Annual Report 2008 Alliance Group Annual Report 2008

Alliance Group Annual Report 2008Annual Report 2008

ALLIANCE GROUP LIMITED ANNUAL REPORT 2008ContentsSummary of the year 1Shareholder Information 1Chairman’s and Chief Executive’s Review 2Board of Directors 8Corporate Governance 10Notice of Annual Meeting of Shareholders 12Financial Statements 13Statutory Information 26Five Year Review 28DirectoryIBCSixtieth Annual Report and Financial Statements forAlliance Group Limited for the YearEnded 30 September 2008

ALLIANCE GROUP LIMITED ANNUAL REPORT 2008Summary of the YearShareholder InformationProfit• $67.9 million consolidated operating profitbefore pool surplus distributions and tax from aturnover of $1.28 billion• Net profit after tax $33.5 millionCash Flow• $43.3 million operating cash flowEquity Ratio• Shareholders’ equity 69.0% at year-endPool Surplus PaymentsDirectorateMr O D Buckingham and Mr J A Lindsay retire byrotation and offer themselves for re-election.As no further nominations have been received,Mr Buckingham and Mr Lindsay will be declaredre-elected at the annual meeting of shareholders.Annual Meeting of ShareholdersThe annual meeting of shareholders will be held at10:30am on Friday, 19 December 2008 at the AscotPark Hotel, Racecourse Road, Invercargill(see Notice of Annual Meeting on page 12).• Pool surplus distributions $20.5 millionDividend• 5 cents per share with a full imputation creditattachedYield Quality Contract• Yield Quality Contract introduced to rewardshareholder suppliers who commit stock on aseasonal basis1

ALLIANCE GROUP LIMITED ANNUAL REPORT 2008Chairman’s and Chief Executive’s ReviewOwen Poole (Chairman)Grant Cuff (Chief Executive)Introduction2008 will be remembered as a year in which therewas extensive debate, both in the public arena and infarming circles, about how the meat industry shouldbe structured to best serve the interests of farmers forthe future. A meat industry task force was established,a concept to form a single entity controlling 80% ofNew Zealand’s sheepmeat production was proposedand a partnership between the country’s largest stockand station firm and the largest meat company wasapproved. All of these initiatives failed to progress.The debate focused attention on industry structureand the need for improved returns for farmers. InFebruary this year Alliance Group initiated a plancalled “The Concept” with the aim to merge fiveindustry players into one. The object was to createa single entity controlling 80% of New Zealand’ssheepmeat production. Significant improvements inthe marketing of New Zealand’s meat proteins wouldhave been achieved from greater investment in marketresearch, product development and brand promotion.It would have effected consolidation of the industryand, importantly, would have undertaken properlyco‐ordinated rationalisation of the processing assetsowned by the five players.Alliance Group believed that a farmer‐owned andcontrolled entity representing 80% of the industrywas the best structure for the future. It could only beestablished if sufficient industry players were willingto commit to it. Alliance Group sought to bring thoseindustry players together but the proposal could notproceed in the absence of the required support.Alliance Group was invited to join the proposedPGG Wrightson/Silver Fern Farms partnership and thechairman of Silver Fern Farms twice wrote directlyto Alliance Group shareholders seeking support forthe proposal and a subsequent merger with AllianceGroup. Your directors’ views on this proposal werewidely discussed with shareholders at the round ofshareholder/supplier meetings held in August. Itwas clear from those meetings that Alliance Groupshareholders did not support a merger with SilverFern Farms, with or without the involvement ofPGG Wrightson Ltd. Shareholders’ views on thissubject were reinforced at the special meeting ofshareholders held in September to consider theshareholder resolutions promoted by the Meat IndustryAction Group recommending a merger of AllianceGroup and Silver Fern Farms. The resolutions werecomprehensively defeated.2

ALLIANCE GROUP LIMITED ANNUAL REPORT 2008Despite the apparent lack of progress on the widerindustry restructuring, the public debate on the issueshas been healthy and has continued to focus theattention of all stakeholders on the need for improvedreturns for livestock producers.Alliance Group’s strategy is under-pinned by our belief infarmer ownership and the co‐operative model. We willcontinue to:• promote farmer ownership and control within theindustry;• grow to accommodate support from farmers;• maintain a direct interface with farmers as an integralpart of the supply chain continuing the developmentof our farm‐to‐fork strategy first set out in “SecuringThe Future” in 1997;• maximise returns from the market by capitalising onstrong relationships with key customers;• minimise production costs through operationalexcellence in processing with efficient andtechnologically advanced plants; and• seek industry consolidation opportunities.Farmer support will ultimately govern the level ofindustry consolidation and its ownership structure.Alliance Group favours a 100% co‐operative, supplied byfarmer owners, with growth and aggregation to matchsupport and market demand.In keeping with that strategy, Alliance Group hasfor some time been evaluating opportunities in theNorth Island that would increase product availabilityduring the winter to meet out‐of‐season demand inthe market as well as to meet the growing demandfrom farmers who want to deal with Alliance Group.Recently, the acquisition of the Levin meat plant wasannounced. The plant is well located and doublesAlliance Group’s lamb and sheep capacity in the NorthIsland, as well as providing cattle processing facilities.Company growth has been achieved without increasingindustry capacity and at the same time contributing toindustry consolidation.FinancialThe company has recorded a strong profit on the backof higher than normal livestock volumes, and improvedmarket conditions and lower currency exchange rates inthe second half of the financial year.The result for the year is a consolidated operatingsurplus before pool distributions and tax of $67.9 million(2007 $16.0 million). Turnover is $1.28 billion ($1.11billion). The pool surplus distribution is $20.5 million($7.8 million) and the tax expense for the year is $13.9million ($5.2 million). The sum of $26.3 million has beentransferred to reserves.The company achieved a solid operating cash flow of$43.3 million. Inventories of $136.4 million were $9.5million above last year as a result of high throughputvolumes. Trade receivables of $125.0 million were$28.2 million above last year, reflecting good sales andhigher market realisations.The balance sheet remains strong with shareholders’funds at year-end of $339.8 million, providing an equityratio of 69.0%.2008 is the first year the company has completed itsfinancial statements under the New Zealand equivalentsto International Financial Reporting Standards (NZ IFRS).This has had a significant impact on the disclosurerequirements in the financial statements. Theprincipal difference is in the area of derivative financialinstruments. Due to the large increase in contentand complexity of notes to the financial statements,the directors have elected to include only summaryfinancial statements in the annual report. Users mayaccess the full Alliance Group Ltd financial statementson the company’s website at www.alliance.co.nz.Alternatively, users may request a printed copy of thefull financial statements by contacting the corporateoffice in Invercargill.3

