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A N N UA L RE PORT 20 1 8 ALLIANCE GROUP LIMITED


A N N UA L RE PORT 20 1 8


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ALLIANCE ANNUAL REP ORT 2018

Introduction

OUR C O-O P E R AT I V E Alliance Group Limited is a leading food company owned by skilled and passionate New Zealand farmers who produce high quality, free-range, grass-fed natural lamb, beef and venison as nature intended. Our farmers love what they do and have a deep affinity with the land. They are proud, and so are we, of producing food for people across the globe where we are recognised for quality and food safety. Our world-class technology, meticulous production values, the highest levels of ethical production, commitment to animal welfare and our adherence to environmental sustainability, all contribute to our reputation for food excellence. As New Zealand’s only 100% farmer-owned major red meat co-operative, we put our farmers at the heart of everything we do. Our goal is to maximise returns to our committed farmers and support them to operate profitable and sustainable farming businesses. The co-operative is a value chain extension from farm to consumer, which brings together the collective passion, care and skill of our farmers, our people and our partners to grow, make and sell farmers’ produce. We exist to create: •

prosperity for our farming families

• meaningful rewarding work and careers for our people • quality produce and solutions for our customers • a sustainable and commercially successful business.

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CONTENTS

ALLIANCE ANNUAL REP ORT 2018

Contents 03

36

Shareholder Information

Global Markets

04

42

Year in Review

Driving Innovation

08

46

Chairman and Chief Executive Review

Governance

54 16

Our Financial Review

Keeping Our People Healthy and Safe 80 20

Auditor’s Repor t

We Care About Our People 82 24

Statutor y Information and Five Year Review

Sustainability: The Environment 90 28 Our Farmers and Their Produce

32 Growing Our Brands to Transform the Business

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Director y


S E C T I O N 1 : Shareholder Information

ALLIANCE ANNUAL REP ORT 2018

Section 1

SHAREHOLDER I N FO R M AT I O N DIRECTOR ATE Mr J G Collie and Mr J A Miller retire by rotation and offered themselves for re-election. As no further nominations have been received, Mr Collie and Mr Miller have been declared re‑elected.

ANNUAL MEETING OF SHAREHOLDERS The annual meeting of shareholders will be held at 10:30am on Tuesday, 18 December 2018 at the Hutton Theatre, Otago Museum, 419 Great King Street, Dunedin. A formal Notice of Annual Meeting of Shareholders is set out in a separate document sent to shareholders.

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S E C T I O N 2 : Year in Review

Section 2

YEAR IN REVIEW

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ALLIANCE ANNUAL REP ORT 2018


S E C T I O N 2 : Year in Review

ANNUAL REP ORT 2018

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S E C T I O N 2 : Year in Review

ALLIANCE ANNUAL REP ORT 2018

Year in Review CO-OPER ATIVE PERFORMANCE O P E R AT I N G R E S U LT

$

8.0M

EQUIT Y R ATIO

64.1

06

ANNUAL TURNOVER

%

$

1.8B


S E C T I O N 2 : Year in Review

ALLIANCE ANNUAL REP ORT 2018

BENEFITS TO SHAREHOLDERS A D VA N C E PAY M E N T S M A D E T O P L AT I N U M A N D G O L D S H A R E H O L D E R S

$

31.6M

L OYA LT Y P R E M I U M S PA I D

$

14.6M

STORE STOCK TRANSACTIONS

1.06M

LAMBS, EWES, C AT TLE & DEER

BONUS SHARES ISSUED TO SHAREHOLDERS

$

9.5M

YIELD Q UALIT Y CONTR ACT: AVE R AGE PRE MIUM ON Q UAL IF YING L AMB S

$

2.54

PER LAMB

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S E C T I O N 3 : Chairman and Chief ExecutIve Review

Section 3

CHAIRMAN AND CHIEF EXECUTIVE REVIEW

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ALLIANCE ANNUAL REP ORT 2018


S E C T I O N 3 : Chairman and Chief ExecutIve Review

ALLIANCE ANNUAL REP ORT 2018

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S E C T I O N 3 : Chairman and Chief ExecutIve Review

ALLIANCE ANNUAL REP ORT 2018

CHAIRMAN AND CHIEF EXECUTIVE REVIEW A significant year on a positive journey: The third year of our business transformation strategy. This year marked a significant milestone for Alliance with the company celebrating its 70th anniversary. Alliance was founded by a group of progressive farmers who recognised that unity and a common purpose were strengths and owning greater parts of their value chain made absolute sense. That purpose is as strong and relevant today as it was in 1948. OUR STR ATEGY Three years ago, we laid out our business transformation strategy, which was focused on maximising operational efficiency and capturing more market value. This strategy comprises three important phases: • getting fit • making our business model sustainable • transformation We are now in phase two—making our business model sustainable. This includes building the capabilities of the company, strengthening our sales and marketing activity and continuing to invest in the co-operative. We are now a fitter co-operative as a result of our relentless focus on lifting efficiency, lowering our costs and identifying opportunities to capture more market value. OUR PERFORMANCE Alliance paid out $1.242 billion for livestock to our farmers this year. The profit for the company has reduced and we are not distributing a pool payment to farmer shareholders. We know this will disappoint farmer shareholders, but we are focused on investing in the co-operative for the long-term. At our recent road show meetings, our farmers overwhelmingly backed this strategy.

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A number of factors impacted our performance. The co-operative held the lamb schedule during the extreme dry conditions in the summer and there were costs associated with keeping capacity available at key times of the year. Cattle profitability was also under pressure. Overall, the livestock procurement market was not aligned with global supply and demand for our products and this certainly affected the co-operative’s performance. The company is profitable and our balance sheet remains strong. We have the highest number of shares on issue in the company’s history and the capacity and capability to make further gains in the future. This year, we paid our farmers a greater share of revenue than the previous year. As a co-operative, we are striving to deliver as much value as we possibly can back to our farmers. Our farmers typically run their farms for the long term and the Board and Executive Leadership Team firmly believe we need to do the same. This means continuing to invest and build for the future.


S E C T I O N 3 : Chairman and Chief ExecutIve Review

ALLIANCE ANNUAL REP ORT 2018

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S E C T I O N 3 : Chairman & Chief ExecutIve Review

H E A LT H A N D S A F E T Y Safety remains the number one priority for Alliance. Our goal is to ensure every member of our team goes home to their family safe and well every day. This year, we have seen a further significant improvement in the company’s overall safety performance. Our Total Recordable Injury Frequency Rate (TRIFR) has improved by 34 per cent. We have undertaken further work to identify and increase our focus on our biggest critical risks including the management of ammonia at our Lorneville plant. The learnings are now being rolled out across all processing sites. Alongside continuing to bring injury rates down, we are also moving to lift our focus on mental health. We are working to put mechanisms in place so that if people are struggling in that space, we can provide them with access to help. Our Safety Leadership Team meets monthly, rotating around our different sites. Every one of our sites also has an individual health and safety committee and these also meet monthly.

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ALLIANCE ANNUAL REP ORT 2018

We are disappointed that injuries continued to occur at our workplaces over the past year. When they do happen, we assist our people with rehabilitation and work with the regulatory agencies. We ensure that lessons are learnt and progress continues to be made to ensure others are not injured. FA R M GAT E A N D M A R K E T P R I C E S Farmgate pricing for lamb in particular was extremely strong, however as the year progressed, it became apparent these levels were not aligned with global market conditions. We experienced price resistance in our markets from some customers. Alliance worked hard to strike a balance between remaining price competitive, but also ensuring that what we paid farmers reflected the demand for our products. S U P P O RT I N G O U R FA R M E R S THROUGH CHALLENGES During the 2017/2018 summer, much of New Zealand was extremely dry. Our response, as a co-operative, was to bring on ovine capacity early in the season to meet farmer demand.


S E C T I O N 3 : Chairman & Chief ExecutIve Review

We maintained this capacity because, once it rained, we knew there would be another peak in processing volumes. We also prioritised capacity for our Platinum and Gold shareholders. It is costly to hold capacity when there are not sufficient volumes of animals flowing through our plants, but that was an important service for farmers at a very challenging time. Autumn grass growth saw farmers retaining bulls for longer, so the bull season effectively moved back a month, which coincided with dairy cull cows and the Mycoplasma bovis (M. bovis) cull. This led to challenges around beef capacity and we brought on additional processing. We operated our Pukeuri and Mataura plants to maximum capacity, brought on a Sunday shift at Mataura, transported animals from the South Island to Levin to be processed, and put some stock on grazing. At these times, we also stopped taking non-shareholder stock. Over a 4-6 week period, we worked with our farmers to get their livestock processed and we are grateful for their patience and support.

ALLIANCE ANNUAL REP ORT 2018

INVESTMENT IN OUR PLANTS AND TECHNOLOGY We are continuing to invest in strengthening our processing capabilities to improve our operational efficiency. Our Manufacturing Excellence Programme aims to lift our performance in this area by examining every aspect of our plant operations in order to improve productivity. We must continue to improve our processing and systems to enable yield gains across all species and optimise all the cuts we can get from a carcase and capture that value. Our performance in beef needs to improve. We have lifted our performance in manufacturing cow and are now focusing on doing the same for prime and bull. There is a significant journey we need to go on to address this. This year, we installed ovine primal cutter technology at our Dannevirke plant, boosting yields and operational efficiencies. Processing is underway at our new $15.9 million venison plant at Lorneville, which will substantially lower operating costs. We have also invested in blood products collection services, which has already resulted in revenue gains.

