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Alliance Group annual profit rises 11% on demand for red meat, higher prices

Friday 7th November 2014

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Alliance Group, the world's largest processor and exporter of sheepmeat, posted an 11 percent rise in annual profit and is distributing $7 million to its supplier shareholders, the first payout in three years.

The Invercargill based, farmer owned cooperative increased its after tax profit to $6.2 million in the year ended Sept. 30, from $5.6 million a year earlier, it said in a statement. Revenue rose to $1.46 billion from $1.38 billion the previous year, it said.

Alliance is benefiting from buoyant consumer confidence, the gradual recovery of the global economy, growing demand for red meat products and improving market prices. Increased demand from China, where an expanding urban, middle class population is consuming more protein, has underpinned global supply and pricing, the company said today.

"The global demand for protein is growing and we have made significant strides over the past year," said chief executive Grant Cuff. "China is now our largest export market for sheepmeat. However our traditional markets in Europe and North America also continue to show encouraging signs of recovery."

Cuff, who steps down as CEO next month, said the company is making steady progress in developing new markets such as India and Brazil to ensure the cooperative has a diverse mix of customers.

Alliance is part of a 14 member New Zealand trade delegation visiting India this week, led by Primary Industries Minister Nathan Guy. The two countries have agreed to schedule the next round of talks on a Free Trade Agreement after previous talks foundered, Guy said.

"Good international demand and the ongoing development of new markets indicate positive signs for the year ahead," Alliance chairman Murray Taggart said. "Fewer stock numbers both within New Zealand and worldwide support our long term strategy to operate at the top end of the market.

"We believe the improving confidence and the rising global demand for protein mean the fundamentals of the red meat sector are strong."

Alliance expects overall returns for sheepmeat and venison in 2015 to be "at least similar" to 2014, as higher cattle prices hold over the coming year buoyed by strong North American beef prices and venison importers regain confidence amid an improved European game season.

New Zealand meat companies abandoned efforts to consolidate and reduce surplus capacity last year because they lacked an agreed export strategy and farmers wouldn’t commit stock to firms that closed plants, according to people in the industry who were involved in the talks.

The country’s four biggest meat processors - farmer owned cooperatives Silver Fern Farms and Alliance, accounting for about half the industry, the Talley’s Group family owned Affco and ANZCO Foods, with a majority ownership held by a Japanese food company, ended talks after failing to reach agreement last year.

Separately, Alliance talks over the potential takeover of the smaller South Island processor Blue Sky Meats also ended late last year after a failure to agree on key terms.

The cooperative's latest earnings include a $2.9 million charge for restructuring costs, reflecting the demolition of the sheep processing area of the company's Mataura plant in Southland, after the company moved its sheep operations to Lorneville.

"Our strategy is underpinned by our belief in farmer ownership and the cooperative model," said Alliance's Taggart. "We are open to identifying and considering any commercially viable solutions to address capacity issues in the industry which are in the best interests of the company."

Alliance expects to publish its annual report on Nov. 26.


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