June 12, 2007        

 

Strong currency, difficult trading conditions hurt AFFCO's earnings

 

 

New Zealand meat processor AFFCO Holdings Limited has reported an operating deficit before interest and tax of NZ$15.9 million (US$11.96 million) for the first six months to March 31.

 

While the deficit indicates industry seasonality, it has been accentuated by the extremely difficult trading conditions this year, the company said.

 

A number of non-reoccurring factors have contributed to the lower result despite similar efficiencies reported by livestock numbers and plant operations from the same period last season.

 

AFFCO said that currency had a major effect on profit through reduced market returns resulting from the strong NZ dollar.

 

Processors have also been unable to pass on to farmers the full extent of lost revenue because of tight market conditions.

 

AFFCO chairman Sam Lewis and CEO, Stuart Weston said that the company has incurred significant repairs and maintenance expenditure for a six- month period as it continued its programme to upgrade all its sites.

 

Tight labour market and a lack of skilled workforce has also compounded by the additional costs of the recent changes to sick and holiday pay entitlements.

 

The beef market has been more stable in US Dollar terms but the strong NZ dollar has lowered returns to NZ exporters, the executives said.

 

During the year, the company continued to invest in its core assets with the acquisition of Malvern Meat Processors by South Pacific Meats (SPM) in the South Island, and processing improvements at the Wairoa plant. The company also said that the commissioning of substantial investments at Horotiu, Imlay and the Awarua plant of SPM has also involved substantial senior management time and resource in gaining the improvements that we need.

 

AFFCO Holdings now plans to invest in the dairy industry through the Dairy Trust Investment as it sees a strong potential of the milk industry with a number of synergies with AFFCO's core business.

 

Dairy Trust will operate as a stand alone entity with separate governance and management structures.

 

Both Weston and Lewis concluded that trading conditions are expected to remain difficult for the remainder of the season with lower livestock slaughter projected, and the anticipated continued strength of the NZ dollar.