Meat co-op dilemma
Meat processor Alliance Group's cash-strapped farmer shareholders face a dilemma - either pour more money into the co-operative or risk losing 100% ownership and control.
Alliance Group has reported a pre-tax profit of $7.9 million on the back of challenging sheepmeat markets.
The result for the year ending September 30, 2015 compares to a $17.6 million pre-tax profit last year and is based on a turnover of $1.5 billion.
Murray Taggart, chair of Alliance Group, says after a slow start to the year, the final 7-8 months delivered stronger results, despite market turbulence.
The result comes as the cooperative begins implementing a new business strategy designed to maximise returns to committed farmer shareholders.
Taggart says the result underlined the difficult year for both the cooperative and farmer-shareholders with some parts of the country experiencing drought and others flooding.
"There was a considerable slow-down in key sheepmeat markets such as China and the UK," says Taggart.
"As New Zealand's largest sheepmeat processor, it will come as no surprise that the volatility of the sheepmeat market in particular has had a pronounced effect on our profit result.
"With a high proportion of our business in sheepmeat, we have taken a bigger hit this year, however our beef business has had a strong year on the back of globally higher beef prices.
"Despite weakening overseas markets, Alliance Group made the difficult decision to keep taking lamb and sheep from our farmer-shareholders, therefore reducing their exposure to the volatile markets and limiting the impact of continuing dry conditions.
"The alternative of reducing our processing would not have been in line with our cooperative principles and would have adversely impacted our farmer-shareholders.
"This is the unique difference in being a 100% New Zealand farmer owned cooperative, we look at things through the lens of what's important to our farmer-shareholders."
Taggart says the decision to continue taking stock led to a build-up of stock levels with a corresponding impact on cash flow.
"This inventory has since been sold through and our stocks are back within normal trading levels."
The company's balance sheet remained strong and provided a solid foundation from which to deliver the new strategy and improve profitability, he said.
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