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S E C T I O N 3 : Chairman & Chief ExecutIve Review

ALLIANCE ANNUAL REP ORT 2018

S U P P LY C H A I N

VALUE CRE ATION

We have invested significantly in improving our supply chain management this year, in particular, the sales demand forecasting and further processing planning, and the co‑operative is realising gains as a result of the changes.

A key focus for our sales and marketing programme is creating value from every one of our products. Our farmers invest huge amounts of effort and commitment into growing their animals and we are working to ensure we extract the maximum revenue from each animal.

ENTERPRISE RESOURCE PL ANNING SYSTEM (ERP) We are investing in our Enterprise Resource Planning System (ERP), a 4-year major transformation project to replace our ageing IT infrastructure with a modern system to help us achieve our goal of a stronger business for our people and our farmer shareholders. This represents one of the largest investments in Alliance’s history. It will put information at our employees’ fingertips so they can make faster and better decisions and help us achieve our strategic objectives of maximising operational efficiency and capturing more market value to increase shareholder returns. NE W CORP OR ATE IDENTIT Y In September, Alliance launched our new corporate identity. The Alliance name sums up what the company is about—an alliance of farmers that can collectively achieve things they cannot do as individuals. The previous brand served the business well, however today’s customers want a stronger connection to our farmers. “Farmers’ Produce" is very important in terms of our messaging. Our new logo reinforces the fact we are focused on taking our farmers’ produce from the farm gate to the globe. That is a unique distinction for us. We are combining our world-class processing capabilities with our great relationships with farmers to build a premium food and solutions company, targeting discerning customers, and the new farm gate logo reflects that. The change is about building our core capabilities. The new identity highlights our roots and our farmers’ dedication to raising outstanding livestock, our expertise and experience in processing and producing food and solutions.

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This year has seen us broaden the marketing of our venison, moving beyond the traditional European markets and we achieved well above budgeted profit results. This was the cooperative operating in just the way it should, with value released to farmers immediately. There were a number of promising new initiatives including a successful hogget pilot programme in the UK, participation in a major Chinese online sales event and regular chilled lamb and beef exports to China. In May, we launched the premium Pure South Handpicked 55 Day Aged Beef range, which has since gone on to win a Gold Medal at the World Steak Challenge in London. Our New Zealand and UK food service programmes have grown strongly over the past 12 months. This demonstrates the ability to really move up the value chain by selling directly to restaurants. Hong Kong also represents a successful fine dining beach head for the group. Pure South lamb is now on the menu in 300 five-star hotels in India and served to many premium airline travellers departing the world’s second most populous nation. We have worked hard to bridge the gap between chefs, our farmers and their produce. In April, we brought a group of leading international chefs and food writers to farms and premium restaurants in the South Island for our innovative Antipocurean Series as a means of building both our culinary reputation and creating evangelistic chefs in key markets. Our focused food service strategy is now gaining traction for our finest lamb, beef and venison products. We have ambitious plans for an expanded portfolio and greater market reach.


S E C T I O N 3 : Chairman & Chief ExecutIve Review

SHAREHOLDER NUMBERS Over the past two years, the co-operative has seen numbers grow by about 200 new shareholders annually. This year we welcomed more than 200 new shareholders. We know we can do better but there is recognition that we are working to do our best to look after farmers. BONUS SHARE ISSUE Alliance will make a non-taxable bonus share issue to shareholders in December 2018. The bonus share issue is based on livestock supplied by shareholders during the F18 season. DEVELOPMENT OF OUR PEOPLE Alliance is making a significant investment in our people to boost skills, encourage employees and provide a career path for everyone across our offices and our plants. This includes providing a new bespoke training programme, which enables people to progress through bronze, silver, gold and platinum levels, attaining New Zealand Certificates in Meat Processing on the New Zealand Qualification framework. It is a meaningful programme which is beneficial for our people, for the group and for our farmer shareholders. GOVERNANCE

ALLIANCE ANNUAL REP ORT 2018

Sarah Brown joined the Board in March as an independent director. Directors Jared Collie and Jason Miller retired by rotation and were re-elected unopposed in October. James Ogden stepped down from the Board in November 2017. THANK YOU Listening to our farmer shareholders is fundamental to our co-operative principles. There are many ways farmers share their views with us: by email, by phone but most frequently in person—at our roadshows, at woolshed meetings, at this year’s Winter Workshops and A&P shows. Overall, this feedback reflects a feeling that we are doing a better job meeting our cooperative principles, working hard to be more competitive and building value in the business. Farmer feedback is a strong component in our strategy development—so please keep sharing. Thank you to all our farmer shareholders, directors and employees for the ongoing support of the co-operative during what has been a year of huge change. Our people have worked extremely hard and we value their commitment and dedication. We look forward to building on the strategic gains made this year and the significant projects which are in place, to ensure a profitable and sustainable co‑operative for everyone.

Experienced director, Peter Schuyt, was appointed to the Board in December 2017. Marketing and consumer insights specialist

M J Taggart CHAIRMAN

D R Surveyor CHIEF EXECUTIVE

22 November 2018

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S E C T I O N 4 : Keeping Our People Healthy and Safe

ALLIANCE ANNUAL REP ORT 2018

Section 4

KEEPING OUR PEOPLE H E A LT H Y AND SAFE

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S E C T I O N 4 : Keeping Our People Healthy and Safe

ALLIANCE ANNUAL REP ORT 2018

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S E C T I O N 4 : Keeping Our People Healthy and Safe

ALLIANCE ANNUAL REP ORT 2018

K E E P I N G O U R P EO P L E H E A LT H Y A N D S A F E Health and safety is a key part of our strategy and our first consideration when making any business decision. We are committed to achieving world class health and safety standards across the co-operative and continuing to invest in this area. Our Total Recordable Injury Frequency Rate (TRIFR) has improved by 34 per cent this year and we are preparing to launch a new initiative on well-being, specifically focusing on mental health. We have made strong progress towards ensuring that safety is embedded in our culture. We are maintaining our strong focus on safety behaviours while also looking more closely at our critical risks. These are the activities that can cause a fatal or life changing injury if things go wrong or safety procedures are not followed. Alliance has begun a significant body of work to develop improved processes to manage these risks and protect our people from harm. These risks are not new but we need to elevate our focus on them, for instance, a fall from height, vehicles and working with livestock, particularly deer and cattle. We are rolling out an important new employee wellbeing initiative called Mates at the Gate, which is focused on preventing suicide and helping people to look after each other. This is a New Zealand social problem. The aim of the programme is to support people to identify early warning signs where someone is struggling or having difficulty in their life so that we can put them in touch with our employee counselling service and get them the help they need. MACHINE GUARDING We launched a major programme of work around machine guarding, with independent specialists assessing every piece of machinery across the business to determine what could be done to make each piece safer. This is a significant investment and work is underway in response to those recommendations including investing in installing and upgrading machine guarding across our plant network.

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This follows an accident at our Smithfield plant last year, which left one of our employees with a life-changing injury. In September, Alliance was sentenced and fined $332,000 in the Timaru District Court. We accepted responsibility for not doing enough to look after the safety of one of our people, co-operated fully with the WorkSafe NZ investigation and pleaded guilty to the charge at the earliest opportunity. We also voluntarily provided reparation, counselling and employment support to the employee and his family. AMMONIA SAFETY Under the Major Hazard Facility Regulations, which came into force in 2016, our Lorneville plant was assessed as a ‘lower tier’ major hazard facility under the legislation. We have undertaken work to ensure our systems to manage ammonia and chlorine meet the new requirements. We brought in external experts to carry out a detailed risk assessment of the site and formulate remedial action to mitigate any risks identified. It was a successful project and we are now in the process of carrying out assessments and making improvements across all our processing plants. A SBESTOS PRO GR AMME A major programme began this year to identify asbestos in Alliance buildings, remove the material where possible or put control measures in place. This work is rolling out across all of our sites.


S E C T I O N 4 : Keeping Our People Healthy and Safe

TRAFFIC MANAGEMENT We have continued our work to improve traffic management at all of our sites, specifically to ensure people are kept separate from vehicles and mobile plant, such as forklifts. This includes erecting barriers and fences, clear signage and markings on the ground, and pedestrian crossings. SAFE TECHNOLOGY This year, Alliance installed state of the art equipment to test the sharpness of knives across all of our processing plants. Knife blades which are not properly sharpened can cause health and safety issues. If the knife does not glide through the meat easily, more effort is required, which can lead to strains and sprains or repetitive strain-type injuries. The equipment enables the sharpness of each area of a knife to be measured via a computerised system and ensures they meet

100

ALLIANCE ANNUAL REP ORT 2018

the required standards. As well as providing health and safety benefits, the sharper the knife, the more effective the cutting will be too, which boosts productivity. We also approved a further $2.6 million on the latest 600 series BladeStop band-saw model now the technology has become available. The band-saws are uniquely designed to stop the blade within 15 milliseconds when the unit senses a person, glove or both are in close proximity or in contact with the saw. H E A LT H A N D S A F E T Y STAT I ST I C S Alliance Group has: • Undertaken 27,048 safety interactions this year • Engaged 39,474 people in safety conversations

TRIFR (Total Recordable Injury Frequency Rate) per million hours worked

90

-82%

80 70 60 50 40 30 -34%

20 10 0 F14

F15

F16

F17

F18

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S E C T I O N 5 : We Care About Our People

ALLIANCE ANNUAL REP ORT 2018

Section 5

WE CARE ABOUT OUR PEOPLE

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S E C T I O N 5 : We Care About Our People

ALLIANCE ANNUAL REP ORT 2018

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S E C T I O N 5 : We Care About Our People

