KEY POINTS:
The three meat companies which publish annual reports all produced varying degrees of profit for last season - but that's where the similarities stop.
Each company would have reacted differently to the way it ended up for the 12 months, ranging from satisfaction at Alliance, relief tempered by
ongoing concerns at PPCS to acceptance by Affco of the realities of a tough season.
These three companies process and market about 70 per cent of the country's red meat, so their performance is largely representative of the total industry.
A closer look at the annual accounts and reports sees several themes emerge:
* The high dollar affected the first half of the season and livestock procurement was cut-throat.
* Lamb procurement costs were way out of line until the New Year, the market resisted high prices and heavy lambs, and the dollar didn't start falling until March.
* Supplier loyalty, either through financial commitment or supply partnerships, is essential to future industry profitability.
The winner for the season was clearly Alliance which overhauled Affco, easily the star performer of three years ago and still solid in 2005. Alliance posted an after-tax profit of $20.3 million after $20.2 million pool payments to suppliers, with another $2.6 million fully imputed dividend payment to shareholders. In all, Alliance will have distributed more than $30 million to its shareholder suppliers.
Affco's net profit fell 35 per cent to $13.7 million, having enjoyed tax credits on previous losses which will be fully used up by the end of this year, and its dividend amounted to just over $5 million. As a publicly listed company, Affco pays for all its livestock at spot prices with no supply-related pool payments to suppliers.
PPCS no doubt heaved a sigh of relief at its ability to post a profit after a horrendous first half, exacerbated by the month's difference in its reporting periods. PPCS reported a net profit after tax of $31.4 million against $19.9 million the year before but this result included $19.3 million of extraordinary gains from disposal of assets. Stripping out extraordinaries, pool payments, rebates to suppliers and a $2.1 million tax loss, the operating earnings probably amounted to at best a small net profit for the company to retain.
For the 2006-07 season, the big three's net profit after tax and supplier payments was just $52.9 million on revenues in excess of $4 billion, equivalent to 1.3 per cent. Total equity in these companies amounted to $786 million against debt of $586 million, although two-thirds of this was on PPCS's balance sheet. Alliance and Affco have debt ratios of 30 per cent and 20 per cent respectively, both very healthy. But the PPCS figure of 65.7 per cent is uncomfortably high.
The year has seen supplier moves in the South Island aimed at achieving industry changes through merger of the two co-operatives to correct the peaks and troughs in lamb prices, and North Island calls for suppliers to work in partnership with their processor to achieve better overseas marketing returns. These two approaches have come from different ends of the chain - farmers looking for industry restructuring and Affco's CEO seeking supplier commitment. It's clear from the figures the meat processing and marketing sector doesn't make enough money, yet livestock suppliers reserve the right to shop around on price to the detriment of the industry's stability.
One suggestion is for suppliers to make a supply commitment to a processor at the start of each season, which would provide certainty of product to market.
Unlike dairy, kiwifruit and pipfruit, a single seller won't work because farmers can choose whether to shut the gate, send the stock to the sale yard or sell it to one of several processors. But there has to be a better way forward for one of New Zealand's biggest overseas currency earners.
* Allan Barber is a freelance writer, business consultant and former chief operating officer at Affco.