ALLIANCE GROUP LIMITED ANNUAL REPORT 2008the sales and marketing programme was wellexecuted and support functions within the companyprovided essential input. The understanding andtolerance of our many farmer suppliers who weredesperate to move stock during the worst of thedrought was much appreciated.The market environment Alliance Group sells itsproducts into continues to experience dynamic change.Further mergers and acquisitions occurred in theretail and food service sectors that deliver AllianceGroup products to the consumer. Food price inflationcontributed to higher market prices for sheepmeats andbeef in the second half of the year.Retail and food service promotional activities carried outin North America and Europe assisted an over‐supplyof lamb racks from 2007 work their way through toconsumption during the year. Chilled lamb supplycontracts were concluded with Sainsbury’s, Tesco,Somerfield, Asda and Marks & Spencer in the UK aswell as a range of retailers throughout Europe, USA andCanada. Price increases were achieved for mutton,beef, venison, wool, pelts, renderables and casings asthe year developed.While the outlook is tempered by the world-wideeconomic turmoil, more favourable exchange rateswill assist returns to farmers. However, it is importantduring this period for Alliance Group to maintain its highend positioning and continue to exert influence alongthe supply chain through brand promotion, productdevelopment and a total service package.In November 2007, a new cutting and boning roomfacility, which was the centre of a $15 million upgradeat the Smithfield plant in Timaru, was commissioned.The latest processing technology was installed inthe new room enabling significant improvements inproductivity to be achieved. It is a credit to the designand construction of the room and the commitment ofSmithfield employees and staff that the room achievedfull production very soon after being commissioned.The upgrade has made Smithfield plant one of the mostmodern meat processing facilities in the country.The introduction of Alliance Group’s Yield QualityContract during the season was very successful.Groundwork for the Yield Quality Contract was laid withAlliance Group’s VIAscan® technology and investmentin central progeny test trials over recent years.The system provides objective market signals andinformation to suppliers to achieve financial rewards forquality livestock. Suppliers have responded well to theinitiative and for the 2008-09 season the supply periodhas been extended to commence from early November.For suppliers in their second year of commitment to thecontract, the premium for the top band increases from$3.50 to $5.25 per lamb above schedule.Last year a joint industry initiative for the purposesof establishing and developing emerging markets forsheepmeats and, in particular, for diversification of lamblegs and racks was started. This initiative is intendedto reduce reliance on the UK leg and North Americanrack markets. The first stage of this initiative, whichinvolved a desk-top research study to establish the bestemerging market, has been completed. The secondstage will validate the preferred option and compile acomprehensive business case.Another industry collaboration group was establishedin 2008 which is combining with technology partnersto put together research and development projectswhich will attract government funding on a 50:50 basis.The total industry spend is estimated at $15.0 millionwith commercial application over 2010 to 2013. Theobjective is to increase the application of technology inall areas of meat processing to reduce health and safetyrisks, increase productivity and improve product quality.Our associated companies and trading divisions, NewZealand Farmers, New Zealand Lamb Companies,Alliance Meats and Porkcorp all recorded good resultsdespite difficult trading conditions being experienced byeach of them at various times during the year.5

ALLIANCE GROUP LIMITED ANNUAL REPORT 2008Chairman’s and Chief Executive’s Review continuedIndustry Issues and OutlookThe sheep and lamb kill in the 2007-08 season washigher than expected due to the effect of drought andland use change. Meat and Wool Economic Serviceforecasts for 2008-09 season are for a sheep and lambkill up to 9 million animals less than the past season.The forecast reduction is exacerbated by the high killlast year and will result in under-utilisation of processingcapacity and supply shortages for the overseas markets.Nevertheless, the medium term outlook for bothsheepmeats and beef is good with good demand andfalling supply. The key issue for the meat industry is toincrease returns for sheep, cattle and deer farmers torestore confidence in livestock farming. Achieving thisobjective is more challenging due to the expectation ofwidespread recession as a result of the current turmoilin international financial markets. It is already apparentthat many consumers are reducing discretionaryexpenditure to cope with tighter economic conditions.At the annual meeting in December 2007 MarkCrawford and Jason Miller were the successfulcandidates in the election of directors. They replacedJohn Turner and Murray Taggart on the board.John Turner had been a director of the company since1987 and Chairman since 1998, and Murray Taggart adirector since 2002. Both John and Murray gave qualityservice and commitment during their terms on theboard. Their experience and wisdom was appreciatedby their fellow board members. John Turner’scontribution to the company during his 20 years tenureon the board was very significant.Also at the 2007 annual meeting the appointment ofOwen Poole as an independent director was announced.His appointment was effective from 1 January 2008and in February he was elected Chairman of the board.Owen was Chief Executive of Alliance Group from 1995until his retirement in 2005 and brings a wealth of meatindustry experience to his new role.Recently, legislation was passed to establish anEmission Trading Scheme to meet New Zealand’sobligations under the Kyoto Protocol. Alliance Groupmade submissions to the Finance and ExpenditureSelect Committee in April stressing the consequencesof imposing additional costs on the sheep and beefsector. While the legislation provides for transitionalassistance by way of the allocation of free New Zealandunits on a sliding scale through until 2030, the potentialcost impact on the industry is very significant.Directors and ShareholdersThe two directors retiring by rotation this year are OwenBuckingham and John Lindsay and, being eligible, bothoffered themselves for re‐election. As there were nofurther nominations they will be declared re‐elected tothe board at the annual meeting in December 2008.On 5 September this year, a special meeting ofshareholders was held to consider two resolutionsproposed by shareholders through the Meat IndustryAction Group. It is an unusual occurrence forshareholders to require the board to call a specialmeeting of shareholders and this was the first suchmeeting in the company’s history. It was well attendedwith over 1,600 shareholders represented, either inperson or by proxy. The resolutions recommending aprocess to achieve a merger of Alliance Group Ltd andSilver Fern Farms Ltd were comprehensively defeated.People AcknowledgementsThis year has been especially challenging formanagement and employees. Despite frequentnegative debate around industry issues, our peopleperformed exceptionally well throughout the year,6