ALLIANCE ANNUAL REP ORT 2018

WE CARE ABOUT OUR PEOPLE We want people to choose to work for Alliance Group and be proud of their contribution to creating remarkable outcomes in a high-performing co-operative. That is why we are making a significant investment in our people. Leadership, teamwork and personal accountability all form our core beliefs for our team at Alliance. Building our organisational capacity and capabilities is a key part of our strategy to build a stronger co-operative. We recognise it is vital that people, in every area of our business, have opportunities to progress their careers. More than 600 of our people, both in our plants and across our offices, received external training opportunities over the past 12 months. Our commitment is also underlined by the development of a Group Training Structure and the creation of a new position of Group Training Manager to lead this programme in plants. ALLIANCE TRAINING PAT H WAY P RO G R A M M E Our Alliance Training Pathway Programme supports our commitment to providing a career path for everyone at our plants, multi-skilling people so they can choose to do other jobs and progress in their careers. This customised programme is made up of four stages: bronze, silver, gold and platinum so people can progress through these levels of attainment, gaining New Zealand Certificates in Meat Processing at Level 3 and Level 4 on the New Zealand Qualification framework. SUPP ORTING OUR FUTURE LE ADER S Alliance is committed to providing our future leaders with opportunities to develop their management skills to progress their careers and add value to the business. Two of our people were among 38 participants in a Meat Executive Programme at Deakin University in Geelong, Victoria, Australia. The programme is designed to maximise team-based learning and innovation. It also works to enhance management strategy and refine high-

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performing teams and investigate best practice for building more rewarding relationships. TRADES TRAINING There is a strong trades component to our workforce, from engineers to electricians, and upskilling is particularly important as we continue our significant investment in our plants. We have assessed the training needs across our plants to design and implement new training modules. Programmes will include ‘on‑the‑job’ training, ‘first‑line’ leadership training and trade training. L AB OUR SHORTAGE S Alliance faced significant labour shortages at our processing plants over the past year, which had a substantial impact on our productivity. We regularly run recruitment campaigns to encourage people to apply for positions at our plants and our preference is always to employ people from our local communities. We also work with a range of organisations including Work and Income, the Ministry for Social Development and local development agencies to source staff. Unfortunately, these initiatives are insufficient to attract the necessary number of people so Alliance submitted an application to Immigration New Zealand to source temporary employees from overseas. We are awaiting the outcome of this application. C O N S U LT I N G O N B U I L D I N G O U R C U LT U R E Over the past three years, we have made great strides in delivering our strategy, creating a new identity and building a stronger co‑operative for our farmers and our people. For us to be successful as we move into the next phase of our strategy, we need to make sure we develop a culture that is grounded in values that will guide the right behaviour and decisions to deliver high performance across our entire business.


S E C T I O N 5 : We Care About Our People

We have been working on developing our purpose and vision through a series of workshops with our people in August and September, which sets up the framework for developing the culture work. LIVESTOCK EXCELLENCE PRO GR AMME Our livestock representatives meet and talk with our farmers every day. The Livestock Excellence Programme, which includes training and support for our livestock representatives, aims to help them help farmers. Alliance’s livestock representatives are our farmers’ trusted counsel and we are providing them with the right tools to ensure farmers can make informed decisions for the benefit of their farm business. A significant focus this year has been professional development for our livestock representatives. At the annual livestock team conference in Timaru in June, they were guided in how to have more effective conversations with our farmers so they can better understand their needs and what is important to them. Alliance’s livestock representatives also participated in a facilitation skills training course run through the Red Meat Profit Partnership to support them to lead small group discussions such as plant tours, woolshed meetings or RMPP Action Network Action Groups.

ALLIANCE ANNUAL REP ORT 2018

We also had a number of new livestock representatives joining the team and they had exposure to the wider business as part of their induction. We are leveraging the experience and skills of the long-serving members of the team to develop their livestock assessment and farmer relationship management skills. 2 0 1 8 T E RT I A RY E D U C AT I O N B U R S A RY R EC I P I E N T S We award a range of bursaries to school leavers who are children of Alliance shareholders or employees and are planning to pursue a course of study relating to the meat industry, its associated industries and/or primary production. Our 2018 Undergraduate Bursary, of $2,000 per year for three years, was awarded to Matthew Fraser, son of Laurence and Roslyn Fraser, who farm on the WallacetownRiverton Highway, Southland. Matthew will be studying for a Bachelor of Engineering at the University of Canterbury. The Employee Bursary Group 3, of $1,500 per year for three years, was awarded to Tyler Donnelly, son of Venison Production Manager Martin Donnelly. Tyler will be studying for a Bachelor of Design Communication at Otago Polytechnic. The Employee Bursary Group 2 of $1,500 for three years, was awarded to Alex Hardy, son of Lynette Hardy, Finance and Administration Manager at our Pukeuri plant. Alex will be studying for a degree in Quantity Surveying and Construction Management at Otago Polytechnic.

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S E C T I O N 6 : Sustainability: The Environment

ALLIANCE ANNUAL REP ORT 2018

Section 6

S U S T A I N A B I L I T Y: THE ENVIRONMENT

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S E C T I O N 6 : Sustainability: The Environment

ALLIANCE ANNUAL REP ORT 2018

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S E C T I O N 6 : Sustainability: The Environment

ALLIANCE ANNUAL REP ORT 2018

SUSTAINABILIT Y: THE ENVIRONMENT No one knows better than farmers the value of our precious resources such as water and we have a comprehensive sustainability programme in place to improve Alliance Group’s impact on the environment. Our customers and consumers have high expectations around how farmers and the co-operative manage the natural environment, but they also expect transparency and ethical food production. We are committed to meeting high standards of environmental practices including a significant investment in upgrading our wastewater systems and processes. Alliance is constantly looking ahead to make sure our practices allow us to be in business for the long term. We regularly monitor our environmental impacts and energy use at all sites and assess what improvements are needed. CARBON FOOTPRINT Alliance has tracked the carbon emissions from our plants for a number of years, however this year we produced a broader assessment which includes the likes of air travel and company vehicles. The assessment was undertaken in

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general accordance with the Guidance for Voluntary Greenhouse Gas Reporting (Ministry for the Environment 2016). The Total Tonnes CO 2 equivalent discharge for the 2017/18 season was 107,877 tonnes—which is equivalent to what 5,200 houses produce per year, or driving a Toyota Corolla around the world 19,640 times. LED LIGHTING Energy efficient LED lighting is being installed at our Lorneville, Pukeuri, Smithfield, Nelson and Mataura plants after a successful introduction at Levin and Dannevirke. This represents an investment of almost $2 million and energy savings of approximately 5,629,971 kWh per annum.


S E C T I O N 6 : Sustainability: The Environment

ALLIANCE ANNUAL REP ORT 2018

WATER EFFICIENCY Water meters have been installed at our Smithfield and Mataura plants. Flow restrictors have been fitted to 100 shower heads at Smithfield and on the sprays used for cleaning the viscera trays used for collecting offal. We have also installed 100 new ‘smart magic eye’ sensors at the apron and handwashing facilities at Smithfield. Now the water turns on and off automatically as someone enters or exits the area. The expectation is that these measures will reduce water consumption by about 10 per cent at Smithfield. CONSENT RENEWAL S Major consent renewals for our Mataura plant, including for our hydro scheme and wastewater discharge, are due in the coming year. As part of the preparation for our water take and wastewater applications, we are examining the water take for the plant and the effect of wastewater discharge on the river, and collecting information to ensure a robust assessment of effects. This application will be publicly notified in mid-2019.

12.0

OUR MOST UNUSUAL CONSUMERS – E N DA N G E R E D B L AC K ST I LT S We have customers in 65 countries—but our most unusual is the Department of Conservation’s (DoC) captive breeding programme for endangered black stilts / kakī at Twizel. Every week, ox hearts from some of our plants are frozen and sent to Smithfield where they are put through a very specific process to meet DoC’s requirements for the birds’ diet. The hearts are thawed and trimmed of excess fat, then minced, refrozen and cut into blocks for delivery to the breeding programme. There they form an important part of the scientificallyformulated diet fed to the chicks until they are released at eight to nine months old. The kakī is one of New Zealand’s most endangered birds. In the 1980s, the population fell to 23 in the wild. In August, a record number of kakī were released into the wild in the Mackenzie Basin after the best breeding season ever. Overall, 184 kakī were hatched and reared for release by DoC and the Isaac Conservation and Wildlife.

Energy Use Efficiency

10.0

GJ

8.0 6.0 4.0 2.0 0.0

00/01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10 10/11 11/12 12/13 13/14 14/15 15/16 16/17 17/18 YTD

(Electricity) GJ per Tonne of Equivalent Frozen Weight (EFW)

(Fuel) GJ per Tonne of Fuel Adjusted Production (FAP)

EFW is the total weight of chilled and frozen product adjust-

FAP is the total weight of dressed meat, blood, tallow,

ed to reflect the relative energy (electricity) input required

meat and bone meal, wool and soup stock adjusted to

by the two product types.

reflect the relative energy (fuel) input required by the

Total Energy in GJ/Tonne of Dressed Carcase

different product types.

