Annual Report 2008 Alliance Group Annual Report 2008

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