ALLIANCE GROUP LIMITED ANNUAL REPORT 2008especially to assist farmers during the drought period.This performance reflects the company’s culture andpride our people have in Alliance Group. We extend ourthanks to all employees for their efforts.We acknowledge the ongoing support of ourshareholders and suppliers. The company was foundedby a group of farmers who believed farmers shouldbe involved with their product all the way through tothe market. This year demonstrated that that principlecontinues to be supported by shareholders andunderpins Alliance Group’s strategy into the future.G O POOLEG R CUFF7

ALLIANCE GROUP LIMITED ANNUAL REPORT 2008Board of DirectorsOwen Poole(Chairman)WanakaIndependent director appointed 2008Chief Executive, Alliance Group,1995‐2005Chairman, New Zealand Lamb Companiesand Australian Lamb CompaniesDirector, NZ Meat BoardDirector, Meat & Wool NZDoug Brown, JPOamaruSupplier representative elected 2001Councillor, Otago Regional CouncilNational President, YFC 1984Kellogg Scholar 1995Nuffield Scholar to Europe 1996Farming “Punchbowl” in North Otago -520 hectares carrying sheepJohn McCliskieNelsonIndependent director appointed 1996Member of the Audit CommitteeDirector, Network Tasman LtdDirector, Nelson Electricity LtdDirector, Heartland Fruit New Zealand LtdDirector, Alandale Orchards LtdSinclair Scholar 1978Involved in a family partnership growingapples in the Nelson districtOwen BuckinghamTe AnauSupplier representative elected 1987Chairman of the Audit CommitteeDirector, Ballance Agri-NutrientsCo‐operative LtdKellogg Scholar 1979Farms 400 hectares in the Te Anau basincarrying sheep and deerInvolved in other commercial businessinterestsMark CrawfordOtautauSuppler representative elected 2007Kellogg Scholar 2005Farms 210 hectare intensive sheep andbeef property at Aparima in SouthlandDavid MackenzieChristchurchIndependent director appointed 2005Extensive business advisory experienceFormerly a partner and chairman ofthe national legal firm, Buddle Findlayspecialising in commercial lawDirector, Meta (NZ) LtdDirector, Lyttelton Port Company LtdDirector, Christchurch InternationalAirport LtdMurray DonaldWintonSupplier representative elected 1991Chairman, Alliance Group Trustee LtdDirector, Farmers Mutual GroupNational President, YFC 1989-90Received 1990 Commemorative Medalfor Services to AgricultureKellogg Scholar 1992Operates an intensive 455 hectarefarming operation focused on sheepmeatproduction in the Waianiwa district ofSouthlandJohn LindsayDiptonSupplier representative elected 2002Member of the Audit CommitteeSouthland/Otago A C Cameron RuralExcellence Award 2002Farming sheep, cattle and deer on 888hectares at Dipton, SouthlandJason MillerSouthdownSupplier representative elected 2007Kellogg Scholar 2007Farms 620 hectare finishing property atGlencoe and 3,500 hectare hill countrybreeding property in northern SouthlandChief ExecutiveGrant CuffInvercargillAppointed Chief Executive 2005Joined company in 1990Extensive experience in the meatindustryMember Meat IndustryAssociation CouncilChairman New Zealand Holdings(UK) LtdFinancial AdviserJohn WallerAucklandIndependent financial adviser tothe board since 1995Member of the Audit CommitteeSenior partner ofPricewaterhouseCoopersWide experience in corporatefinancial management8

ALLIANCE GROUP LIMITED ANNUAL REPORT 2008Owen Poole (Chairman)Owen BuckinghamMurray DonaldDoug BrownMark CrawfordJohn LindsayJohn McCliskieDavid MackenzieJason Miller9

ALLIANCE GROUP LIMITED ANNUAL REPORT 2008Corporate GovernanceAlliance Group Ltd is a co-operative company ownedby more than 5,000 farmers who supply livestock tothe company for processing and sale of the resultingmeat and co-products. Around 95% of the company’sproducts are exported to international markets.The company’s shares are not listed on any stockexchange.The Board of DirectorsThe constitution provides that there shall be not morethan ten directors of the company at any time, of whichnot less than six and not more than eight shall bedirectors elected by the shareholders. One-third of theelected directors retire by rotation each year and maystand for re-election. The directors who retire each yearare those who have been longest in office since theirlast election.Provided that the total number of directors does notexceed ten, the board may from time-to-time appointup to four directors who, in the opinion of the board,are capable of rendering special services in relationto the affairs of the company. These directors areappointed for a term of up to three years and may bere-appointed for subsequent terms of up to three yearsat a time. The board exercises the discretion to appointindependent directors to the board to ensure that theboard comprises directors with an appropriate range ofqualifications and expertise.The board currently comprises nine directors of whichthree are independent directors and six are electeddirectors, one of whom is appointed chairman on anannual basis.Board ResponsibilitiesThe board has statutory responsibility for the affairs andactivities of the company. The responsibility for theday-to-day operation and administration of the companyis delegated by the board to the chief executive. Thelong-term strategic direction of the company, theannual business plan and capital expenditure budgetare approved by the board. The board also approvesexpenditure on specific projects that are outsidenormally delegated authorities and reviews operationalperformance against the business plan objectives.The board is responsible for ensuring that arrangementsare in place to adequately manage areas of significantbusiness risk. In addition, the board ensures thatthe affairs of the company adhere to all regulatoryShareholders Equityas a percentageof total assetsOperating Cash Flow($ millions)Debt (Parent Co)($ millions)8010070657080605560605050404540402035303025200201510-20105004 05 06 07 08-4004 05 06 07 08004 05 06 07 0810

