Shutting down a large Timaru meatworks is costing troubled red meat co-operative Alliance Group more than $51 million.
The farmer-owned co-op reported a loss of $95.8m after tax for the year ended September in its 2024 annual report released on Tuesday.
This year's loss included the one-off charge of $51.3m to cover the redundancies and closure of the 139-year-old Timaru site, which has been owned by Alliance since 1989.
Alliance confirmed the closure of the Smithfield plant in Timaru last month, resulting in 600 jobs being cut from the plant.
Excluding these costs, this year's the underlying loss was $44.5 million which was an improvement on last year. The co-op previously said that was driven by a collapse in global demand for red meat, lower prices and dropping sheep numbers as a result.
Alliance Group chairperson Mark Wynne said this year's financial results were "disappointing" and reflected the "tough global trading conditions" in markets like China, and especially for lamb.
But the steps the co-op had taken recently meant it had now "turned a corner on a tough few years".
"We're leaner, more agile and ready to ride the upturn in global red meat pricing," Wynne said. "We have seen positive signs in the past few months and we are now forecasting a return to profitability in the current financial year."
He said the co-op was working hard to build its financial resilience, significantly reduce costs, rationalise processing capacity and invest in technology.
Capital raise on the cards
For the first time in 32 years, Alliance asked its farmers for capital in April, amid a decline in shareholder equity over recent years and the ongoing global market uncertainty.
Wynne said the farmer-driven capital raise was a tough but necessary decision, and it had now appointed Craigs Investment Partners to explore external capital-raising options too.
The company had previously said it was exploring the three options of remaining a fully farmer-owned cooperative, a hybrid model of ownership or selling which Wynne said was up to its farmer-shareholders.
"We understand the burden of asking our farmers to reinvest in difficult circumstances and we pulled every available lever, including reducing inventory, accelerating global market payments, and cutting operational costs, to ease the pressure," he said.
"We will be assessing any external opportunities based on strategic fit, value and expected benefits for the company and our shareholders before making any decisions. Ultimately, the final decision will rest with our farmer-shareholders."
Wynne said the business had adjusted the deduction off processing from the $3 a head fee put forward in April to $1 because it was "too hard" for farmers' own balance sheets.
Global markets remain challenging
Company chief executive Willy Wiese said global markets were "exceptionally challenging" with consumers tightening spending resulting in weak prices.
"Sales value and volume to the Chinese market nearly halved this past financial year," Wiese said. "While China had been our largest market, we used this opportunity to develop significant commercial alternatives, making solid progress in establishing more stable and consistent markets outside of China."
He said although global markets remained "tough", it saw steady growth in demand throughout the year, with prices gradually climbing.
"Beef has been trading strongly above its five-year average price, driven by the drought in the United States," Wiese said.
"After two years of downward pressure on pricing, lamb now appears to be coming off the bottom of the price cycle."
Wiese said Alliance was also working to rebuild trust and confidence with its farmers.
"We introduced a more equitable livestock pricing schedule, reshaped our loyalty programme and committed over time to bring in a simplified 'all-in' processing sheet."
Meanwhile, the co-op celebrated progress on technological advancements, including the multi-year enterprise resource planning internal computer upgrade which cost $83m in total, as well as modernising its inventory management and order-to-cash processes, and using technology which measured intramuscular fat.
Alliance will hold its annual meeting in Gore on December 18.
