Affco profit gets a right hammering

A high dollar, lower international prices and tough competition with rivals drove meat processor Affco's profits down 75 per cent in the six months to March.

Affco, the subject of a 39c-a-share takeover offer from fishing company Talleys, yesterday reported a net surplus of $3.6 million for the period compared with $14.4 million a year earlier.

Total operating revenue dropped 11.7 per cent from about $475 million to $420 million.

Chief executive Tony Egan noted the profit fall was a "big dip" but said last year's interim result was particularly good, stronger even than the year before when a record annual profit of $58 million had been made on the back of a record beef kill.

Affco said the second half was likely to be better than the first six months but the "disappointing" first half would make it difficult to equal last year's annual profit of $21.1 million.

"Competition will continue to be intense in the next six months and the company remains focused on improving returns on what has been a tough season to date," Affco said.

The results were brought forward to help Affco shareholders decide whether to accept Talleys' offer, which is aimed at securing 50.01 per cent of Affco. As of Monday, acceptances meant Talleys was just above the 47 per cent mark.

Talleys' director Andrew Talley said yesterday the figures would encourage Affco shareholders to sell and bore out his company's comments about the difficulties faced by Affco.

Egan said low global prices for lamb and by-products had hit Affco's sales.

Wetter conditions over summer meant farmers kept stock on the land longer, exacerbating competition for stock among meat companies.

Also, dairy farmers had kept older cows from the works longer to maximise milk returns. Egan said Fonterra's lower forecast payout this season contributed to this trend.

But the fact the beef kill was running later would help second-half results. "As grass [growth] slows for the winter, they will send their old cows in."

Egan said the fall in the dollar would help but noted that it had started to rise again to around US63c. "Our preference is for a dollar closer to US60c than US63c."

Restructuring at Affco's Horotiu and Imlay plants was expected to provide a more profitable future.

Talks with the Meat Workers Union over an expired collective contract clouded the industrial relations outlook, the company said. Egan could not disclose details of the talks and said it was too soon to tell whether industrial action was likely.

Affco shares lost a cent yesterday to finish at 40c.