ALLIANCE GROUP LIMITED ANNUAL REPORT 2008obligations, that high ethical standards are maintainedand that the company is a responsible corporate citizen.Particular emphasis is placed on the health and welfareof employees and the protection and sustainable useof the environment. All directors register and formallyrecord any conflicts of interest.Board MeetingsEleven board meetings are scheduled each year withextra meetings held if required. Comprehensivemanagement reports are provided to directors duringthe week prior to board meetings being held. Theboard encourages the chief executive to bring to boardmeetings employees who can provide additional insightinto the matters being discussed because of personalinvolvement in those matters.Audit CommitteeThe audit committee comprises four directors and thefinancial adviser who meet three times a year. Thecommittee operates under a charter approved by theboard and is required to establish a framework ofinternal control mechanisms and ethical standards toensure proper management of the company’s affairs.The committee reviews the annual external audit planand the report of the auditors following completion ofthe audit. It assists the board to meet its accountingand reporting responsibilities under the Companies Act1993 and related legislation. The committee is alsoresponsible for the internal audit plan and reviews allinternal audit reports.The Role of ShareholdersAlliance Group makes every effort to keep shareholdersinformed of all major developments affecting theircompany. Information is communicated to shareholdersthrough the Alliance Group website, annual report andregular company newsletters. Each year a series ofmeetings is held throughout the South Island at whichthe chairman and chief executive update shareholderson issues affecting the company and the industry.These meetings also provide the opportunity toreceive and discuss feedback on issues important toshareholders. The board welcomes full participation ofshareholders at these meetings.Turnover($ millions)Net Surplusafter tax for the year($ millions)Pool Surplus($ millions)1300402512001100351000900302080070060025201550015104003002001001055004 05 06 07 08004 05 06 07 08004 05 06 07 0811

ALLIANCE GROUP LIMITED ANNUAL REPORT 2008Notice of Annual Meeting of ShareholdersThe annual meeting of shareholders of Alliance GroupLimited (the company) will be held in Invercargill at10:30am on Friday, 19 December 2008, at the AscotPark Hotel, Racecourse Road, Invercargill.Business1 To receive the financial statements and the reportsof the directors and auditors for the year ended30 September 2008.2 To record the appointment of two directors.3 To record the reappointment of KPMG as auditorsand to authorise the directors to set the fees andexpenses of the auditors.4 To consider a recommendation that total directors’fees be increased by $64,000 to $450,000 perannum.is executed by an agent or attorney the authority toexecute the same must be produced at the time ofdeposit of the proxy.Shareholding CompaniesVoting rights for shares held in the name of aregistered company can only be exercised if theshareholding company appoints a representative toattend the meeting on its behalf. The appointment ofa representative should be made in the same mannerand on the same form as that in which it could appointa proxy using the form sent with this report. The dulysigned notice of appointment, to be valid, must bedeposited at the registered office of Alliance GroupLimited at 51 Don Street, Invercargill, not later thanforty-eight (48) hours before the meeting.ProxiesAny member, entitled to attend and vote, may appointanother person as proxy to attend and vote at themeeting using the form sent with this report. A personwho is appointed proxy need not be a member ofthe company. The signature to a form of proxy mustbe witnessed. The duly signed form of proxy, to bevalid, must be deposited at the registered office of thecompany at 51 Don Street, Invercargill, not later thanforty-eight (48) hours before the meeting. If a proxyBy Order of the BoardM J HornSecretaryInvercargill3 December 200812

ALLIANCE GROUP LIMITED ANNUAL REPORT 2008Summary Financial StatementsSummary Income Statement 14Statement of Movements in Equity 14Balance Sheet 15Statement of Cash Flows 16Notes to the Summary Financial Statements 17Audit Report 2513

ALLIANCE GROUP LIMITED ANNUAL REPORT 2008Financial StatementsSummary Income StatementFor the year ended 30 September 2008Note Group Group2008 2007$000 $000Total operating revenue 2 1,283,908 1,116,797Total operating expenses 3 (1,202,035) (1,096,257)Operating profit before financing cost 81,873 20,540Interest paid (11,323) (9,835)Gain/(loss) on fair value adjustments to financial instruments (3,560) 4,704Total financing costs (14,883) (5,131)Equity accounted earnings 957 617Profit before pool distributions 67,947 16,026Pool surplus distributions (20,509) (7,791)Profit before tax 47,438 8,235Income tax expense (13,945) (5,171)Profit after tax for the year $33,493 $3,064Statement of Movements in EquityFor the year ended 30 September 2008Note Group Group2008 2007$000 $000Total equity at beginning of year 314,425 317,713Net surplus for the year 33,493 3,064Fair value changes in derivatives:recognised in the cash flow hedge reserve (17,198) -transferred and recognised in Income Statement 8,948 -tax effect of cash flow hedge reserve 2,475 -Movement in foreign currency translation reserve 1,470 (3,610)Total recognised revenue and expenses for the year 29,188 (546)Contributions from shareholders 196 59Surrender of shares from shareholders (2,840) (3,501)Share issue pending 1,700 700Dividends (2,844) -Total equity at end of year 4 $339,825 $314,42514

ALLIANCE GROUP LIMITED ANNUAL REPORT 2008Balance SheetAs at 30 September 2008Note Group Group2008 2007$000 $000Equity 4Share capital 58,732 59,676Reserves 58,096 62,401Retained earnings 222,997 192,348Total equity 339,825 314,425LiabilitiesBank overdraft 4,405 3,675Trade and other payables 5 79,545 56,793Employee benefits 12,048 11,053Financial liabilities - derivatives 10,167 131Income tax payable 628 763Interest bearing loans and borrowings 6 325 65,026Total current liabilities 107,118 137,441Interest bearing loans and borrowings 6 39,825 651Employee benefits 5,934 4,974Total non-current liabilities 45,759 5,625Total liabilities 152,877 143,066Total liabilities and equity $492,702 $457,491AssetsCash and cash equivalents 443 168Trade and other receivables 124,965 96,747Inventories 136,394 126,826Financial assets - derivatives 2,121 6,779Total current assets 263,923 230,520Investments in equity accounted investees 7 17,825 17,133Deferred tax assets 18,641 14,115Other assets 171 270Property, plant and equipment 8 192,142 195,453Total non-current assets 228,779 226,971Total assets $492,702 $457,491On behalf of the DirectorsG O PooleDirectorO D BuckinghamDirector11 November 200815

