By Neal Wallace

Copyright farmersweekly

Reading Time: 2 minutes

Alliance Group’s return to profitability and improved farmer incomes mean retaining ownership of the meat company as a co-operative is a possibility, say a group of shareholders.

They have put together what they said is an alternative proposal to recapitalise the co-operative instead of the current option of selling 65% of the business to Irish company Dawn Meats for $250 million.

“We thought that if we did not ask the question now, in two months’ time it would definitely be too late,” said Michael Wilkins, a shareholder and Southland farmer.

Shareholders will vote on October 20 whether to accept the Dawn Meats proposal, which will enable Alliance to settle bank debt that must be repaid by the end the year.

Alliance chair Mark Wynne revealed last week that debt and banking covenants had limited Alliance’s ability to pay competitive prices for livestock this season.

The shareholders’ plan would raise $188m over three years with $90m from shareholders paying $5/SU for stock supplied for part of this season and then kill sheet reductions of $2/lamb equivalent for the next two years.

The sale of non-core assets and debt repayment from company profits would raise the balance.

Wilkins said last year shareholders rejected Alliance increasing livestock retentions to raise capital, but farmer finances have since dramatically improved, the company has become leaner, earlier investments are paying dividends and the co-op will be profitable this year.

Alliance has also renewed its strategy and focus on its core business.

Documentation prepared by independent assessors Northington Partners for shareholders forecasts Alliance earning $2.066 billion in revenue for the year ended September 30, ($1.77bn in 2024) and earnings before interest, tax, depreciation and amortisation (EBITDA) of $83m ($1m in 2024).

Wilkins said the report calculates EBITDA of $75m is needed for Alliance to be viable, a benchmark he said his group, using best industry knowledge, is forecasting for at least the next five years.

Alliance has accumulated tax losses up to the last financial year of $191m, which Wilkins said will benefit Dawn Meats and make the meat co-op a relatively cheap purchase.

The Northington report warns that if shareholders do not approve the sale, Alliance would not have funding facilities in place from December 20.

But Wilkins said banks have supported the co-op since 1948 and that could continue if the company is profitable and the proposal has the support from shareholders, the board and management.

“We have worked together for many years, why would the banks drop the ball now?”Wynne rejected the proposal as creating false hope.

He said the bank debt has to be repaid by someone in full by the end of the year, but the plan has no multi-year funding commitment by farmers and no approval by banks to extend their timeline.

“It’s not credible and it is painting a picture of false hope that this is an option. It is not.”

There is also a significant funding risk, which Alliance found when it instigated kill sheet retentions.

When the market turns, farmers walk away with their livestock.