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S E C T I O N 7 : Our Farmers and Their Produce

ALLIANCE ANNUAL REP ORT 2018

Section 7

O U R FA R M E R S AND THEIR PRODUCE

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S E C T I O N 7 : Our Farmers and Their Produce

ALLIANCE ANNUAL REP ORT 2018

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S E C T I O N 7 : Our Farmers and Their Produce

ALLIANCE ANNUAL REP ORT 2018

O U R FA R M E R S A N D T H E I R P RO D U C E We are New Zealand’s only 100 per cent farmer-owned major red meat cooperative and our farmers tell us they value their ownership. We reward their investment by ensuring that they are at the heart of every decision we make. Alliance is committed to returning as much value as possible to our farmers and continuing to invest for their long term benefit. We are pleased to see growth in shareholder numbers and extend a warm welcome to our new shareholders this year. Our farmers enjoyed strong prices across most species over the past 12 months. The prices at the end of the season (2017/18) were up significantly compared to the previous season (2016/17). For lambs, the price ended the season up $1.30 per kg (+25%), sheep $1.35 per kg (+52%), cattle -$0.05 per kg (-0.01%) and deer $0.80 per kg (+9%). Our focus is on providing farmers with the best possible returns over the long-term, however we know we need to improve our beef returns to our farmers. STEPPING UP WHEN IT MAT TER S As a co-operative, we offer much more than just the price on the day. We always look to step up when it matters for farmers. Many regions experienced challenging weather events including drought and flooding over the past year. For instance, during the extreme dry conditions, we moved quickly to manage capacity and process lambs for our farmers. This included introducing extra processing and prioritising capacity for our Platinum and Gold farmer shareholders. Our store stock facilitation service really came to the fore at that time. We moved a record 1.06 million lambs, ewes, cattle and deer from farmer to farmer. There is no commission charged on this and farmers tell us the service is of huge benefit to them and was particularly valuable during this difficult time. We also appointed a dedicated Store Stock Manager. Another example where we worked hard to support our farmers was during flooding in the Tasman area at the beginning of the year. The Takaka Hill road suffered significant damage in February. Eighty per cent of sheep

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farmers in that area are Alliance shareholders and we identified solutions to enable them to move up to weight lambs. With trucks—but no trailers—permitted on the road and the road only open during the daytime, we absorbed the additional costs of moving smaller numbers of stock by truck only. We also made the paddocks at our Nelson plant available for stock, to enable Golden Bay farmers to clear their paddocks as fast as possible, so they could move younger lambs in for fattening. M A N A G I N G C A PA C I T Y An exceptional autumn saw good grass growth and farmers chose to hold onto stock to finish them and put more weight on. With the onset of winter, many farmers sought to move stock off their properties at the same time and this inevitably created pressures on processing space. Typically, many bulls come through for processing between January and March. However, with animals held back, the demand for bull processing coincided with the manufacturing cow season.At the same time, the co-operative stepped up to process livestock from properties under movement control for Mycoplasma bovis (M. bovis) as


S E C T I O N 7 : Our Farmers and Their Produce

part of the culling programme ordered by the Ministry for Primary Industries. We brought on additional capacity at our Mataura, Levin and Pukeuri plants to help accommodate the increased volumes. The co-operative also prioritised platinum Platinum and Gold shareholders and, when necessary, stopped taking livestock from non-shareholders. MINIMUM PRICE CONTRACTS BOOST This year we offered 18 Minimum Price Contracts to our farmers as part of our commitment to providing certainty for farming businesses. The contracts are designed so that the co‑operative takes a position on pricing, removing any potential downside risk for farmers, but allowing farmers to participate in any upside. For the co-operative, they help with planning for livestock flows so we can have the required capacity available for farmers. The contracts were extremely popular and we will be offering additional options over the coming year. FA R M A SS U R A N C E P RO G R A M M E Our Farm Assurance Programme is trusted by our customers who pay for its guarantee of quality and excellence. Alliance was the first red meat company in New Zealand to launch its own comprehensive Farm Assurance Programme (FAP) more than 20 years ago. Since then, our FAP has evolved to take a more holistic view of farming including the land and people as well as animal welfare, traceability and food safety. This year, we updated our FAP, which was developed in conjunction with farmers. Having our own FAP allows us more agility to move with the market trends and the Customer Codes of Practice. Being part of the Alliance FAP enables the co-operative to continue to access high value markets, so that we can capture greater premiums and pass these gains back to our shareholders. Our global customers also tell us consumers value and care about how their food is produced and its provenance and seek assurances that the food

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that they are purchasing is produced in a safe and sustainable way under ethical farming practices. R E WA R D I N G L OYA LT Y We value consistent and committed supply from our farmer shareholders. Alliance distributed a total of $14.63 million in loyalty payments to committed shareholders during the 2017/18 season. The quarterly payments were made to our Platinum and Gold shareholders who supplied 100 per cent of their stock to the company. M E E T I N G O U R FA R M E R S Approximately 1,000 shareholders attended our annual farmer roadshow meetings across the country during September and October. The roadshows were an opportunity for the Executive Leadership Team and Directors to meet with farmer shareholders and update them on our strategy, progress and plans— and for farmers to ask questions and share their ideas in person. The Executive Leadership Team also ran presentations at our plants and offices. In response to feedback from our shareholders, we also extended our Women’s Workshops this year to become the Winter Workshops series. The workshops were held at locations across the country during July and attendees received updates on the latest developments in the co‑operative, including around global markets and products. Alliance directors and staff were on hand to answer questions and directors outlined recent visits to overseas customers.

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S E C T I O N 8 : Growing Our Brands to Transform The Business

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Section 8

GROWING OUR BRANDS TO TRANSFORM THE BUSINESS

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S E C T I O N 8 : Growing Our Brands to Transform The Business

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S E C T I O N 8 : Growing Our Brands to Transform The Business

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GROWING OUR BR ANDS TO TRANSFORM THE BUSINESS Alliance Group is now more consumer-focussed than ever before and we are investing in developing a suite of differentiated solutions from our farmers’ produce. NE W CORP OR ATE IDENTIT Y In 2018, Alliance not only celebrated its 70th anniversary, but we also unveiled a fresh, modern and forward-looking face. At the beginning of September, we launched our new corporate identity, marking the next stage in our transition into a food and solutions company. The rebrand is an investment in the co-operative and an important step in our ongoing transformational journey. It is also a strong base from which to grow our brand entities. It focuses on the strong connection Alliance, as New Zealand’s only 100 per cent farmerowned major red meat co-operative, has with our farmer shareholders. Our new corporate logo, a farm gate with in-built ‘A’, was chosen as a simple and effective way to describe our ‘direct from farmer to consumer’ philosophy. It is symbolic of Alliance’s history, as well as the incredible hard work of farmers, and our people, environmental sustainability, breeding and farming practices and skill that go into all of our produce. The new identity is also a very good fit with the story Alliance is taking to the world—of New Zealand farmers producing the finest quality free-range grass-fed natural lamb, beef and venison in some of the world’s most beautiful and unspoiled environments. Alliance is clearly of and for the farmers and the produce is proudly delivered across the farm gate from farmer to consumer.

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Significantly, 2019 will also see the next update of our global red meat brand—Pure South— the first of a number of exciting new ranges and packaging, all carefully informed by and designed for increasingly knowledgeable and demanding consumer segments and distribution channels across global markets. L AUNCH OF PURE SOUTH H A N D P I C K E D 55 DAY AG E D B E E F Alliance’s new premium Pure South Handpicked 55 Day Aged Beef product was launched in May. This range is breed agnostic and based on an innovative grading system that is focused on superior eating quality. Internationallyaccredited master graders carefully hand select carcases from prime cattle of any breed. The selection is based on quantifiable meat quality characteristics such as marbling, fat cover, fat colour and pH. Alliance selects from prime animals only (steer and heifer), and the carcase must have a high marbling score and a targeted pH level. Selected cuts are then aged in a vacuum bag for 55 days. Only a fraction of the very finest beef ever makes the grade. The product, the first within Pure South’s Handpicked range, is aimed exclusively at the food service sector. It was launched following a three-year research and development programme and extensive chef and premium restaurant trials. Pure South Handpicked 55 Day Aged Beef range won international honours in July, taking gold and bronze awards in the World Steak Challenge. The ribeye from the range won a gold medal while the fillet took a bronze medal at the event in London. The competition benchmarks the quality of beef production against global competitors.


S E C T I O N 8 : Growing Our Brands to Transform The Business

SUCCE SS AT THE NE W ZE AL AND FO OD AWARDS Alliance took top honours in two categories at the New Zealand Food Awards in October. Our TE MANA Lamb won the New Zealand Food Safety Primary Sector Products and Frozen categories at the awards, which showcase the best of New Zealand’s food and beverage industry. TRENDS IN THE WORLD AROUND US – A LT E R N AT I V E P ROT E I N Alliance acknowledges the emergence of alternative proteins over the past 12 months. According to research by Beef + Lamb New Zealand, although alternative proteins are currently manufactured in small volumes, large scale production of burger patties and mince is likely to be a reality within five years.

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change, the ability to feed the growing world population in a sustainable way, the use of animals in industrialised food production, and the place of meat in a modern diet. These same forces also present the co‑operative with a unique opportunity. Consumers are increasingly demanding to know where their food is coming from and expect full transparency and traceability of the food chain. New Zealand has a unique story to tell in terms of its grass-fed, free-range, antibiotic-free, hormone-free and GMO-free production systems. We have a compelling red meat story to tell— underpinned by our new brand and logo, strongly connecting consumers directly to our farmers and their world-leading natural farming methods.

A number of forces have converged to drive this interest in alternative proteins including environmental concerns about climate

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S E C T I O N 9 : Global Markets

Section 9

GLOBAL MARKETS

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S E C T I O N 9 : Our Global Markets

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S E C T I O N 9 : Global Markets

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GLOBAL MARKETS Review Alliance Group achieved a record turnover during the past 12 months on the back of high prices for lamb, mutton and venison and demand for our products in global markets. Our focus has been on building the capability of our sales team and this has included investing in more expertise domestically and globally. We appointed a new General Manager for Sales, leaders for our domestic business, Alliance Asia and a Business Development Manager in North America to further support the higher value target markets with brand and new product opportunities. Despite the uncertainty presented by Brexit, the US-China trade tensions, competition from cheaper proteins such as pork and currency fluctuations, Alliance has realised a number of new market opportunities over the past year. We are focusing our business on the creation of value and this is underlined by the launch of regular chilled lamb and beef shipments into China. Alliance continues to develop new opportunities in segments to help counterbalance volatility in red meat markets and capture greater value from every carcase. Offal recoveries have improved for all species.

