Alliance reports $50.8m loss

Anyone who paid any attention to the industry last season would have known to expect red ink in meat company annual reports.

Even so the media release from Alliance Group makes sobering reading:

Alliance Group has reported a net loss after tax of $50.8 million from a turnover of $1.37 billion for the year ending 30 September 2012.

The result is after incurring restructuring costs of $13.5 million arising from the cessation of sheep
and lamb processing at its Mataura Plant.

In announcing the company’s first operating loss in 20 years, the Chairman of Alliance Group, Owen
Poole, said: “While this is a very disappointing result, it reflects a substantial change in our export
markets over the past 12 months, in particular for sheepmeat.

“Export   market   prices   for   lamb   suffered   a   steep   decline   in   key   markets   due   to   the   widespread
economic crisis. The increasing value of the New Zealand dollar through the period exacerbated the
impact of the price decline.

“We accept that many exporters and processors like ourselves did not respond to the changing
economic environment fast enough, and in an intensely competitive industry, continued to pay too
much for livestock for too long.

Competition for stock which boosted returns for farmers in the short term have cost the company dearly.

This won’t be the only annual report showing a big loss.

“Despite the significant loss, and after providing for the restructuring costs associated with ending
sheepmeat processing at  our Mataura Plant and the closure of Sockburn Plant, the company’s
balance sheet remains robust.

“These decisions, as well as investments in beef processing at Mataura, venison processing at
Smithfield and rendering at Lorneville, will provide significant ongoing cost savings and benefits.
Alliance Group anticipates a much improved financial result for the 2013 year.”

The company is also making changes to its procurement policies to reinforce its commitment to loyal
shareholder/suppliers, he said.

Grant Cuff, Chief Executive of Alliance Group, said: “Despite the challenging economic environment,
stability is now returning to the market and recent events give Alliance Group and its 5,000
shareholders cause for optimism.

“China continues to show strong growth, particularly with higher-value products being added to the
offer, while the first shipment of Pure South lamb has now arrived in Brazil. Alliance Group believes
Brazil offers significant potential, given its natural affinity for red meat, a growing population and an
emerging middle class.

“The recent announcement of an exclusive deal to supply chilled New Zealand lamb to iconic UK
retailer Marks & Spencer is also good news for suppliers.”

We spent a day with one of the men responsible for selling our meat when we were in London in June.

Lamb was by far the most expensive meat on supermarket shelves. This showed we can’t hope to compete on price, we have to market on quality.

However, even the top end of the market has its limits and the price paid for stock last season was out of kilter with the prices consumers were willing to pay for meat in supermarkets and restaurants.

Prices for stock will be lower this season but the medium to long term outlook for sheep and beef are brighter and the company is strong enough to withstand this one bad year.

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