China helps lift co-op’s returns

After providing for restructuring costs of $2.5 million and tax of $2.8 million, the company recorded a net profit after tax of $5.6 million.

The company's balance sheet is also strengthening with an equity ratio of 61% and an operating cash flow surplus of $89 million.

In announcing the result, Alliance Group chairman, Murray Taggart, said the return to profitability was a positive result, albeit at an unsatisfactory level, and follows a year with widespread drought conditions and lingering economic weakness in key export markets.

"We experienced a difficult first quarter with slow demand in our markets. However, the company recovered well as the year progressed."

As the high carryover of stocks from 2012 moved into consumption, prices started to improve especially for leg and shoulder products.

Over the past 12 months, the company has focused on further developing new and existing markets to balance those with slower demand.

Alliance Group chief executive Grant Cuff said growing demand in China played a key part in the recovery.

"After more than 20 years of development, China is now the company's largest sheepmeat export market by volume, receiving around 30% of Alliance Group's total meat products. The company also continues to invest in developing markets like Brazil and India.

"We are committed to growing our presence in the BRIC economies of Brazil, Russia, India and China, but also consolidating our position in our traditional markets in Europe, UK and North America.

"Prospects for the new season are positive with overseas buyers looking to secure product."

The company will continue to develop procurement policies that reward 100% committed supply through its Platinum and Gold supply agreements. In return, these suppliers will benefit from the extension of advance payments and yield quality contracts with premiums above the schedule price.

These initiatives are consistent with the company's belief that farmers' choosing to commit their stock to one company is a key factor in improving long-term returns.

The recent consolidation of processing through the closure of the Sockburn plant and transfer of sheepmeat processing from Mataura to Lorneville has further reduced overhead costs, said Cuff.