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Meanwhile, we are developing more added value products across all proteins aligned with our food service and brand hierarchy strategies. Alliance is investing in the food services sector in the UK, which demands the differentiated needs of chefs and restauranteurs are recognised and catered for. Servicing this sector, along with premium retail, requires integrated sales, marketing, processing and distribution. It also means understanding the end customer, chefs and the entire service chain along the way. Our UK office has grown turnover in the year since its launch and this is expected to double within the next 12-24 months. The team is continuing to build relationships with the food service sector in the UK and Europe, gaining valuable feedback to help ensure we provide the optimum cuts, form and quality of product to meet the requirements of customers. The team has launched trials with major new customers and in October won a significant contract for lamb for a fine dining restaurant in Central London. This was a direct result of the UK Antipocurean series to showcase our premium products to fine dining chefs. The cooking demonstration was led by Michelinstar chef Michael Wignall, who participated in our Antipocurean Series tour of New Zealand.


S E C T I O N 9 : Global Markets

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Capturing Greater Market Value DIVERSIFYING VENISON INTO OTHER MARKETS While the New Zealand venison market has traditionally depended on Germany, the European game season and the Euro, we are now pursuing opportunities in the UK with value-added propositions. A major drive of this is our Pure South programme to increase outof-season chilled consumption—resulting in a more diverse market and currency mix. Our new venison plant at Lorneville will also create additional value for venison. T HE VALUE AND GLOBAL S C O P E OF OUR CO-PRODUCTS As part of our strategy, Alliance is committed to extracting additional value beyond the meat an animal provides. Co-products have the potential to make up to 15-20 per cent of the overall price paid for an animal, leading to greater returns for our farmers. We have more than 100 clients for co-products globally. This includes casings (all varieties of sausages—Alliance is the largest exporter of lamb and sheep casings in New Zealand and Australia), meal (pet food kibbles and stock feed for chickens and pigs), tallow (bio-diesel and soap), hides (upholstery for automotive and furniture, footwear, luggage, bags, belts and wallets), deerskins (handbags, wallets and garments), lamb skin wool-on (sheepskin rugs), lamb skin leather (garments and handbags), and sheep pelts (car chamois from the split and grains used for leather inlay in furniture, books and shoe linings). Our deer skins feature on luxury fashion brands, bobby calf skins on premium furnishings for Italian brands, and high-end ladies’ shoes. One million wool rug skins are exported each year with an additional one million wool-on skins exported and used for items such as paint rollers, linings for jackets and boots, car seat covers and futon covers for Japanese bedding.

BLO OD PRO CESSING YIELDS This year we developed blood processing facilities at our Pukeuri plant, a $700,000 investment, following similar investments at our Levin, Lorneville and Mataura plants. This facility collects and processes bovine blood into serum, which is sought after by the pharmaceutical industry for the development of vaccines, cancer treatments and drugs to treat neurodegenerative and endocrine disorders. The serum market is growing at five per cent per year and New Zealand is a key producer due to its largely disease-free status. The investment is part of our strategy to explore opportunities to add value and maximise returns to our farmer shareholders. The progress in this area has been encouraging with blood processing already adding meaningful revenue. PURE S OUTH L AMB FE ATURE S IN MAJOR CHINESE ONLINE SALES EVENT Pure South lamb featured at one of China’s major online sales events. The three-day online sales promotion was run through Tmall, a Chinese-language business-to-consumer online retail venture, operated by e-commerce giant Alibaba Group. Tmall is the largest business-toconsumer retail platform in Asia with almost 500 million users annually. Alliance was selected as a strategic partner and New Zealand’s only lamb producer for the promotion. Involvement in the promotion reflected Alliance’s reputation in China for producing high quality meat products, built on meticulous food production techniques, world class systems and a strong focus on consumer needs. HO G GE T INITIATIVE A pilot programme marketing hogget as a premium product in the UK food sector proved successful this year. The pilot was in response to requests from a number of farmer

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S E C T I O N 9 : Global Markets

shareholders to explore the development of a market for hogget because of the large price differential between lamb and mutton. The trial had a particular focus on the ethnic foods market. The UK has one of Europe’s largest markets for ethnic foods, so is accustomed to using both New Zealand lamb and mutton. Taste testing trials also found the hogget scored highly for taste and succulence. Product was selected on the basis of good meat and fat colour. Some pilot product was also sent to Asia and market feedback was positive. We will be expanding the programme over the coming year. S K I N PA C K T E C H N O L O GY Our team is undertaking significant product development programmes and has a number of innovations in the pipeline. This year, following a two year project, the co-operative dispatched our first major shipment of product in vacuum skin tray packaging to Hong Kong. Skin packaging technology hermetically seals right to the edge of the meat cut, extending its chilled shelf life for up to 11 weeks, retaining colour and optimising meat tenderness. The product, including cutlets, saddle chops and chump steaks, is jointly marketed under the Pure South and the Angliss Hong Kong brands and sold in supermarkets, including those owned by the Aeon Stores Group. This is believed to be the first New Zealand red meat packed at origin to be supplied in skin packs into Hong Kong. Skin packaging is a good way to display smaller consumer-ready portions. Because of the materials used, skin packaging gives flexibility to package small consumer-ready products across a range of cuts, including chilled, frozen, bone-in and boneless compared to less flexible vacuum packaging which is used for larger primal cuts to export to wholesale markets. FIRST COMMERCIAL ORDER O F ST I R F RY C U T V E N I S O N D I S PAT C H E D T O A S I A Alliance’s first commercial order of stir fry cut venison was sent to Asia in the spring after positive feedback from sampling with the food service sector. It follows the Alliance Asia team in Singapore testing interest in the attributes

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of thinly-cut venison for the Asian food service sector, trialling 1kg bags with chefs and distributors. Lean venison muscle cuts are put through a special machine to provide thin strips ideal for Asian cuisine. These are early days for this product but it is an exciting development as we work to extend our reach in the food service sector internationally.

Our Markets EUROPE AND UK The UK and European markets performed well across all sectors with strong prices for lamb and venison in particular. Brexit remains an unknown quantity. The UK is due to leave the European Union in late March, which coincides with the arrival of our Easter chilled, so there is potential for disruption. We are continuing to monitor the situation. Reduced consumer spending power within the UK and “buy British” campaigns remain a threat to New Zealand exporters. Despite these factors, our UK Food Service business has grown strongly. NORTH AMERIC A The North American market has grown this year with the US economy buoyant and solid performances in retail and food service. We have been working to revitalise "spring lamb" to improve product positioning. The requirement for all product to be antibioticfree is increasing. There was good demand for venison, especially manufacturing products. The supply for the super premium pet food sector continues to grow and a focus on meeting the demands and opportunities will be key to maximising returns as part of the whole carcase contribution. ALLIANCE ASIA Following our acquisition of the Singaporebased marketing and sales company GoldKiwi Asia, our Alliance Asia team has made good progress executing our strategy to get closer to our Asian markets and grow our global footprint. The new Asia office in Singapore is connecting us to some of the world’s largest populations and their growing demand for quality foods. It has also lifted Alliance’s


S E C T I O N 9 : Global Markets

visibility and engagement across all steps of the supply chain. CHINA The Chinese market has proved resilient. Overall, the sheepmeat market is firm. We are currently targeting China with our chilled beef as we seek to capture higher margins. Alliance has been working in China since the mid-1990s and is the largest exporter of New Zealand lamb to the country. Chilled lamb and beef are now being dispatched to China on a regular basis. Our long-standing in-market Chinese partner Grand Farm, is the best-known distributor and marketer of top quality red meat in China. Grand Farm is continuing to grow and has opened a new headquarters in Shanghai to take our close relationship to the next level. Alliance exports a range of New Zealand-packed product, specially designed for the Chinese market and co-branded Pure South and Grand Farm. We met with Mr Xibin Chen, President of Grand Farm, regularly throughout the year to check progress and decide together how best to work on a range of projects to grow our businesses. This co-operation and collaboration has greatly improved our understanding of this important market and connected us with key customers who recognise the value of our brand and our lamb, mutton and beef. Alliance is also continuing to invest in new product forms and ranges that will be either produced from source or further processed in the market to meet the growing demands of China’s consumers.

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price stability in the Middle East. Growing chilled business throughout the Middle East for retail and food service sectors has continued and is reflected in the growth in more Western style retail outlets and ongoing developments in the hotel and restaurant trade. INDIA High tariffs in India remain a challenge but Pure South lamb is now available at more than 300 five-star hotels in India and is on the menu for many premium airline travellers departing India. Our lamb is being served to first-class and business-class passengers flying Air Canada, British Airways, Singapore Airlines, United Airlines and Air France through an agreement between QualityNZ, our India partner, and two airline catering companies in India. India is forecast to become one of the largest economies in the world. Along with QualityNZ, we are targeting India’s higher socio-economic category, which is represented by more than 200 million people. It is estimated this number is expected to more than double within the next 10 years to half a billion people, and India is forecast to exceed China’s GDP for the first time by as soon as 2022. This represents a significant opportunity for Alliance in the long-term.

