Alliance poised with strong balance sheet

Alliance Group says good progress has been made in transforming the business. Photo: Stephen...
Alliance Group says good progress has been made in transforming the business. Photo: Stephen Jaquiery
Alliance Group’s profit this year will be "substantially up" on last year’s result, chief executive David Surveyor says.

Speaking at a roadshow meeting in Waimate last week, Mr Surveyor could not give a figure as he did not yet have the audited accounts, but said a pool payment would also be made.

Last year, the company posted a pre-tax profit of $10.1million for the year ended September 30, based on a turnover of $1.36billion.

Last year’s debt figure of $41million would be halved to somewhere around the $20million mark, Mr Surveyor said.

Now the company had an "incredibly strong" balance sheet, that allowed it to get on with stuff that it wanted to do, he said.

Chairman Murray Taggart said there was still a lot more Alliance Group needed to do; it needed to get more cost out of the business, increase revenue and gain deeper market penetration.

When it came to macro issues, low wool prices were a significant issue for sheep farmers and the implications of that, in terms of land use and Alliance’s plant configuration, was quite an issue.

There were also various issues floated pre-election that could have significant impacts on the sector.

Alliance was watching synthetic meat closely; at this stage, it appeared companies were targeting different market segments to what it was operating in, and they did not see it as an immediate threat. It should be able to "keep it at bay" as long as they told the provenance story well, he said.

There were some "real positives"; farmers were getting better returns, the company’s safety performance was much better, and good progress had been made in transforming the business.

There had been a significant lift in internal capability, some market share had been recovered, having lost a bit in years the company was not performing so well, and there had been a strong year of shareholder growth. Of the company’s shareholders, 10% were now in the North Island.

There were still some frustrations, the biggest for the company being that it needed to be achieving much better profit, he said.

The company was still "absolutely convinced" that being a 100% farmer-owned company was the best model.

Mr Surveyor said there had been a substantial reduction in the number of injuries in the company.

But the year was marred by a serious life-changing accident at the Smithfield in March, where an employee’s hand was severed in an auger.

In 2014, injuries were at a rate of one in eight or nine and that rate was now about one in 36. While he was very pleased with the improvement, it was still "pretty average".

The Smithfield incident absolutely underscored the company’s need to redouble its efforts and make sure it drove the company to zero harm.

This year, it had been planned that strategy projects would deliver $31million worth of value and he was very pleased they had delivered $48million.

There were 82 active projects and, heading into full-year 2018, there were 99 projects it was hoping to run during the course of that year. The projects now were increasingly complex but also much more strategic.

An ERP (Enterprise Resource Planning) project was being run company-wide, with a "phenomenally complex" computer replacement process.

Costing more than $20million, it was the single biggest capital expenditure under way, enabling the biggest process changes within Alliance Group for more than 20 years.

Alliance had acquired the business of Goldkiwi Asia, a Singapore-based marketing and sales company, as it sought to capture more value from its markets in Asia.

It had established a dedicated food service team in the United Kingdom and recruited industry experts.

The domestic market was also very important and it was putting an office and resources in to Auckland, with plans to do the same thing in Wellington.

Increasingly, it would be referred to as a "farmers product company" with less talk about processing plants or "meat on a hook".

It was about connecting farmers and consumers together, he said.

More than $100million more was paid out to farmers this year, than last year, and there would be a bonus share issue, depending on animals supplied this season.

"We want you to see your shares ... as a very real and tangible asset," he said.

During questions, South Canterbury farmer Stewart Bowie expressed concerns about Alliance’s yield grading system.

It cost his farming operation "dearly" last year, as his lambs were heavy, and the only way to alleviate it was to send some to Oamaru Meats and "get paid properly for them".

Mr Surveyor said the company was looking to see if it could change the model so it allowed a broader weight range to be developed to address the issues raised by Mr Bowie.

In response to concerns raised by Jim Anderson about staff, Mr Surveyor said automation should not be seen as a threat for roles.

The aim was to use automation so machinery could "do the simple stuff" while humans did the complicated, value-add stuff.

Responding to a question about sheep numbers, Mr Surveyor said there would be more sheep if farmers were paid more for them.

He would like to see a "ramp up" in the value of wool and Alliance Group would be supportive of any initiative that was going to create a good model going forward.

Meat was the company’s business so it was unlikely to be a leader of it, but if someone "came up with an answer" that made sense for Alliance to be part of, it would be interested in that discussion. Mr Taggart added it would need to be a "game-changer" idea. Directors Russell Drummond and Dawn Sangster retire by rotation in this year’s director elections and are seeking re-election. Nominations for the two vacancies close on October 24.

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