KEY POINTS:
Profit at meat processor Alliance Group is down but the company says it's still a good result after a challenging year.
Unlike rival PPCS, Alliance has no plans to cut capacity and close plants.
Net profit after a $7.8 million distribution was $3.2 million for the year ending September 30, compared to $20.3 million the previous year.
Dunedin-based PPCS last month reported an annual net loss of $40.3 million and started a programme of restructuring capacity to match supply. Plans include closing two plants.
Alliance chairman John Turner said it would have been unreasonable to ask shareholders of the Southland-based company to be the vehicle for rationalisation in the meat industry.
"Alliance had rationalised itself back in 1992 and it's got its plants more aligned to its capacity than any other company in New Zealand."
Alliance did not envisage any need to adjust its own capacity during the next couple of years but would continue to monitor the situation.
A possible merger between Alliance and PPCS, which together account for about half the country's total sheep meat exports, came to nothing in September. Alliance was against the idea.
The company would continue to discuss issues with PPCS where there was mutual benefit but the merger was not on the table.
The first-half of last season was marred by an oversupply of lambs from Australia and New Zealand.
Exchange rates had a big effect on prices paid to farmers, while a reduced availability of lambs in the second half of the year improved returns and a brief fall in the value of the dollar towards the end of the season helped profitability.
Higher market prices provided a more positive outlook for the new season.
Chief executive Grant Cuff said the company had spoken to farmers in July and August predicting lambs would be worth about $60, compared to $50 at peak processing last season, at estimated exchange rates including US70c.
The company had held lamb prices higher than had been justified by market returns during the peak of last season.
The financial result re- inforced the success of strategies including determining customer needs, signalling those needs to suppliers, reinvesting for productivity, aligning capacity and rewarding farmers for quality and suitability, Cuff said.
The outlook in the medium term for sheep meat was good with favourable supply fundamentals and increasing protein prices internationally.
Alliance would introduce a yield quality contract for loyal lamb suppliers for the new season. Farmers that committed supply for the year would get a yield payment of up to $3.50 per qualifying lamb above the weekly schedule price at the time of slaughter, which would be in addition to the end of year distribution.
Conversion to dairy farms would be offset by an increase in stock being killed for the next couple of years, although Alliance was still concerned.
"It's obviously something that we would rather wasn't happening," Cuff said. "It is a cycle we have seen before, we have managed our way through it and we will do so again."
Alliance Group
Full year ending September 30
2007 2006
Revenue $1.12b $1.06b
Operating surplus $14.4m $52.1m
Pool surplus distribution $7.8m $20.2m
Net profit $3.2m $20.3m
