Alliance Group lifts annual profit while juggling logistics

Alliance Group is New Zealand's biggest sheep meat exporter. Photo / NZME

Southland-based Alliance Group has posted a big lift in annual profit despite the huge logistical challenge of getting product to market in the face of Covid-19 and widespread disruption in the shipping industry.

The farmer-owned co-operative announced an operating profit before tax and distributions $41.9 million or the year to September, up from $27.4m a year earlier.

The previous year included a $19.9m provision in relation to claimed historic partial non-compliance for employee entitlements, known as donning and doffing.

This year, a profit distribution of $8.5m will be made to its farmer shareholders, in addition to $16.7m in loyalty payments already paid over the course of the year.

The co-operative's turnover was $1.8 billion, slightly up on the previous year's.

Chairman Murray Taggart said it had been another challenging year, with disruption in the supply chain leading to inventory issues and an increase in debtors.

"It is a major issue which occupies a lot of management and board time at the moment," he told the Herald.

Nevertheless, there had been strong pricing and demand in all Alliance's main markets.

"As the world has reopened, we have seen a continued strengthening of sales and pricing has been strong," he said.

"Internally we have been doing a lot of work on improving our efficiency and lowering the cost curve of our processing operations.

"That sort of work is starting to pay dividends now."

Alliance's single biggest challenge had been logistics.

"Can we get enough containers? Is the ship going to call the port that we thought it would? And when it gets to the other end, will it get uploaded?

"Logistics have been a major headache and it has still not gone away.

"It is with us, potentially, for another year or so yet, and there have been increased freight costs as well."

Inventory was down on last year but was still higher than when Covid-19 took hold in early 2020.

"While we can get containers onto a ship, the ship has to get unloaded once it gets there, and we don't get paid until the customer gets the product, so there has been a buildup of debtors."

When Alliance's chillers start filling up, it restricts its processing capacity, which in turn hits farmer suppliers wanting to send stock in for processing.

Demand in its biggest market, China, was strong, as it was in North America, Europe the UK, with no visible signs of a slowdown.

Alliance is best known as New Zealand's biggest sheep meat exporter but beef is becoming a bigger part of its operation.

Chief executive David Surveyor said global logistics and supply chains will be challenged well into the foreseeable future, "therefore we are improving systems and processes to speed our cash cycle".