ALLIANCE GROUP LIMITED ANNUAL REPORT 2008Financial Statements continuedStatement of Cash FlowsFor the year ended 30 September 2008Note Group Group2008 2007$000 $000Cash flows from operating activitiesCash receipts from customers 1,258,870 1,100,991Insurance - proceeds received 1,482 15,235Refund of GST and other taxes (6) 2,419Income tax refund - 2,431Interest received 695 712Dividends received 232 150Other receipts 2,060 5971,263,333 1,122,535Cash paid to suppliers and employees (1,192,360) (1,093,595)Insurance - reinstatement expenses - (12,023)Interest paid (11,590) (9,374)Income tax paid (16,041) (4,150)(1,219,991) (1,119,142)Net cash flow from operating activities 9 43,342 3,393Cash flows from investing activitiesRealisation of investment 1,666 -Proceeds from the sale of property, plant and equipment 77 1071,743 107Acquisition of property, plant and equipment(2007 - net of insurance recoveries of $6.3 million) (17,319) (23,058)Net cash flow from investing activities (15,576) (22,951)Cash flows from financing activitiesIncrease in term debt (net of repayments) - 27,600Issue of share capital 126 81126 27,681Dividends paid - (2,604)Redemption of share capital (2,840) (3,501)Reduction in term debt (25,201) -Payment of finance lease liabilities (326) (326)(28,367) (6,431)Net cash flow from financing activities (28,241) 21,250Net movement in cash and cash equivalents (475) 1,692Opening cash and cash equivalents (3,507) (5,313)Effect of exchange rate fluctuations on cash held 20 114Closing cash and cash equivalents ($3,962) ($3,507)16

ALLIANCE GROUP LIMITED ANNUAL REPORT 2008Notes to the Summary Financial Statements1 Significant Accounting PoliciesAlliance Group Ltd (the “company”) is a company domiciled in New Zealand, registered under the Companies Act 1993 and theCo‐operative Companies Act 1996. The company is an issuer in terms of the Financial Reporting Act 1993.These summary consolidated financial statements of the company as at and for the year ended 30 September 2008 comprise the companyand its subsidiaries (together referred to as the “group”) and the group’s interest in associates and jointly controlled entities.Alliance Group Ltd is primarily involved in meat processing and export.These summary financial statements have been prepared in compliance with FRS-43 “Summary Financial Statements” and comply withNZ GAAP as it relates to summary financial statements. The specific disclosures included in the summary financial statements have beenextracted from the full financial statements dated 11 November 2008. The full financial statements have been audited by KPMG, whoprovided an unqualified opinion in respect to those financial statements on 11 November 2008. The full financial statements have beenprepared in accordance with Generally Accepted Accounting Practice in New Zealand (NZ GAAP), applying the New Zealand equivalentsto International Financial Reporting Standards (NZ IFRS), and its interpretations as appropriate to profit‐oriented entities. These arethe group’s first NZ IFRS consolidated financial statements and NZ IFRS 1 has been applied. Compliance with NZ IFRS ensures that thefinancial statements also comply with International Financial Reporting Standards (IFRS).The summary financial statements were authorised by the Board of Directors of Alliance Group Ltd on 11 November 2008.The summary consolidated financial statements are presented in New Zealand dollars (NZD), which is the company’s functional currency,and are rounded to the nearest thousand dollars.Users of the summary financial statements should note that the information contained therein cannot be expected to provide as completean understanding as provided by the full financial statements comprising the Income Statement, Balance Sheet and Cash Flows ofthe group.Users who require additional information are encouraged to access the full Alliance Group Ltd financial statements on the company’swebsite at www.alliance.co.nz. Alternatively, users may request a printed copy of the full financial statements by contacting AllianceGroup at the following address –The Company SecretaryAlliance Group LtdPO Box 845INVERCARGILL 984017

ALLIANCE GROUP LIMITED ANNUAL REPORT 2008Financial Statements continuedGroupGroup2008 2007$000 $0002 Total Operating RevenueTurnover 1,281,803 1,110,115Rebates received from associates 1,169 1,290Rent received 190 417Interest received 684 724Dividends received 39 3Gross insurance revenues - 9,897Insurance re-instatement expenses - (5,669)Net gain on sale of property, plant and equipment 23 20Total Operating Revenue $1,283,908 $1,116,7973 Total Operating Expenses includeDepreciation 20,000 18,851Write-down of property, plant and equipment 181 322Audit fees 173 157Bad debts written off 25 9Movement in provision for doubtful debts 860 100Directors’ fees – Alliance Group Ltd 377 349Operating leases 4,381 3,773Restructuring costs (325) 45218

ALLIANCE GROUP LIMITED ANNUAL REPORT 2008ForeignShare Currency Cash FlowShare Premium Translation Hedge RetainedCapital Reserve Reserve Reserve Earnings Total$000 $000 $000 $000 $000 $0004 EquityGroupBalance at 1 October 2006 54,631 75,317 (1,519) - 189,284 317,713Total recognised income and expense - - (3,610) - 3,064 (546)Shares issued - ordinary shares 59 - - - - 59Shares surrendered - ordinary shares (3,501) - - - - (3,501)Share issue pending 700 - - - - 700Bonus share issue 7,787 (7,787) - - - -Balance at 30 September 2007 $59,676 $67,530 ($5,129) - $192,348 $314,425Balance at 1 October 2007 59,676 67,530 (5,129) - 192,348 314,425Total recognised income and expense - - 1,470 (5,775) 33,493 29,188Shares issued - ordinary shares 196 - - - - 196Shares surrendered - ordinary shares (2,840) - - - - (2,840)Share issue pending 1,700 - - - - 1,700Provision for dividend - - - - (2,844) (2,844)Balance at 30 September 2008 $58,732 $67,530 ($3,659) ($5,775) $222,997 $339,825Share CapitalThe company has 57,032,166 fully paid shares on issue (2007 58,976,294). The difference between the number of fully paid shares on issueand the balance of share capital shown above ($58.732 million) reflects the share issue pending of 1.7 million shares which are to be issuedand paid from the pool surplus distributions to shareholders in November 2008. Shares on issue are ordinary shares with a nominal valueof $1.00 each. All shares have equal voting rights and shareholders are entitled to one vote per share. No shareholder holds more than100,000 shares. Upon winding up, shares rank equally with regard to the company’s residual assets.Shares are issued and surrendered at their nominal value under the company’s constitution and the Co-operative Companies Act 1996.Co-operative shares may be surrendered where shareholders have not transacted with the company for five years or do not have thecapacity to be a transacting shareholder.The dividend provided in the 2008 financial statements is 5 cents per share with a full imputation credit attached.19

