Blood on floor at Affco's HQ

By PHILIPPA STEVENSON

Affco's central Auckland headquarters resembles one of its slaughter houses. The floor is slick with the blood of axed executives.

Since the shock culling of chief executive Ross Townshend last month, three other key managers have also swung from the hooks.

Tony Johnston finishes up as marketing manager today and will leave the company in May after doing some troubleshooting in Affco's international operation.

The international role was to be Mr Townshend's until the end of April, but it is hard to keep a foothold on the slippery floors of Affco House right now.

Mr Townshend left the Swanson St offices permanently within two days of the company announcing his departure on February 26 - just five days after an upbeat annual meeting.

Operations manager David Hall will also leave in June, along with business development manager Peter Wethey.

Chairman Sam Lewis has been acting chief executive since Mr Townshend's exit. His slimmed-down management team consists of finance manager Andrew Titter, who joined the company only last November, human resources manager Wayne Annan, who has been with the firm four years, and livestock manager Athol Murray, a 24-year Affco veteran.

The company is said to have changed public relations companies, switching from Baldwin Boyle to PR veteran Malcolm Boyle, who is no longer with the firm bearing his name.

Mr Lewis has made virtually no public comment since the bloodletting began, and has ordered his staff to maintain a media blackout.

Mr Townshend, tied by a confidentiality agreement with the company, is also not speaking.

It is understood, however, that Affco's about-face on the executives it only recently rated so highly will extend to reconsideration of a $25 million redevelopment of its Imlay plant at Wanganui, and some withdrawal from the internationalisation programme established by Mr Townshend and endorsed by shareholders at the annual meeting.

Mr Murray is no longer moving to Melbourne to head the firm's new joint venture company, Meat Marketing Australia, as shareholders were told five weeks ago.

Expansion plans in Argentina are in doubt, along with the joint venture meatworks in China with a Chinese Government-owned alcohol manufacturer, Wu Liang Ye.

In the void left by Affco's silence, speculation about the company's long-term viability is running rampant within the industry and in the sharemarket. Affco's share price closed yesterday at 33c, down from 42c in February.

It has been suggested the top executives were axed as a cost-cutting measure. Mr Townshend was on a salary of $870,000, well above the $300,000 estimated salary of his counterpart, John Loughlin, at higher-performing rival Richmond.

Mr Johnston and Mr Hall - both regarded as talented and with sound performances in other companies - joined Affco only two years ago.

They are thought to have received a package of around $300,000.

The Business Herald has learned that the salaries of all three were reviewed in December by an Affco board remuneration committee on which Mr Lewis serves. They all received rises, with Mr Johnston's performance being rewarded with the biggest lift.

The company had also intended sending Mr Johnston to Harvard University for further management training, said to be an investment worth about $200,000.

Mr Wethey is a long-serving Affco staffer who masterminded the company's $6 million investment in a plant in Chengdu, in China's Sichuan province.

It is understood he is leaving after a stand-off with Mr Lewis over the worth of the deal which, like most foreign investments in China, is acknowledged as risky but likely ultimately to pay big dividends.

Under Mr Townshend, who was lured from New Zealand Dairy Group to head an ailing Affco in 1998, the company cut $50 million worth of costs, and reduced excess processing capacity in a $70 million restructuring.

Although it came back from a $72.8 million loss in 1998 to post two years of profit, the modest results have been disappointing.

Analyst Brian Gaynor noted that Affco's EBIT (earnings before interest and tax) was $23 million in 2000, well below 1995 and 1996 levels. The margin between EBIT and revenue of $993 million was a remarkably low 2.3 per cent, compared to 4 per cent for industry top performer Alliance, in the South Island.

Nor does Affco's future look more promising. The company had another poor start to the financial year as farmers, who had one of their best seasons last year, were able to hold out for high stock prices.

Procurement costs are any meat company's Achilles' heel because they must be financed by short-term borrowings.

Affco's bank overdraft rose to $7.9 million in the year to December, from $1.2 million the previous year. Interest expenses rose from $8.5 million to $10.3 million.

Affco has a syndicate of bankers made up of the BNZ, Citibank, HSBC and Rabobank. It is understood at least one bank has been dissatisfied with the firm's progress and wants to withdraw at the first opportunity.

But some commentators say a revolving door for financiers is not unusual in the meat industry and that Affco's ructions are more to do with its own boardroom than the banks.

Some speculate, not for the first time, that major Affco shareholder Peter Spencer is bent on achieving a long-held dream of amalgamating the company with Richmond, in which he is also a significant investor.

Mr Spencer's Toocooya Nominees holds nearly 20 per cent of Affco and 10 per cent of Richmond.

Mr Spencer, New Zealand's richest private farmer who spends half the year in Britain, was reportedly involved in the failed attempt by South Island company PPCS to take over Richmond before it listed on the stock exchange this year.

Insiders said that Mr Spencer was unhappy with Mr Lewis as chairman, a position he gained in 1999 after ousting the long-serving Peter Jackson.

Mr Lewis, an Otorohanga farmer, succeeded his father, David Lewis, to the board in 1990. David Lewis was also chairman of Affco.

Sam Lewis is deputy chairman of Farmers Mutual Group whose $65 million investment in Affco in 1998 saved the company's bacon after its huge loss that year.

It has been suggested that Mr Lewis only barely survived the election for chairman the day after this year's annual meeting and his survival sealed Mr Townshend's fate. Mr Spencer's plans meant one had to go, says an insider.

Mr Townshend provided the means when he told the NZ Farmer journal that Affco had taken full ownership of New Zealand Beef Japan, a company it jointly owns with Anzco Foods.

The deal is said to have been on and off for weeks, and was to have been announced at the annual meeting. It was postponed by a last-minute hitch but by that time Mr Townshend had already talked.

Commentators did not believe the slip was a "hanging offence" and saw it as the excuse rather than the reason for Mr Townshend's fall.

The ensuing weeks of long knives among management staff has gutted the company, making it ripe for takeover.

Cavill White analyst John Cairns said something was obviously wrong at Affco and it was unfortunate the company had not made a frank statement about the issues it faced and the plan it had for dealing with them.

"In the absence of a statement there is increased insecurity."

Mr Cairns agreed a low share price made the firm a takeover target. "But it is a very difficult industry. Would anyone want it?"