WIDER ASIA The Hong Kong, Thai and Singapore markets have remained stable. There was solid demand for our lamb and mutton in Malaysia, which is a key volume market for the co-operative. South East Asia has been steady in the face of Australian volumes but we are looking at opportunities to drive some of our higher valued product into all channels. High tariffs continued to provide challenges to markets in Korea and Japan, which are strongly beef‑oriented markets. MIDDLE EAST Improving economies on the back of rising oil prices have assisted in firming demand and

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S E C T I O N 1 0 : Driving Innovation

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Section 10

DRIVING I N N OVAT I O N

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S E C T I O N 1 0 : Driving Innovation

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S E C T I O N 1 0 : Driving Innovation

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D R I V IN G IN N OVAT ION Alliance Group continues to invest in new technology, providing additional support to our farmer shareholders, lifting efficiency, lowering our costs, boosting our internal capability and capturing more market value. A number of new initiatives and projects over the past year have delivered real and tangible gains for the co-operative as we seek to make our business model more robust. Electronic Animal Identification (EID) systems and Radio Frequency Identification (RFID) tracking systems have been expanded across all of our processing sites. The amount of driving required by some of our staff is one of our major risks, and we have upgraded our livestock representatives’ vehicles to Toyota 4WDs equipped with safety system instruments, GPS and emergency buttons to enable them to be located if required. Upcoming projects include a new value-added processing facility at our Lorneville plant. This will enable production of small retail packs and slicing and dicing for both retail and the food service sector. M A N U FAC T U R I N G E XC E L L E N C E PRO GR AMME GAINS Alliance is focused on investing in improving our operational performance, in particular, our processing capabilities. The Manufacturing Excellence Programme is a structured management framework, which focuses on every department in every plant. It is designed to lift performance, productivity and returns to farmer shareholders. Following its successful launch at Lorneville and Mataura, the programme was rolled out across all our plants this year. Outcomes have included yield gains across all species. This has been achieved through focussing on cutting practices, redesigning cutting processes to collect new products or improved product specifications.

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We also targeted efficiencies in utilities, including the upgrade of the engine room at our Lorneville plant. A pipeline of projects has been developed to continue to deliver improvements in a systematic approach. We are now expanding our focus on daily performances and embedding that behaviour in plants. The upcoming programme of work includes a strong focus on cutting room efficiency. This will look at ensuring we have the right numbers of people, with the right skills, who are fit and ready for work. This will be supported by our company-wide training programme. We also have a project aimed at increasing equipment reliability. We are continuing to broaden the Manufacturing Excellence Programme to include a wider set of metrics to which we can apply the same rigour to manage performance. We are improving visibility and transparency of production data to support the most efficient decision-making processes across all our sites. Alliance is also establishing inline scales and tracking systems to further generate yield gains. S U P P LY C H A I N M A N AG E M E N T Improving the co-operative’s supply chain management has been a key priority over the past year. We have identified many areas in our supply chain that need improving, either because they can work better or to help us move forward into our future operating model. Supply chain planning projects underway range from sales demand forecasting through to planning our further processing and integrating that with slaughterboard planning, through to developing production planning


S E C T I O N 1 0 : Driving Innovation

and plant scheduling. These projects will impact across the business, including on sales, operations and livestock. Several are important preparations for our Enterprise Resource Planning System (ERP) project, enabling us to make the changes in our business organisation process. NEW VENISON PLANT AT LORNE VILLE Our new $15.9 million venison plant at Lorneville began processing in September. The plant includes design innovations, improved handling facilities, enhanced configuration, a larger slaughter board and wider boning room and a bigger offal area than our former Makarewa plant. The operational costs are substantially lower which will provide efficiencies going forward. The investment reinforces our commitment to the New Zealand deer industry and ensures we have worldclass modern facilities, reflecting our position as a leading and innovative processor. Our Smithfield plant remains a vital part of our venison processing operations. NEW PRIMAL CUTTER AT DANNE VIRKE Our latest robotic primal/middle cutter technology and new processing room came into operation at our Dannevirke plant at the end of June. This was part of a $10.6 million investment in the plant, which also included reconfiguring the way the boning room operates, to improve performance and quality. The custom-built primal/middle cutting technology is the most advanced of its kind in New Zealand. It features an x-ray unit which analyses each carcase and instructs the two cutting machines where to cut. It automatically adjusts to a wide variation in carcase size, a significant challenge in the red meat processing sector. The technology also minimises waste and improves the accuracy of the cut. The machinery is designed to lift the efficiency of our livestock processing and deliver the gains back to our shareholders. The team is reporting improved product yields and greater processing productivity. This is

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the third of our plants to receive this primal/ middle cutting technology following Smithfield and Pukeuri. Investments in technology and a commitment to innovation, combined with the talents of our people, are major drivers in our Manufacturing Excellence Programme to further build on improving operational performance within the co-operative. ENTERPRISE RESOURCE PL ANNING SYSTEM (ERP) DEPLOYMENT The ERP System, our new IT infratructure, represents one of the largest investments in Alliance’s history. Over many years, we have built our current system on the Unisys platform and adapted it to the point where the processes are no longer optimal. Alliance has now selected a new cloud operating platform and has mobilised our team for the threephase deployment programme. The new system will provide best practice processes for a company of our size and complexity and bring about genuine business transformation. The ERP will support our business strategy on many levels. It will support our transformation to a dynamic value-added protein producer that takes the best of New Zealand to the world’s markets. It will reduce operational costs, deliver better value for farmers and help with building organisational capacity, developing a low cost structure and transforming the shape of the business. ELECTRONIC A SDS (eA SDs) Electronic Animal Status Declaration (eASDs) have been rolled out across all of our plants. The technology allows farmers to complete eASDs online before they send animals for processing. eASDs are set up so they cannot be submitted without having all the necessary information included. Once farmers have completed their first eASD, all that information is prefilled for future ones eliminating the risk of mistakes and streamlining processing for Alliance yards staff.

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S E C T I O N 1 1 : Governance

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Section 1 1

GOVERNANCE

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S E C T I O N 1 1 : Governance

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S E C T I O N 1 1 : Governance

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GOVERNANCE Board of Directors and Chief Executive

M U R R AY TAG G A RT

B.Agr.Sc. Chairman and Supplier Representative Member of Audit and Risk, Remuneration and Nominations Committee

Murray was elected as a supplier representative in 2010 and appointed Chairman in 2013. He was also on the Alliance board from 2002-2007. Murray operates a 732 hectare sheep, cattle and cropping farm near Oxford in North Canterbury. He is a director of Ballance Agri-Nutrients Ltd, FMG Insurance Ltd and Oxford Health Charity Ltd.

PETER SCHUYT

B.Com, CFinstD Independent Director Chairman of Audit and Risk Committee

Peter was appointed as an independent director in December 2017. Peter is an experienced independent director across a range of New Zealand businesses including Tatua Co-operative Dairy Company, TSB Bank Ltd and Foodstuffs North Island Ltd. He has held senior executive roles at the New Zealand Dairy Board, Fonterra and the New Zealand Post Group.

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DAV I D S U RV E YO R

Chief Executive

David Surveyor was appointed Chief Executive in 2015. He is Chairman of Alliance Group (NZ) Ltd, the UK subsidiary, a director of The Lamb Company (North America), and a member of the Meat Industry Association Council. He was previously Executive General Manager of Laminex, a subsidiary of Fletcher Building and has also held roles with BHP in Australia and as President of Bluescope Lysaght in Malaysia. David has a Bachelor of Economics from the University of Western Australia, a Graduate Diploma in Applied Finance and Investment from the Securities Institute of Australia and completed an Advanced Management Programme at Wharton Business School at the University of Pennsylvania.

JARED COLLIE

B.Com.Ag(VFM) Supplier Representative

Jared was elected as a supplier representative to the board in 2015. He operates a 1400 hectare sheep, cattle and dairy farm in Central Southland and is also an independent advisor for Arrow Dairy Ltd, a director of Benmore Downs Ltd, chairman of Platinum Dairies Ltd, a member of the Jeff Farm Management Board, Chairperson of Kakapo Farms Partnership and a facilitator for the Takitimu Discussion Group.

JASON MILLER

Supplier Representative

Jason was elected as a supplier representative in 2015. He was also a director on the Alliance board from 2007-2013. Jason operates 800 hectares of sheep and cattle farmland in Southdown, Southland.


S E C T I O N 1 1 : Governance

SAR AH BROWN

B.Sc.(Home Science)(Distinction) Independent Director

Sarah was appointed to the Alliance board in March 2018. She holds a Bachelor of Home Science degree from the University of Otago, and lives and works on a sheep and beef farm in Manawatu. Sarah has held a number of senior management positions in marketing and consumer insights with highprofile companies including Lion Nathan and Colmar Brunton. Sarah has considerable expertise in marketing in a broad range of industries internationally and has assisted Australian Pork, Coca-Cola Amatil, Diageo and Goodman Fielder International. She has worked across the globe including Australia, China, Singapore, Indonesia, Philippines, Thailand, Korea, Japan, India, Malaysia and New Zealand.

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GRAEME MILNE

B.Tech.(Biotech) 1st Class Hons CFinstD, ONZM Independent Director Member of Audit and Risk, Remuneration and Nominations Committee

Graeme was appointed as an independent director in April 2013. He is a partner in GR & JA Milne, and Chairman of Nyriad Ltd, ProForm Ltd Advisory Board, Rimanui Farms Ltd Advisory Board, Synlait Milk Ltd and subsidiaries and Terracare Fertilisers Ltd. Graeme is also a director of Elviti Holdings Ltd and subsidiaries. He is a member of the Massey University School of Engineering & Advanced Technology Industrial Advisory Board, Council member of the University of Waikato and a trustee of Rockhaven Trust.

