Difficult conditions for sheepmeat in China and the United Kingdom helped drive Alliance Group's pre-tax profit down by 55.1% to $7.9 million in the year to September 30, the Invercargill-based co-operative says.
Alliance, the world's largest processor and exporter of sheepmeat, 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 previous year with shareholders' funds of $308.9 million, up from $296.7 million last year, providing an equity ratio of 58%.
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.
Mr Taggart said it had been a difficult year for both 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 sheepmeat markets such as China and the United Kingdom," he said.
"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," he said.
"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," 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," Mr Taggart said.
The decision to continue taking stock led to a build-up of stock levels with a corresponding impact on cash flow, he said. The inventory had since been sold and stocks were back within normal levels.
Alliance chief executive David Surveyor said the company's sheepmeat market in China declined by between 20-25% due to the economic slow-down, high in-market inventory in that country and a strong domestic kill.
"The UK also experienced poor trading conditions with increased domestic supply on the back of a high domestic kill compounded by a weaker euro currency, making exports from the UK unattractive," he said. Venison was also challenged by foreign exchange rates and eastern European volumes in core markets," he said.
"The demand for manufacturing beef, particularly from US and China was strong, although not enough to make up for the decline in sheepmeat prices."
- By Jamie Gray of the New Zealand Herald
