Sheepmeat volatility affects Alliance annual results

Alliance GroupAlliance Group has reported a pre-tax profit of $7.9 million on the back of challenging sheepmeat markets.

The result for the year ending 30 September 2015 compares to a $17.6 million pre-tax profit last year and is based on a turnover of $1.5 billion.

Murray Taggart  1Murray Taggart, chair of Alliance Group, says after a slow start to the year, the final seven to eight months delivered stronger results, despite market turbulence.

The result comes as the co-operative begins implementing a new business strategy designed to maximise returns to committed farmer shareholders.

Taggart says the result underlined the difficult year for both the co-operative and farmer-shareholders with some parts of the country experiencing drought and others flooding.

“There was a considerable slow-down in key sheepmeat markets such as China and the UK.

“As New Zealand’s largest sheepmeat processor, it will come as no surprise that the volatility of the sheepmeat market in particular has had a pronounced effect on our profit result.

“With a high proportion of our business in sheepmeat, we have taken a bigger hit this year, however our beef business has had a strong year on the back of globally higher beef prices.

“Despite weakening overseas markets, Alliance Group made the difficult decision to keep taking lamb and sheep from our farmer-shareholders, therefore reducing their exposure to the volatile markets and limiting the impact of continuing dry conditions.

“The alternative of reducing our processing would not have been in line with our co-operative principles and would have adversely impacted our farmer-shareholders.

“This is the unique difference in being a 100% New Zealand farmer owned co-operative, we look at things through the lens of what’s important to our farmer-shareholders.”

According to Taggart, the decision to continue taking stock led to a build-up of stock levels with a corresponding impact on cash flow.

“This inventory has since been sold through and our stocks are back within normal trading levels.”

The company’s balance sheet remained strong and provided a solid foundation from which to deliver the new strategy and improve profitability, he says.

Taggart adds: “We’re pleased with the operational performance at our eight plants and our planned further investment in processing will pay dividends.

“Work has already started on implementing our strategy to deliver improved returns for our farmer-shareholders over the next three years.”

David Surveyor, chief executive Alliance Group.Alliance Group chief executive David Surveyor says the company’s sheepmeat market in China declined by between 20-25 percent due to the economic slow-down, high in-market inventory in that country and a strong domestic kill.

“The UK also experienced poor trading conditions with increased domestic supply on the back of a high domestic kill compounded by a weaker euro currency, making exports from the UK unattractive.

“Venison was also challenged by foreign exchange rates and eastern European volumes in core markets.

“The demand for manufacturing beef, particularly from US and China was strong, although not enough to make up for the decline in sheepmeat prices.”

Surveyor says that while the company did not control global prices, it has kept a tight rein on the aspects it can control with year on year costs per unit reducing which shareholders will benefit from going forward.

The company has a clear strategy that is focused on its farmers and building a better business to capture more value from the market and drive improvements in operational efficiency, he says.

“We are starting to see the initial benefits of our strategy emerge through activities such as extending shelf-life and cost saving and we are pushing hard to deliver value to our farmers.”

The net profit after tax is $4.6 million (2014 $6.2 million).  The company’s balance sheet is similar to the prior year with shareholders’ funds of $308.9 million (2014 $296.7 million) providing an equity ratio of 58 percent.

There is to be no pool distribution to farmer-shareholders this year.

Summary of key financial items

 

$000’s

2015

2014

Turnover

1,498,838

1,459,279

Operating profit

9,192

13,473

Restructuring costs

(1,325)

(2,900)

Profit before tax for year

7,867

10,573

Profit after tax for year

4,625

6,210

Equity ratio at balance date

58%

59%

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