DAWN SANGSTER

RUSSELL DRUMMOND

Russell was elected as a supplier representative in 2014. He is a director of RG & JM Drummond Farms Ltd, farming sheep and cattle on 3000 hectares at Avondale and Five Rivers, Southland. Russell is also a member of the Takitimu Discussion Group.

Don was elected as a supplier representative in 2013. He is a director of DG & BC Morrison Ltd, farming sheep and cattle on 600 hectares at Waikaka Valley, Southland. He is also a director of Pure Taste New Zealand (NZ) Ltd and a member of the Alpha Sheep Genetics Group.

VANE SS A STODDA RT

B.Com LLB Hons PG Dip Professional Ethics Independent Director Chair of Remuneration and Nominations Committee

B.Com.Ag, CMinstD Supplier Representative Member of Audit and Risk Committee Supplier Representative

DON MORRISON

B.Com.Ag Supplier Representative Member of Audit and Risk Committee

Dawn was elected as a supplier representative in 2011. She is a director of Glenayr Ltd, farming sheep and beef on 2870 hectares in Central Otago. She is a facilitator for the Red Meat Profit Partnership-funded AgriWomen’s Development Trust’s Understanding Your Farming Business course.

Vanessa was appointed as an independent director in 2014. Vanessa is a director of Heartland Bank Ltd and The New Zealand Refining Co Ltd. She is a trustee of King’s College School Board of Trustees and a member of the Ministry of Business, Innovation and Employment Audit and Risk Committee, the Department of Conservation Audit and Risk Committee, the Financial Markets Authority, the Global Women Trust Advisory Board, the Defence Employer Support Council and the Tertiary Education Commission Board. Vanessa retires from the Alliance board in April 2019.

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S E C T I O N 1 1 : Governance

ALLIANCE ANNUAL REP ORT 2018

Board of Directors

LEFT TO RIGHT

Vanessa Stoddart, Don Morrison, Russell Drummond, Peter Schuyt, Murray Taggart, Sarah Brown, Graeme Milne, Jared Collie, Dawn Sangster, Jason Miller

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S E C T I O N 1 1 : Governance

ALLIANCE ANNUAL REP ORT 2018

Executive Leadership Team

LEFT TO RIGHT

Chris Selbie, Mark Blandford, Shane Kingston, David Surveyor, Cameron Mathewson, Heather Stacy, Peter Russell, Nigel Jones, Gijs Faber, Willie Wiese, Danny Hailes

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S E C T I O N 1 1 : Governance

ALLIANCE ANNUAL REP ORT 2018

Corporate Governance Alliance Group Limited is a co-operative company owned by approximately 4,000 farmers who supply livestock to the company for processing and sale of the resulting meat and co-products to international markets. The company’s shares are not listed on any stock exchange. BOARD OF DIRECTORS

BOARD RESPONSIBILITIES

The constitution provides that there shall be not more than ten directors of the company at any time, of which not less than six and not more than eight shall be directors elected by the shareholders. One-third of the elected directors retire by rotation each year and may stand for re-election. The directors who retire each year are those who have been longest in office since their last election.

The board has statutory responsibility for the affairs and activities of the company. The responsibility for the day-to-day operation and administration of the company is delegated by the board to the chief executive. The long-term strategic direction of the company, the annual business plan and capital expenditure budget are approved by the board. The board also approves expenditure on specific projects that are outside normally delegated authorities and reviews operational performance against the business plan objectives.

Provided that the total number of directors does not exceed ten, the board may from time-to-time appoint up to four directors who, in the opinion of the board, are capable of rendering services in relation to the affairs of the company. These directors are appointed for a term of up to three years and may be re-appointed for subsequent terms of up to three years at a time. The board exercises the discretion to appoint independent directors to ensure that the board comprises directors with an appropriate range of skills and experience. The board currently comprises ten directors of which four are independent directors and six are elected directors, one of whom is appointed chairman on an annual basis. The board has adopted a board charter which sets out the role and responsibilities of the board and formalises board process and practice. A copy of the charter and the constitution may be viewed on the company’s website (www.alliance.co.nz).

52

The board ensures that the affairs of the company adhere to all regulatory obligations, that high ethical standards are maintained and that the company is a responsible corporate citizen. Particular emphasis is placed on the health and safety of employees and the protection and sustainable use of the environment. All directors register and formally record any conflicts of interest. Succession planning is undertaken for both directors and management to ensure appropriate skill sets are available to the company on an ongoing basis.


S E C T I O N 1 1 : Governance

ALLIANCE ANNUAL REP ORT 2018

BOARD MEETINGS

MEE TING AT TENDANCE

Ten board meetings are scheduled each year with extra meetings held if required. Comprehensive management reports are provided to directors prior to board meetings being held. The board encourages the chief executive to bring to board meetings employees who can provide additional insight into the matters being discussed because of direct involvement in those matters.

The table below reports attendance of directors at board and board committee meetings during the year ended 30 September 2018.

AUDIT AND RISK COMMIT TEE The Audit and Risk Committee comprises five directors who meet three times a year. The committee operates under terms of reference approved by the board and is required to establish a framework of internal control mechanisms and ethical standards to ensure proper management of the company’s affairs. The committee is responsible for ensuring that arrangements are in place to adequately manage areas of significant business risk. The committee reviews the annual external audit plan and the report of the auditors following completion of the audit. It assists the board to meet its accounting and reporting responsibilities under the Companies Act 1993 and related legislation. The committee is also responsible for the internal audit plan and reviews all internal audit reports. REMUNER ATION AND NOMINATIONS COMMIT TEE The Remuneration and Nominations Committee comprises three directors meeting two or more times a year. The committee operates under terms of reference approved by the board. The committee provides oversight of the people strategy of the company, assists the board on remuneration and performance management policies and procedures for the company and specifically the appointment, remuneration, performance goals and reviews of the chief executive and senior management. The committee also participates in annual succession planning reviews and selection processes as required for key senior positions, and assists with the appointment of independent directors, the review of the board and board remuneration.

Board

Audit & Risk Committee

Remuneration & Nominations

Number of Meetings*

10

3

3

M J Taggart

10

3

3

S M Brown**

5

2*

2*

10

3*

3*

R G Drummond

9

2*

3*

J A Miller

9

3*

3*

G R Milne

10

3

3

D G Morrison

10

3

3*

H D Sangster

9

3

3*

P M Schuyt***

7

3

2*

V C M Stoddart

10

3*

3

J G Collie

*Non-committee member in attendance. In addition to the above board meetings held in person, the board also met on five occasions by telephone conference. **Appointed to board March 2018 ***Appointed to board December 2017

COMMUNIC ATION WITH SHAREHOLDERS Alliance makes every effort to keep shareholders informed of all major developments affecting their company. Information is communicated to shareholders through the Alliance website, annual report, Product Disclosure Statement, regular company newsletters and emails including “Brief Bites”. Each year a series of meetings is held throughout the company’s stock catchment areas at which the chairman and chief executive update shareholders on issues affecting the company and the industry. These meetings also provide the opportunity to receive and discuss feedback on issues important to shareholders. The board welcomes full participation of shareholders at these meetings.

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S E C T I O N 1 2 : Our Financial Review

ALLIANCE ANNUAL REP ORT 2018

Section 12

OUR FINANCIAL REVIEW

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S E C T I O N 1 2 : Our Financial Review

ALLIANCE ANNUAL REP ORT 2018

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ALLIANCE ANNUAL REP ORT 2018

OUR FINANCIAL REVIEW 57

60

Income Statement

Notes to the Financial Statements

57

76

Statement of Comprehensive Income

Statement of Changes in Equit y

58

78

Statement of Financial Position

About This Repor t

59 Statement of Cash Flows

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S E C T I O N 1 2 : Our Financial Review

ALLIANCE ANNUAL REP ORT 2018

I N C O M E STAT E M E N T For the year ended 30 September 2018 The income earned and expenses incurred by Alliance Group

GROUP Note Revenue Cost of sales

A1.1

Gross profit Other operating income Sales and marketing expenses Administrative expenses Other operating expenses Restructuring costs

A1.1

Profit before financing costs Financial income Financial expenses

A2 A2

Net financing costs Equity accounted earnings Operating result Gain on disposal of property, plant and equipment Profit before pool distributions and tax Pool surplus distributions Profit before tax Income tax expense

E2

A1.2 A4

Profit after tax

2018

2017

$000

$000

1,767,959 (1,707,266)

1,533,408 (1,465,160)

60,693

68,248

3,496 (8,625) (39,380) (1,754) (79)

3,955 (7,369) (35,565) (2,277) (603)

(46,342)

(41,859)

14,351

26,389

155 (8,034)

170 (6,739)

(7,879)

(6,569)

1,482 7,954

482 20,248

2,402 10,356 (26) 10,330

7,886 28,134 (11,387) 16,747

(3,728)

(2,321)

6,602

14,426

STAT E M E N T O F C O M P R E H E N S I V E I N C O M E For the year ended 30 September 2018 Items of income and expenditure that are not recognised in the income statement and hence taken to reserves in equity GROUP 2018

2017

$000

$000

Fair value changes in derivatives: recognised in cash flow hedge reserve transferred and recognised in income statement Tax effect on cash flow hedge reserve Movement in foreign currency translation reserve Other comprehensive income, net of tax Profit after tax for the year Total comprehensive income for the year

(9)

(278)

278

81

269

(197)

(78)

55

191 2,594 2,785 6,602 9,387

(142) 1,433 1,291 14,426 15,717

The notes to the Group financial statements form an integral par t of these financial statements.

