Red meat cooperative Alliance Group more than halved its net profit as it paid more for livestock and in tax, interest and administration costs.
Net profit for the year ended September fell to $6.6 million from $14.4 million a year earlier, the Invercargill-based co-operative said in its annual report. Revenue, however, lifted to $1.8 billion from $1.5 billion in the prior year and it paid more than $1.2 billion to its farmer-shareholders.
The group also paid $14.6 million in loyalty payments and another $31.6 million in advance payments to support farmers during periods of low cash flow.
“The royalty payment is only a very small portion of the revenue a farmer gets paid for the animal and the bulk of it gets paid up front on the day and those prices are much higher this year than what they were last year in the case of sheep meat and venison,” chairman Murray Taggart told BusinessDesk. “Beef is down a bit.”
While there were increases in what the group received and paid out to farmers “the increase we received from the market wasn’t as much as the additional money we paid out to farmers,” he said.
Overall cost of sales rose 16.6 percent to $1.71 billion, administration expenses climbed nearly 11 percent, interest costs jumped 20 percent and tax expense soared 60.6 percent.
Alliance is owned by more than 4,000 farmer-shareholders and exports lamb, beef, venison and co-products to customers in more than 65 countries.
It plans to make a non-taxable bonus share issue to shareholders in December, based on livestock supplied during the financial year that just ended.
“The co-operative is not making a profit distribution to shareholders and will instead invest in the long-term future of the business. Our farmers overwhelmingly backed this decision at our recent round of shareholder meetings. We will also issue 9.5 million bonus shares to shareholders next month,” it said.
A number of other factors also impacted performance, including extreme dry conditions. The livestock procurement market had also not been aligned with global supply and demand for product “and this certainly affected the co-operative’s performance,” Alliance said in its annual report.
Taggart said the company remains focused on new technology, investing $15.9 million in a venison plant at Lorneville that began processing in September. It also invested in a new robotic primal/middle cutter and processing room in Dannevirke that came on stream in late June and is also investing in an enterprise resource planning system to replace the co-operative’s legacy IT system.