The Southland-based, farmer-owned co-operative Alliance Group has advised its 5000 supplier shareholders it will record a loss for the 2011/12 financial year and not to expect any distribution of profits.
Alliance Group chairman Owen Poole has warned the co-op’s shareholders to expect a loss when its annual financial report is released in mid-November.
The scale of that loss will not be released until the group’s annual financial result is announced in mid-November, but Alliance board chairman Owen Poole confirmed it was the first loss the co-operative had made since he joined the board more than 20 years ago.
At a meeting of its South Otago shareholders in Milton last week, Mr Poole said the 2011/12 season had been both challenging and difficult, particularly for sheep meats.
Because of intense competition for stock, exporters did not respond to rapidly changing world markets early enough and “paid too much for too long,” he said.
The market was dynamic and the rapid drop in prices was compounded by the increasing value of the New Zealand dollar, Mr Poole said.
Alliance is the second Southland meat processor to report a loss for the 2011/12 financial year. In July, Blue Sky Meats reported a $604,000 before tax loss after a combination of circumstances chairman Graham Cooney described as “a perfect storm” for the company.
Industry sources predict meat processors may post cumulative losses of over $200 million for the 2011-12 season and that Blue Sky Meat’s loss was likely to be at the lighter end of the scale.
The larger meat companies, including the Alliance Group and Silver Fern Farms, have later balance dates and have yet to officially announce their results.
The Alliance Group’s financial year just ended on September 28 and its early announcement of a loss was made to avoid any doubt, Mr Poole said.
He added that some stability had now been achieved in markets, albeit at lower prices, and the co-operative’s balance sheet remained fundamentally robust.
“This year your company has been tested,” Mr Poole told shareholders.
He said it had reviewed its business operations and made changes to reflect the evolving industry dynamics, both in New Zealand and in its markets.
Mr Poole said the company was taking a lead to address the inherent over-capacity of the meat industry to process declining numbers of sheep and lambs and increasing numbers of cattle.
In June Alliance closed its Sockburn plant and on September 28 it announced plans to cease lamb and sheep processing at its Mataura plant, which will affect 325 employees.
The co-operative expects these steps to significantly lower its overheads and improve profitability and competitiveness.
Alliance chief executive Grant Cuff said those decisions were difficult and not taken lightly. Reconfiguration of its assets would save the company tens of millions of dollars annually, he said.
Most of its plants had been built or refurbished within the last 12 years and were in good condition, Mr Cuff said.
The co-operative had invested in a new venison plant at Smithfield (Timaru), spent $15 million on a new state of the art beef processing plant at Mataura and $13 million on a new rendering facility at Lorneville (Invercargill).
Alliance has announced new procurement policies for the new season to reward loyal shareholders, which it recognises as “platinum, gold or silver” suppliers according to their commitment to supply stock.
Platinum and gold suppliers will receive an advance payment in October of $20 a head for up to 80 per cent of their lambs.
The company is also looking at fixed price options for lamb, beef and venison and has dropped its 10 per cent pool retention, which means it will pay full schedule price at the time of processing.
Mr Poole said profit distribution at the end of the financial year would be made at the board’s discretion.