ALLIANCE GROUP LIMITED ANNUAL REPORT 2008Financial Statements continuedGroupGroup5 Trade and Other Payables2008 2007$000 $000CurrentTrade payables and accrued expenses 60,745 49,793Pool surplus distributions payable 18,800 7,000$79,545 $56,7936 Interest Bearing Loans and BorrowingsCurrent liabilitiesCurrent portion of secured bank loans - 64,700Current portion of finance lease liabilities 325 326$325 $65,026Non-current liabilitiesSecured bank loans 39,500 -Finance lease liabilities 325 651$39,825 $651On 7 November 2007, the company arranged a syndicated revolving cash advances facility with a consortium of banks for a three yearterm. This facility is denominated in New Zealand dollars. Loans made under this arrangement are secured by a charge over property andassets given under a Debenture Trust Deed. Interest rates under the facility agreement are floating rates based on bank bill interest rates.Various covenants such as minimum net worth and working capital ratios apply to bank lending facilities. The company and subsidiarieshave complied with all covenants in the current year.20

ALLIANCE GROUP LIMITED ANNUAL REPORT 2008GroupGroup7 Investments2008 2007$000 $000(a) Investments in equity accounted investeesThis balance comprises:Shares in associate companies and joint ventures 9,355 8,687Advances to associated companies at cost 5,929 7,998Share of post-acquisition increases in net assets 6,103 5,346Share of foreign exchange translation reserve (3,562) (4,898)$17,825 $17,133The company has the following investments:AssociatesThe New Zealand and Australian Lamb Group of Companies operating in the US and Canada (various percentages of ownership)Porkcorp New Zealand Ltd (50% ownership)(b) Investments in subsidiaries – comprises 100% in -Waitaki International Ltd (non-trading)New Zealand Holdings (UK) Ltd and its trading subsidiary New Zealand Farmers LtdGroupGroup8 Property, Plant and Equipment2008 2007$000 $000Cost -Freehold land 43,040 42,980Buildings 120,877 116,513Plant and equipment 295,370 275,313Capital work-in-progress 6,276 16,114465,563 450,920Book value -Freehold land 43,040 42,980Buildings 47,869 46,010Plant and equipment 94,957 90,349Capital work-in-progress 6,276 16,114Book value at end of year $192,142 $195,45321

ALLIANCE GROUP LIMITED ANNUAL REPORT 2008Financial Statements continuedGroupGroup2008 2007$000 $0009 Reconciliation of Profit to Cash Surplus from Operating ActivitiesProfit for the year 33,493 3,064Adjustments for items not involving cash flows:Depreciation 20,000 18,851Loss on sale of assets 158 322Earnings from associates (967) (617)Associated company dividends eliminated 200 150Decrease in deferred tax (4,526) 2,680Share issues ex-pool 1,770 675Bad debts written off 25 9Doubtful debts 860 102Employee entitlements 960 726Fair value of financial derivatives 6,444 58Hedging of foreign operations - (1,788)Asset write-off, write-downs reclassified as investing - 559Finance lease reclassified as financing 326 326Accounts receivable movements involvinginvesting and financing activities (668) (6,720)Accounts payable movements involvinginvesting and financing activities (559) 1,955Operating cash flow before changes in working capital and provisions 57,516 20,352Movement in trade and other receivables (28,218) 736Movement in inventories (9,568) 3,021Movement in trade and other payables 22,752 (21,244)Movement in employee benefits 995 151Movement in income tax payable (135) 377Cash flow from operating activities $43,342 $3,39322

ALLIANCE GROUP LIMITED ANNUAL REPORT 200810 Explanation of Transition to NZ IFRSAs stated in Note 1, these are the group’s first financial statements prepared in accordance with NZ IFRS.The accounting policies that have been applied in preparing the financial statements for the year ended 30 September 2008, thecomparative information presented in these financial statements for the year ended 30 September 2007 and in the preparation of anopening NZ IFRS balance sheet at 1 October 2006 (the group’s date of transition) are set out in Note 1 of the full financial statements.In preparing the opening NZ IFRS balance sheet, the group has adjusted amounts reported previously in the financial statements preparedin accordance with its previous basis of accounting (previous NZ GAAP). An explanation of how the transition from previous NZ GAAPto NZ IFRS has affected the group’s financial position and financial performance is set out in the following tables and the notes thataccompany the tables.Reconciliation of equity, total liabilities, total assets on initial transition to NZ IFRS as at 1 October 2006Assets Liabilities EquityGROUP$000 $000 $000Total reported under previous NZ GAAP 430,887 131,989 298,898Financial arrangements (a) 1,986 564 1,422Deferred tax assets (b) 7,330 - 7,330Property, plant and equipment (c) 15,021 - 15,021Employee benefits (d) - 4,447 (4,447)Other adjustments 791 1,302 (511)Total NZ IFRS adjustments $25,128 $6,313 $18,815Restated total under the transition to NZ IFRS as at 1 October 2006 $456,015 $138,302 $317,713Reconciliation of equity, total liabilities, total assets on initial transition to NZ IFRS as at 30 September 2007Assets Liabilities Equity Net ProfitGROUP$000 $000 $000 $000Total reported under previous NZ GAAP 434,316 136,783 297,533 3,199Financial arrangements (a) 1,219 131 1,088 829Deferred tax assets (b) 5,600 - 5,600 (1,730)Property, plant and equipment (c) 15,749 - 15,749 728Employee benefits (d) - 5,173 (5,173) (726)Other adjustments 607 979 (372) 764Total NZ IFRS adjustments $23,175 $6,283 $16,892 ($135)Restated total under the transition to NZ IFRS as at 30 September 2007 $457,491 $143,066 $314,425 $3,06423

