Gaynor: Affco on strong footing after departing CEO's big payday

By BRIAN GAYNOR

Affco is the place to work in the meat industry if you want to earn big bucks.

The recently released annual report shows that 73 employees were paid $100,000 or more whereas Richmond paid only 37 staff members the same amount.

Yet Richmond had turnover of $1.4 billion and a net profit of $20.7 million whereas Affco had total revenue of $1.2 billion and a net surplus of just $600,000.

Ross Townshend, Affco's former chief executive, received five-star treatment from the company. He worked just five months last year and was paid $1.25 million, including redundancy payments. In contrast, John Loughlin, Richmond's chief executive, worked a full year and earned less than half this amount.

There has been a dramatic turnaround in Affco's performance since Mr Townshend's departure. In the year ended September, Affco had positive operating cash flow of $23 million whereas Richmond had a deficit of $29 million.

Affco year-end stocks and debtors have fallen from $109 million in September last year to $88 million whereas Richmond has experienced a blowout from $152 million to $208 million over the same period. Richmond has had to rely on capital notes to fund its huge increase in stocks and debtors whereas Affco now has a stronger balance sheet.

Stocks and debtors are often a good indication of the short-term outlook of meat companies. On this basis Affco has entered the current year on a stronger footing than Richmond.

The Warehouse Any doubts that Greg Muir would not be able to fill Stephen Tindall's shoes at The Warehouse were dispelled at Friday's annual meeting.

The new chief executive is now fully in control and he spoke with considerable authority. This is great news for shareholders because it is always difficult to find a quality replacement for a charismatic and dominant founder.

Mr Muir is particularly optimistic about Australia. These operations, acquired in August last year, produced an operating loss of $1.5 million for the July year but the average spend per customer has increased from $A10.70 in old stores to $14.73 and sometimes more than $A18 in new-format stores.

This is an extremely positive development and the group is still on track to produce material positive returns from across the Tasman by August 2003.

Mr Muir has a huge incentive to ensure that The Warehouse Australia produces the expected results as his stewardship of the group will sink or swim on results from across the Tasman.

Bendon The proposed acquisition of Bendon is a clever way around the Takeovers Code.

A consortium headed by managing director Hugo Venter has agreed to buy the group's operating activities for $38.5 million. Bendon will then be liquidated and the directors believe that this, together with approximately $17.5 million of cash remaining from the sale of New Zealand China Clays, will result in a total of $56 million being returned to shareholders.

This works out at $1.81 a share compared with a sharemarket price of $1.83 before the deal was announced.

Bendon's shareholders must approve the sale but this process will allow Mr Venter's consortium to gain full control with a 75 per cent approval compared with 90 per cent required for compulsory acquisition under the Takeovers Code.

The outcome of the deal will be dependent on AMP (25.9 per cent shareholder), Tower (14.5 per cent) and the independent appraisal report. AMP and Tower are not making any comment at this stage.

The appraisal report, which must be prepared before the February shareholders' meeting, could be contentious because independent valuations are usually based on management forecasts and Bendon's managing director is fronting the offer.

Brierley Investments Greg Terry, Brierley Investments' chief executive, emailed the following comments from Singapore in response to last week's column.

"It would be interesting if one day a New Zealand journalist would make the point that the investments that destroyed billions of shareholder value at BIL [Asia Power, real estate in China etc, etc] were made by New Zealand managers and a New Zealand- controlled board.

"The current board is seeking to do the best it can with the cards it has been dealt, in the best interests of all shareholders, and its principal new initiative [necessarily limited in size by available financial resources], Fraser & Neave Holdings, is substantially in the money and has outperformed every stock in Singapore.

"The cards dealt turned out to be somewhat different than I anticipated on arrival [having been told the problems had largely been resolved] and external events - from record high fuel prices, Fijian coups and foot and mouth to a US downturn - have not exactly been kind. Rumours of our death are however greatly exaggerated, and whilst the glory days may be over we hope to add value from here."

That sums up the situation well.

* bgaynor@xtra.co.nz