Slow start hurts Alliance

Alliance is the world's largest exporter of sheep meat.

Slump in key markets aggravated by farmers’ weather woes.

Difficult conditions for sheep meat in China and the United Kingdom helped drive Alliance Group's pre-tax profit down by 55.1 per cent to $7.9 million in the year to September 30, the Invercargill-based co-operative said.

Alliance, the world's largest processor and exporter of sheep meat, said its net profit came to $4.6 million, down from $6.2 million in the previous year. Turnover was $1.5 billion, little changed.

The company's balance sheet was similar to the prior year with shareholders' funds of $308.9 million, up from $296.7 million last year, providing an equity ratio of 58 per cent. Unlike last year, there would be no pool distribution to farmer-shareholders, it said.

Alliance chairman Murray Taggart said it had been a slow start to the year, but the final seven or eight months had delivered stronger results.

The result contrasts with that of Alliance's northern neighbour, Dunedin's Silver Fern Farms, which this week said its earnings continued to turn around in the year to September.

Silver Fern, New Zealand's biggest meat processor, said its earnings before interest, tax, depreciation and amortisation came to $86.9 million, up 28 per cent on the $68.1 million achieved in 2014. Silver Fern's shareholders last month voted in favour of a 50/50 joint venture with Chinese meat company Shanghai Maling.

Alliance's Taggart said it had been a difficult year for the co-operative and farmer-shareholders with some parts of the country experiencing drought and others flooding.

"There was a considerable slow-down in key sheep meat markets such as China and the United Kingdom," he said.

"As New Zealand's largest sheep meat processor, it will come as no surprise that the volatility of the sheep meat market in particular has had a pronounced effect on our profit.

"With a high proportion of our business in sheep meat, 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," he said.

Despite weakening overseas markets, Alliance decided to keep taking lamb and sheep from its farmer-shareholders, 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 co-operative principles and would have adversely impacted our farmer-shareholders," he said.

Taggart said the decision to continue taking stock led to a build-up of stock levels with a corresponding impact on cash flow. Stocks were now back within normal levels.

Alliance chief executive David Surveyor said the company's sheep meat market in China declined by between 20-25 per cent in value because of the economic slow-down, high in-market inventory in that country and a strong domestic kill.

The demand for manufacturing beef, particularly from US and China, was strong but not enough to make up for the decline in sheep meat prices, he said.