An aggressive efficiency program has brought a dramatic reduction in debt, lower operating costs, and better customer engagement. Alliance is in its best shape in years

By Allan Barber*

Alliance has produced a solid result for the year ended 30 September with a pre-tax profit of $10.1 million compared with $7.9 million for the previous year achieved on 9% lower revenue of $1.366 billion.

Of greater significance to farmers is the decision to distribute $9.8 million to shareholders, while the company’s equity position has improved from 58% of assets to 72%.

Debt reduced from $129 million to $41 million with no seasonal debt at year end.

Alliance’s transformation programme has achieved improvements of $56 million compared with budgeted savings of $34 million and, according to chairman Murray Taggart, the company is only part of the way through the programme.

In spite of the market challenges arising from global uncertainties like Brexit and the US presidential election result, Taggart told me he is feeling more optimistic than at any time since joining the Alliance board.

New suppliers are joining the cooperative and farmer optimism, at least in some parts of the company’s catchment area, give grounds for hope the new season’s lamb kill may be better than forecast.

There is obviously a degree of refocusing of markets because of the substantial change in relative exchange rates, most notably in the UK and Europe. The chilled demand for the Christmas trade out of the UK has been firm; although the returns have taken a hit from the dramatic fall in the value of sterling, the impact has been shared between the customers and exporters.

In pursuit of improving product returns with the ultimate objective of paying members more, Alliance has made strides towards shortening the value chain between the company and its customer. The latest example of this is its Spanish retail contract to supply vacuum packed cuts priced at source and ready to be placed in the supermarket chiller. Arrangements with Metro in Germany, British retailers through Alliance UK and Grand Farm in China are other examples of Alliance’s success in achieving more direct relationships with customers.

In the annual result media release Chief Executive David Surveyor made specific mention of the ways in which Alliance has gained operational efficiencies and savings during the year, noting improved productivity, automated measurement and cutting of the carcass, maximising yield, building brands and matching products to optimal market opportunity, as well as investment in robotics within production and systemised planning solutions to enable efficient production runs, vital to making gains in processing. He also mentioned the deployment of further processing and packaging technologies that deliver efficiencies, lower running costs and enhance revenue opportunities.

What happens in the 2017 year is open to conjecture with a whole raft of global uncertainties, before taking into account the potential for unforeseeable climate induced impacts on livestock flows and volumes.

The competitive environment also remains uncertain until some of these factors become clearer. But whatever happens, Alliance appears to be in good shape to handle the challenge. 

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*Allan Barber is a commentator on agribusiness, especially the meat industry, and lives in the Matakana Wine Country. He is chairman of the Warkworth A&P Show Committee. You can contact him by email at allan@barberstrategic.co.nz or read his blog here ».