Alliance predicts return to profit after ‘toughest year in living history’

Thursday, 19 December 2024

Alliance chair Mark Wynne addressing shareholders at the group's annual general meeting at Croydon Lodge in Gore on Wednesday.

After two disastrous years, Alliance Group is forecasting a return to profitability by the end of the next financial year, but it comes with a caveat.

Cost-cutting measures, diversification, restructuring and bank negotiations have created headroom to be more flexible.

But the banks were also directing the group to take on more responsibility for its working capital, which meant it needed to raise $200 million.

The board had paused processing sheet livestock deductions and issuing of new shares until it could present shareholders with capital raise proposals in June 2025.

“I don’t know what shape that proposal will take,” board chairman Mark Wynne told farmers at an annual general meeting in Gore on Wednesday.

But while the board’s preference was to remain 100% farmer-owned, it was difficult to see how shareholders could raise the capital, he said.

The best way for farmers to support Alliance would be through livestock flows, which placed the group in a stronger negotiating position, Wynne said.

Alliance reported a loss after tax of $95.8m for the year ending September 2024 which included one-off post-tax costs of $48.2m in relation to business restructuring costs and other one-off adjustments like the closure of its Smithfield plant.

This left the group with a underlying loss of $47.6m after tax, but comes after a $97.9m loss in the year ending September 2023, which followed a profit of $116.3m the year before.

Alliance chief executive Willie Wiese sums up the group's current situation in a slide during a presentation to shareholders at Alliance's annual general meeting in Gore this week.

“Fiscally, 2024 will go down as the toughest year in living history for Alliance,” Wynne said.

A contributing factor was the drop in lamb prices internationally — 25% in the previous financial year followed by 10% in the past year.

Reserve bank efforts to control interest rates had driven up interest payments, with Alliance’s reaching $17m, Wynne said.

“That was a big hit.”

But he was unflinching when he told shareholders the board accepted the result, albeit with disappointment.

In response, the group had been making changes to become “leaner, more agile and more transparent”.

“This is the new Alliance,” Wynne said.

Alliance Group's Wayne Shaw and Bill Watt of the Meat Workers Union reacts after the meeting on Friday morning.

The group had restructured and after looking for efficiency wins across its business, it had benchmarked its performance against similar companies abroad, finding that its packaging costs and compliance costs were far higher.

It was also looking to new markets, with an emphasis on North America, Europe, and South East Asia. This had meant having to produce different cuts and meet different regulatory requirements.

The group was producing two new products — collagen and meat powder — and promised more innovation was on the way.

Then there’s the use of technology. An antiquated enterprise resource planning (ERP) programme installed in the late 1980s had been updated while capex investments like the $16m automated cold storage system at the Lorneville plant and the $2.3m UV water treatment system at Mataura have been completed, freeing up cash flow.

Alliance was working to draw more value from the market with tools like the Meat Eating Experience (MEEx) programme’s probes to test the quality of meat before it was frozen and to make sure it was stored in batches to ensure consistent quality to suppliers.

Chief executive Willie Wiese said the group was now better equipped to drive stronger returns for farmers.

There were significant opportunities to increase beef processing, which would help balance dropping sheep numbers, he said.

Wiese said management teams met regularly to reassess schedules and the markets they were supplying, to ensure they were getting the best value for farmers.

The board also announced the appointment of Matt Iremonger and Gray Baldwin who had been elected to replace Murray Taggart and Jason Millar.

A special resolution was passed to change the constitution to allow representatives of trusts and corporate-owned farms to run for a spot on the board, to allow board positions to be filled immediately rather than waiting for the end of the financial year, and to remove the age cap of 70 for board members.