ALLIANCE GROUP LIMITED ANNUAL REPORT 2008Financial Statements continued10 Explanation of Transition to NZ IFRS (continued)(a) Financial arrangementsThe group maintains a portfolio of derivative financial instruments to hedge the currency risks associated with the sale of productto overseas customers and the interest rate risk associated with the group’s funding. Under previous NZ GAAP these contractswere accounted for as hedges with any gains or losses recognised when the hedged transaction occurred. NZIAS-39:Financial Instruments Recognition and Measurement requires all derivative instruments to be recorded at fair value in the statementof financial position with the related changes in fair value being recorded either in equity or income depending on whether theinstruments meet the hedge criteria as outlined within the standard. Where derivatives qualify as cash flow hedges the effectiveportion of changes in fair value is recorded directly in equity until the hedge transaction occurs.(b) Deferred tax assetsDeferred tax is calculated using a balance sheet approach under NZ IFRS with differences between accounting and tax values ofbalance sheet items giving rise to deferred tax assets or liabilities. Previous NZ GAAP recognised these assets or liabilities from theaccounting and tax differences in the statement of financial performance. Under previous NZ GAAP the group recognised deferredtax using the liability method on a partial basis and deferred tax was not recognised on buildings as the deferred tax asset was notexpected to reverse in the foreseeable future. Under NZ IFRS deferred tax assets are recognised to the extent it is probable thattaxable profit will be available against which the deductible temporary difference can be utilised. This has resulted in the recognitionof additional deferred tax assets under NZ IFRS.The other significant impacts on deferred tax resulting from the transition to NZ IFRS relate to the tax effect of the underlying financialarrangement and employee entitlement adjustments.(c) Property, plant and equipmentIn accordance with NZ IFRS-1: First-time Adoption of New Zealand Equivalents to International Financial Reporting Standards,the group has taken advantage of the exemption on transition to NZ IFRS and revalued land as a one-off adjustment to deemedcost at 1 October 2006. The aggregate fair value of land for which fair value was used as deemed cost was $41.8 million and therevaluation adjustment recorded on transition to NZ IFRS was $36.0 million. Under previous NZ GAAP certain buildings were carriedat an historical revalued amount. The historical revaluation of $21.0 million was reversed on transition to recognise all buildings on acost basis.(d) Employee BenefitsEmployees receive a long service leave benefit. Under previous NZ GAAP, the group accrued for long service leave for employeeswho had already become entitled to the leave. NZ IAS-19: Employee Benefits also requires an accrual for the extent that it isprobable that long service leave and any other benefits will vest with employees from commencement of employment.11 Subsequent EventSubsequent to 30 September 2008, the company purchased the business and assets of North Island meat processing company, LevinMeats Ltd. The assets comprised land and buildings, plant and equipment and EU and US quota allowances. The site processes bothsheepmeat and beef.24

ALLIANCE GROUP LIMITED ANNUAL REPORT 2008Audit ReportTo the Shareholders of Alliance Group LimitedWe have audited the summary financial report of Alliance Group Limited for the year ended 30 September 2008 as set out on pages 14-24.Responsibilities of the Board of Directors’ and AuditorThe Board of Directors is responsible for the preparation of a summary financial report in accordance with generally accepted accountingpractice in New Zealand. It is our responsibility to express to you an independent opinion on the financial report presented by the Directors.Basis of OpinionOur audit was conducted in accordance with New Zealand Auditing Standards and involved carrying out procedures to ensure the summaryfinancial report is consistent with the full financial report on which the summary financial report is based. We also evaluated the overalladequacy of the presentation of information in the summary financial report against the requirements of FRS-43: Summary FinancialStatements.Our firm has also provided NZ IFRS conversion advice to Alliance Group Limited. Other than in our capacity as auditor we have no otherrelationship with or interests in Alliance Group Limited.Unqualified OpinionIn our opinion:• the summary financial report has been correctly extracted from the full financial report; and• the information reported in the summary financial report complies with FRS-43: Summary Financial Statements and is consistent in allmaterial respects with the full financial report from which it is derived and upon which we expressed an unqualified audit opinion in ourreport to shareholders dated 11 November 2008.We completed our work for the purposes of this report on 11 November 2008.Christchurch25

ALLIANCE GROUP LIMITED ANNUAL REPORT 2008Statutory InformationThe directors present to shareholders the Sixtieth Annual Report and Financial Statements of the company for the year ended 30 September 2008.Financial ResultThe result for the year is a consolidated net profit of $33.5 million after tax.DividendThe directors have resolved to pay a dividend of 5.0 cents per share on 19 December 2008 to holders of ordinary shares.ReservesThe directors have transferred $26.3 million to reserves.Interests RegisterThe company maintains an Interests Register in which particulars of certain transactions and matters involving the directors are recorded.Entries in the Interests Register must in turn be disclosed in the annual report. The following entries were recorded in the Interests Register forthe period 1 October 2007 to 30 September 2008:Disclosures of InterestDirectors have disclosed interests in the following entities pursuant to Section 140 of the Companies Act 1993:EntityRelationshipD A Brown Otago Regional Council CouncillorO D Buckingham Ballance Agri-Nutrients Co-operative Ltd DirectorM W A Donald Alliance Group Trustee Ltd ChairmanFarmers Mutual GroupDirectorM J McCliskie Heartland Fruit New Zealand Ltd DirectorAlandale Orchards LtdDirectorNetwork Tasman LtdDirectorNelson Electricity LtdDirectorD J Mackenzie Lyttelton Port Company DirectorMeta (NZ) LtdDirectorG O Poole New Zealand Meat Board DirectorMeat & Wool New ZealandDirectorNew Zealand Lamb CompaniesChairmanAustralian Lamb CompaniesChairmanRelevant Interests in SharesDirectors have disclosed the following holdings of relevant interests in Alliance Group Ltd shares pursuant to Section 148 of the Companies Act1993:Shares Held at Pool Surplus Shares Held at30 September Shares Purchased Retention 30 September2007 December 2007 2008D A Brown 21,004 - 1,407 22,411O D Buckingham 41,562 - 2,089 43,651M L Crawford 13,394 6,606 - 20,000M W A Donald 50,783 - - 50,783J A Lindsay 55,126 - - 55,126J A Miller 18,171 1,000 - 19,171All share transactions were carried out at their nominal value of $1.00 per share.Related Party TransactionsThe company has frequent transactions with its elected directors conducted on an arm’s length basis in the ordinary course of business.Directors’ RemunerationThe following remuneration was paid during the 2008 financial year:ParentAlliance Group Ltd:D A Brown $36,000 O D Buckingham $39,500M L Crawford $27,000 M W A Donald $38,500J A Lindsay $36,000 M J McCliskie $36,000D J Mackenzie $55,184 J A Miller $27,000G O Poole (Chairman) $63,666 M J Taggart $9,000J F Turner $22,75026

