$97.9m loss: Alliance makes changes after tough financial year

Monday, 18 December 2023

Alliance Group chair Murray Taggart says the disappointing result does not mean the company is considering processing plant closures.

A collapse in the global red meat markets, reduced revenue of just over $2 billion and a $97.9 million loss, have brought urgent changes for Alliance Group, chair Murray Taggart says.

“We are all very disappointed with this year’s $97.9m loss, which coincided with our 75th anniversary and followed a record result for the co-operative the previous year,” Taggart said at the annual meeting in Alexandra, adding that it did not mean the company was considering closing processing plants.

“But we do have significant assets outside our core processing facilities, which we are reviewing, so we can assure our farmer shareholders we are investing their capital wisely.”

Taggart said all red meat processors/exporters were impacted by the deteriorating global market, although Alliance was particularly affected by the sharp decline in sheep meat pricing and demand.

“Soon after last year’s annual meeting in December, the extent of the market collapse became apparent, especially for sheep meat.

“Following a brief recovery, the Chinese market crashed and the downturn spread to other markets around the world.

An aerial view of Alliance Group’s Smithfield plant at Timaru.

'Margins remained compressed for the remainder of the year as all New Zealand exporters struggled to re-position product in other markets, which resulted in lower prices than justified by farm gate schedules.”

Taggart said Alliance Group also incurred additional costs, bringing in extra processing capacity for farmers in anticipation of a 2023 summer drought, which never eventuated.

“The combined impact of these market and weather factors saw profitability slump and reduced revenue of just over $2 billion. Operating cashflow was positive, but unacceptably low at a $2 million surplus.”

Increasing red meat prices in offshore markets in recent years had masked areas within Alliance’s business that were not operating effectively, he said. However, the company has addressed these weaknesses.

“Normally, these areas for improvement would have been more transparent, but the implementation of our Enterprise Resource Planning technology project has not been plain sailing with some aspects of the implementation delivering outcomes below expectations.

“The improvements we have made to the business over recent months mean the co-operative is now fitter, more resilient and able to more efficiently deliver for our people, our farmers and our customers.

Alliance Group chief executive Willie Wiese says the current season has started on a much more positive note than last year.

“While most of those challenges are now behind us, further refinement of the new system over the next 24 months will build more resilience into our new business processes.”

Alliance was focused on ensuring efficient use of its fixed assets and working capital, he said.

“The business has made significant improvements in working capital management in recent years, but there is more work to be done in that space.

“We are also reviewing our fixed assets to confirm which assets are core, and which assets may not be delivering an adequate return.”

Taggart said the board found the company’s balance sheet has been growing, but shareholders’ funds were not increasing at the same pace.

“Despite measures adopted in recent years to accelerate growth in shareholders’ funds, there needs to be more progress in this area.

“We need all shareholders to contribute to the growth in shareholders’ funds, not just those who have joined the co-operative in recent times.”

Taggart said the board was considering options to increase the level of shareholders’ funds.

“We aim to ensure this process is fair and equitable and are acutely aware farmers need us to maximise their returns at the same time as ensuring Alliance is adequately capitalised.”

Taggart said the co-operative was keen to see the new government proceed with policy changes including introducing limits on the ability of fossil fuel emitters to offset 100% of their greenhouse emissions by planting trees, reducing red tape, and landing improved trade agreements and market access.

“Continuing to make a deal with India conditional on the inclusion of dairy is unrealistic and is handing Australia a huge and growing market at our expense.”

Chief executive Willie Wiese said the new season had started on a much more positive note than the equivalent time last year, and despite still operating in a tough trading environment, the company was on track to deliver the expected 2024 budget outcomes.

“The weak market conditions and continuing reductions in livestock numbers across New Zealand remains a concern, and we have accommodated this to some extent in our forecasting for this financial year.

“Fortunately, the significant investment in automation and decarbonisation we have made in recent years, along with more flexible labour arrangements, mean that the business is better placed to weather difficult trading conditions than it has previously and return more value to our farmers.”

At the meeting, Ross Bowmar and Richard Greer were elected to fill two vacancies on the board. The unsuccessful candidates were George Tatham, Pat McEvedy, and Jeremy McPhail.