PPCS tips $7m loss in 'difficult' first half

The country's biggest meat processor is warning of an "unsatisfactory" $7.4 million loss for the half-year to February 2006.

PPCS, an Otago-based farmer-owned co-operative with about $2 billion annual turnover, said yesterday that the warning came on the back of weaker international lamb prices and rising costs.

The provisional half-year result comes soon after a profit alert from rival Affco several weeks ago. Hamilton-based Affco cited lower prices, currency concerns and the weather.

PPCS said the first six months of the financial year were traditionally the lowest months for profitability.

"This year to date has been more difficult than most due to a culmination of factors, including currency, cost increases within New Zealand and weakness in the marketplace," it said.

Chief operating officer Keith Cooper said the projected $7.4 million loss followed a not-directly comparable profit of about $19 million for the same period last year. More details on the half-year performance were due to be released at the end of the month.

Annual net profit for the year to August 2005 was about $21 million.

PPCS said it was projecting a net profit this year also, given the resumption of traditional stock flows, resultant plant efficiencies and correctly reflected market returns.

However, Cooper was uncertain whether the annual profit figure would be close to last year's.

The cost pressures faced by PPCS included energy and wages.

"Most of the inputs into our costs of production have all been on the up and up."

International consumer resistance to paying higher prices for lamb was another problem.

Cooper said September through to October had been "very difficult" for PPCS. Since then, PPCS had acted to ensure its buying prices reflected international prices and it hoped the weaker dollar would also help the company.

PPCS told the exchange that, based on the provisional result, it would miss earnings-to-interest costs measurements for its bonds. The company said it was still operating comfortably within normal funding lines and the balance sheet remained "sound".

PPCS said it was responsible for 37 per cent of sheep meat exports, 35 per cent of beef exports and 60 per cent of venison exports. It has 10,000 farmer suppliers, 24 processing plants and employs about 9000 in the peak of the processing season.

Affco chief executive Tony Egan said that since his company was listed he could not comment in detail about the implications of Affco's and PPCS' situations for the meat industry.

"It think it's further evidence of a tough first half for the meat industry."

Affco is due to report its first half results next month.