit was just $6.6 million when the market had expected at least double that.

Stock procurement problems had had an impact on the company, as they had to a lesser degree on rival Richmond. Both companies had implemented extensive cost and productivity policies but Richmond's were more advanced.

Mr Cairns said the market had expected a trading profit of around $18 million but the $15.1 million result included a non-trading item of $4.5 million.

"The composition of the result was not particularly high, but taking that into account, the outlook for the company, and the industry, is still reasonable."

Affco's earnings before interest and tax were $23.2 million ($13.1 million in the previous year) and $12.8 million ($4.5 million) after interest costs. Return on average equity rose 7.5 per cent to 14.4 per cent, with total equity increasing by $16.8 million to $113.9 million.

The company achieved a slight reduction in its debt to total assets at 25.8 per cent compared to 26.4 per cent in the previous year.

Earnings per share increased from 3.19c to 7.41c.