KEY POINTS:
First-half results at listed meat exporter Affco have suffered due to a drop in lamb prices and the strong dollar, with difficult conditions expected to continue.
The Hamilton-based company yesterday reported a loss of $18.4 million for the six months ended March 31, compared with a profit of
$3.6 million the previous year.
The loss came on the back of a rise in revenue from $420 million to $499.3 million.
Chairman Sam Lewis said the deficit in part reflected the seasonality of the industry - with most profit made in the second half of the financial year - but had also been accentuated by difficult trading conditions.
"The underlying result is probably only two or three million light of what we did last year at the half year," Lewis said.
Lamb markets had been challenging with pressure on prices and difficulty in selling a full range of products, while returns from a beef market that was more stable in US dollar terms had been cut by the strong kiwi dollar.
The company was completing a three-week market review "and they're certainly not reporting that things are getting any easier", Lewis said.
Difficult trading conditions were expected to continue for the rest of the season with lower forecasted livestock kills.
The east coast, which was a major source of lambs processed in the North Island, continued to endure a drought.
"Talking to farmers last night there's still no signs of rain or an easing in the conditions there."
"I'll be looking forward next year to not very good lambing percentages on the east coast."
The strong kiwi had hit market returns with processors unable to pass on all the lost revenue to farmers due to tight market conditions.
The cost of recent changes to sick and holiday pay entitlements had also compounded a tight labour market.
"We'd like to think that most of our costs are under control. It's just very difficult," Lewis said.
Repair and maintenance costs had affected the half-year result.
"We're restraining all non-essential expenditure but I think it's a cyclical industry in which sometimes you've got to grin and bear it."
Investment in core assets had continued with the acquisition of Malvern Meat Processors by South Pacific Meats and improvements at the Wairoa plant, the company said.
Lewis did not rule out making further acquisitions. Affco planned to invest in the dairy industry through the Dairy Trust Investment.
Despite the currently difficult conditions Lewis was confident about the longer- term outlook.
"I think New Zealand's still in a pretty good position as far as the products we produce being required in the world market," Lewis said. "Things will get better."
Affco's share price closed down 1c yesterday at 43c.