ALLIANCE GROUP LIMITED ANNUAL REPORT 2008The remuneration paid to D J Mackenzie includes a payment approved by the board of $13,600 for specialist advice on a number of mattersassociated with the PricewaterhouseCoopers Report and the proposed merger of Alliance Group Ltd and PPCS Ltd, that was over and abovethe normal duties expected of a director of the company.Employee RemunerationDuring the year, the numbers of employees of the group who received remuneration including benefits, of $100,000 or more were:Remuneration No. of Employees Remuneration No. of Employees$100,000-$110,000 9 $220,000-$230,000 1$110,000-$120,000 7 $240,000-$250,000 1$120,000-$130,000 9 $250,000-$260,000 1$130,000-$140,000 7 $260,000-$270,000 3$140,000-$150,000 2 $420,000-$430,000 1$170,000-$180,000 1 $550,000-$560,000 1$190,000-$200,000 1The above details include 11 employees employed by the company’s UK‐based subsidiary, New Zealand Farmers Ltd.Insurance and IndemnitiesUnder the provisions of Section 162 of the Companies Act 1993, the company has entered into deeds of indemnity with each of its directors andhas effected directors’ and officers’ liability insurance to indemnify them against liabilities and costs associated with claims made against themin their capacity as directors of the company.Co-operative StatusAs required by Section 10 of the Co-operative Companies Act 1996, the following resolution was passed by the board on 6 November 2008. Alldirectors present voted in favour of the resolution:“It was the opinion of the board that Alliance Group Ltd has, throughout the year ended 30 September 2008, been a co‐operative companywithin the meaning of the Co-operative Companies Act 1996 on the following grounds:(a) the company carries on, as its principal activity, a co-operative activity as that term is defined in the Co‐operative Companies Act 1996;(b) the constitution of Alliance Group Ltd states its principal activities as being co‐operative activities;(c) not less than 60% of the voting rights of Alliance Group Ltd were held by Transacting Shareholders as that term is defined in the CooperativeCompanies Act 1996.”DirectorsThe names of persons holding office as directors of the company as at 30 September 2008 are listed in the directory on the inside of the backcover.Mr O D Buckingham and Mr J A Lindsay retire by rotation and being eligible have offered themselves for re‐election. As no further nominationshave been received, Mr Buckingham and Mr Lindsay will be declared re-elected at the annual meeting of shareholders.AuditorsUnder Section 200 of the Companies Act 1993 KPMG, Chartered Accountants, continue in office as auditors.Company’s AffairsThe directors consider the state of the company’s affairs to be satisfactory. Details of the year under review, including material changes in thenature of the business of the company or any of its subsidiaries, are included in the Chairman’s and Chief Executive’s Review and the financialstatements of the company accompanying this report.On behalf of the BoardG O PooleDirectorO D BuckinghamDirectorDated 11 November 200827

ALLIANCE GROUP LIMITED ANNUAL REPORT 2008Five Year Review2008 2007 2006 2005 2004$000 $000 $000 $000 $000NZ IFRS NZ IFRS NZ GAAP NZ GAAP NZ GAAPTurnover 1,281,803 1,110,115 1,056,332 1,093,583 1,118,271Net surplus before pool surplus distributions and interest: 79,270 25,861 59,054 22,532 45,768Pool surplus distributions 20,509 7,791 20,204 11,628 14,314Interest paid 11,323 9,835 6,943 5,997 5,333Consolidated net surplus after tax 33,493 3,064 20,327 3,235 17,564Fixed assets at book value 192,142 195,453 170,310 172,030 175,246Total assets 492,702 457,491 430,887 388,196 347,735Shareholders’ funds 339,825 314,425 298,898 276,564 278,575Shareholders’ funds as apercentage of total assets 69.0% 68.7% 69.4% 71.2% 80.1%Ordinary shares (000) 57,032 58,976 52,132 53,365 54,73128

ALLIANCE GROUP LIMITED ANNUAL REPORT 2008DirectoryCorporate Office51 Don StreetPO Box 845Invercargill 9840Telephone: 03 214 2700Facsimile: 03 214 2708Web site: www.alliance.co.nzElected Directors D A Brown, JP OamaruO D BuckinghamTe AnauM L CrawfordOtautauM W A DonaldWintonJ A LindsayDiptonJ A MillerSouthdownAppointed Directors G O Poole (Chairman) WanakaM J McCliskieNelsonD J MackenzieChristchurchFinancial Adviser J A Waller AucklandBoard of Management Chief Executive G R CuffCompany SecretaryM J Horn, JPGeneral Manager MarketingA H HenryGeneral Manager ProcessingJ E BraderGeneral Manager Corporate Affairs J G BayleyGroup Livestock ManagerM R BehrentChief Financial OfficerJ A McGrathManagers Dannevirke Plant B A PooleLorneville PlantD G KeanMataura PlantA G GilderNelson PlantT M KreftPukeuri PlantD J HailesSmithfield PlantR AllanSockburn PlantK R AshbyAlliance MeatsD J BainesNew Zealand Farmers LtdB D JohnstonAuditorsKPMGBankersANZ National Bank LtdThe Hongkong and Shanghai BankingCorporation LtdRabobank NZ BranchRegistered Office51 Don StreetInvercargill 9810The information in this annual report is for shareholders only and is not to be reproduced in whole or in part without theconsent of Alliance Group Ltd.