The Southland-based, farmer-owned co-operative is now targeting a top one or two market share across all its processing species of lamb, beef and venison, chief executive David Surveyor says.
The caveat is that North Island expansion will be attempted only if it will add value to all existing shareholders, Surveyor told about 50 shareholder-suppliers at Rotherham in North Canterbury at the group’s first new season roadshow.
Alliance is the biggest lamb processor and strong in venison but is only fifth or sixth biggest in beef processing and will need a major North Island presence, from one beef plant now in Levin, to be a top-two operator.
The co-operative will report substantial profit growth for the year-ended September 30 compared to the $8 million achieved last year and is really confident there will be a pool distribution, which could not be made last year, Surveyor said.
Now, in phase two of an ambitious three-phase development programme, the co-op is spinning both wheels in saving on costs and accelerating value-add.
“We want to move up the value chain as quickly as we can. We’re looking at every animal and every individual value-stream.”
It is pushing hard with its food service division, now operating in Britain, the United States, Asia and New Zealand.
In two years the British business has grown from zero to $30 million and the budget is for $60m next financial year.
“It is growing rapidly, with terrific profitability.”
The value creation and being able to move prices in global markets delivered $10m value to shareholders this year and the group expects $20m in gains next year.
A lot of focus is being put into operational efficiencies, improving staff skills across all divisions, asset reliability, making the sales process more targeted and accountable and particularly on worker safety.
Alliance is very confident for the outlook and further investment opportunities for its Meateor pet food joint venture with Scales Corporation. It is a substantive change for the group.
This time last year Surveyor told shareholders of a $20-a-head disconnect between lamb procurement prices and global market prices hurting processing companies.
There was none of that talk this year, though prices are higher.
After the meeting, he said global prices have continued to rise and over the last three months there has been sensible procurement pricing.
However, he warned shareholders industry profitability remains too low, given the scale of investment needed to lift farming out of commodity dependence.
“We straddle the barbed wire fence trying to work out how much to put back into the business and how much to return to farmers.”
Despite that it has invested heavily in upgrading and automating plants and will soon open a specialised value-add room at the big Lorneville plant in Invercargill, a key asset, so it can produce retail-ready meat cuts.
Alliance is considering bigger plans for Lorneville, encompassing automation of primal and middle cuts, new auto-packing and blast-chiller facilities and a new warehouse.
It will cost $55m to $75m and shift the plant to the next generation.
Surveyor and chairman Murray Taggart said the group is working out how it can be financed and developed over several years.
The group will report a very strong balance sheet with equity in the high 60% level.
Surveyor told shareholders the group is getting very good results and premiums with its Silere and Te Mana lamb brands in overseas market pilot programmes, proving it can move lamb to new levels.
It was now planning to move the main Pure South brand up the scale so all suppliers can benefit.