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ALLIANCE ANNUAL REP ORT 2018

STAT E M E N T O F F I N A N C I A L P O S I T I O N As at 30 September 2018 A summary of the Alliance Group assets and liabilities at the end of the financial year

GROUP Note

2018

2017

$000

$000

Equity Share capital Reserves Retained earnings

C2 C3

86,339 (12,142) 258,876

76,328 (14,927) 261,758

Total equity

F4

333,073

323,159

C4 C6

12,455 81,609 13,157 12,100 1,270 171

9,167 81,981 13,731 9,000 1,938 507

120,762

116,324

60,000 5,670

10,000 5,506

65,670

15,506

Total liabilities

186,432

131,830

Total liabilities and equity

519,505

454,989

2,587 116,593 111,361 604

1,313 99,014 77,868 482

231,145

178,677

28,927 20,907 100 231,562 6,864

27,682 23,546 66 220,374 4,644

Total non-current assets

288,360

276,312

Total assets

519,505

454,989

Liabilities Bank overdraft Trade and other payables Employee benefits Interest bearing loans and borrowings Financial liabilities – derivatives Income tax payable

C7

Total current liabilities Interest bearing loans and borrowings Employee benefits

C7

Total non-current liabilities

Assets Cash and cash equivalents Trade and other receivables Inventories Financial assets – derivatives

C4 C5 B2

Total current assets Investments in equity accounted investees Deferred tax assets Other assets Property, plant and equipment Intangible assets

The notes to the Group financial statements form an integral par t of these financial statements.

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E2 A4 B1 B3


S E C T I O N 1 2 : Our Financial Review

ALLIANCE ANNUAL REP ORT 2018

STAT E M E N T S O F C A S H F L O W S For the year ended 30 September 2018 Cash generated and used by the Alliance Group during the financial year

GROUP

Cash flows from operating activities Cash receipts from customers Interest received Dividends received Cash paid to suppliers and employees Interest paid Taxes paid

2018

2017

$000

$000

1,751,147 155 (1,769,639) (8,034) (798)

1,525,185 820 650 (1,487,664) (6,739) (832)

Net cash flow from operating activities

(27,169)

31,420

Cash flows from investing activities Repayment of investment Purchase of investments Purchase of intangibles Proceeds from sale of property, plant and equipment Acquisition of property, plant and equipment

3,375 (34) (2,678) 4,954 (33,426)

194 (4,506) 8,526 (25,703)

Net cash flow from investing activities

(27,809)

(21,489)

Cash flows from financing activities Increase / (reduction) in term debt Issue of share capital Redemption of share capital

53,100 3,424 (2,923)

(22,400) 3,672 (2,756)

Net cash flow from financing activities

53,601

(21,484)

Net movement in cash and cash equivalents

(1,377)

(11,553)

Opening cash and cash equivalents Effect of exchange rate fluctuations on cash held

(7,854) (637)

3,309 390

Closing cash and cash equivalents

(9,868)

(7,854)

Reconciliation of Profit to Cash Surplus from Operating Activities Profit for the year

6,602

14,426

Adjustments for items not involving cash flows: Depreciation and amortisation (Increase)/decrease in deferred tax Share issues retained from pool surplus Fair value of financial derivatives Non-cash rebate from associates Effect of exchange rate movement on working capital Gain on sale Accounts receivable and payable movements for investing and financing activities Earnings from associates Movement in provision for doubtful debts Movement in stock provision

19,487 2,639 26 (600) (3,415) 2,015 (2,402) 669 (1,482) 281 (238)

17,638 626 4,697 (1,752) (3,867) 1,245 (7,886) (5,364) (429) (259) (755)

Other non cash items

104

380

17,084

4,274

Movement in working capital items

(50,855)

12,720

Cash flow from operating Activities

(27,169)

31,420

The notes to the Group financial statements form an integral par t of these financial statements.

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S E C T I O N 1 2 : Our Financial Review

ALLIANCE ANNUAL REP ORT 2018

A. FINANCIAL PERFORMANCE IN THIS SECTION This section explains the financial performance of Alliance providing additional information about individual items in the income statement, including:

–a  ccounting policies, judgements and estimates that are relevant for understanding items recognised in the income statement.

–a  nalysis of Alliance’s performance for the year by reference to key areas including: revenue, payments to our farmers, expenses and taxation.

A1:

C R E AT I N G W E A LT H A N D A D D I N G VA LU E TO O U R FA R M E R S

A1.1 REVENUE GROUP 2018

2017

Revenue Other operating income

$000 1,767,959 3,496

$000 1,533,408 3,955

Total income

1,771,455

1,537,363

REVENUE MEASUREMENT & RECOGNITION Revenue from the sale of goods is measured at the fair value of the consideration received or receivable, net of returns and allowances, trade discounts and volume rebates. This revenue is influenced by customer contract sales prices and international demand for meat products and is recognised when the significant risks and rewards of ownership have been transferred to the customer, recovery of the consideration is probable and the associated costs can be estimated reliably. Other operating income materially consists of rebates from associates. A 1 . 2 P O O L S U R P LU S D I S T R I B U T I O N S PAYA B L E POOL DISTRIBUTIONS

GROUP Note Pool surplus distributions per income statement plus over provided from last year Qualifying payout Transfer to share issues pending Total payable at end of year A2

C6

$/HEAD

2018

2017

$000 26 (26) -

$000 11,387 98 11,485 (3,872)

Lamb Ewes Cattle

-

1.80 1.00 10.00

Calves

-

1.00

(7,613)

Deer

-

7.50

-

FY18 FY17

FINANCE INCOME AND EXPENSES GROUP

60

2018

2017

$000

$000

Interest from bank Financial income Interest paid on loans and borrowings Financial expenses

155 155 8,034 8,034

170 170 6,739 6,739

Net finance costs

7,879

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S E C T I O N 1 2 : Our Financial Review

ALLIANCE ANNUAL REP ORT 2018

MEASUREMENT & RECOGNITION Interest income is recognised as it accrues. Finance expenses comprise interest expense on borrowings. A3

PERSONNEL EXPENSES GROUP

Wages and salaries Contributions to KiwiSaver plans Increase in liability for long service leave Total personnel expenses

2018

2017

$000 235,148 7,500 195

$000 214,552 7,747 104

242,843

222,403

MEASUREMENT & RECOGNITION Provision is made for benefits owing to employees in respect of services rendered. Provisions are recognised when it is probable they will be settled and can be measured reliably. A4

TA X ATION GROUP 2018

2017

$000

$000

Recognised in the income statement Current tax expense Current income tax expense Adjustments for prior years Unutilised prior year tax credits Deferred tax expense

2,327 1,254 736 (589)

Total income tax expense in income statement

3,728

2,321

10,330

16,747

Income tax expense calculation Net profit before tax for the year Income tax using the company’s tax rate (28%)

2,892

Non assessable income

(528)

Tax effect of post-tax equity accounted earnings Tax effect of lower tax for overseas subsidiary

779 154 839 549

4,689 (2,056)

59

156

(204)

(372)

Under / (over) provided in prior years

1,509

Income tax expense

3,728

(96) 2,321

MEASUREMENT & RECOGNITION Income tax expense is the income tax assessed on taxable profit for the year. Taxable profit differs from profit before tax reported in the income statement as it excludes items of income and expense that are taxable or deductible in future years (i.e. deferred tax) and also excludes items that will never be taxable or deductible. Income tax expense components are current income tax and deferred tax. IMPUTATION CREDIT S As at balance date imputation credits available for use in subsequent periods totalled $34.5 million (2017: $34.5 million)

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ALLIANCE ANNUAL REP ORT 2018

DEFERRED TA X Movement in temporary differences

Opening

Recognised

Recognised

Closing

during the year

balance

in income

in equity

balance

$000

$000

$000

30

-

$000

2017 Property, plant and equipment Inventories Employee benefits Other items Derivatives Tax loss carry forward

2018 Property, plant and equipment Inventories Employee benefits Other items Derivatives Tax loss carry forward

(472)

(442)

186 3,706 2,438 23 18,213

305 432 (765) (605)

55 -

491 4,138 1,673 78 17,608

24,094

(603)

55

23,546

(442) 491 4,138 1,673 78 17,608

(68) 57 (66) 500 (2,984)

(78) -

(510) 548 4,072 2,173 14,624

23,546

(2,561)

(78)

20,907

KEY JUDGEMENT: A deferred tax asset is recognised to the extent it is probable that future taxable profits will be available to use the asset. This is reviewed at each balance date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available in the future to utilise the asset. MEASUREMENT & RECOGNITION Deferred tax is income tax that is expected to be payable or recoverable in the future as a result of the unwinding of temporary differences. These arise from differences in the recognition of assets and liabilities for financial reporting and for the filing of income tax returns. Deferred tax is recognised on all temporary differences, other than those arising from goodwill and the initial recognition of assets and liabilities in a transaction (other than in a business combination) that affects neither the accounting nor taxable profit or loss. Deferred tax is calculated at the tax rates that are expected to apply to the year when a liability is settled or an asset realised, based on tax rates and tax laws that have been enacted or substantively enacted at balance date.

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ALLIANCE ANNUAL REP ORT 2018

B . O P E R AT I N G A S S E T S IN THIS SECTION This section shows the assets Alliance uses in the processing of red meat products supplied by our New Zealand farmers in order to generate operating revenues. Key revenue generating assets include: – property, plant and equipment; – inventories; –

intangible assets.

B1

P R O P E RT Y, P L A N T A N D E Q U I P M E N T

Land Group

Buildings

Plant and equipment

$000

$000

25,677 -

124,861 6,182 -

398,087 30,499 109 (454) 13

27,955 (36,681) 30,537 -

Balance at 30 September 2017

25,677

131,043

428,254

21,811

606,785

Balance at 1 October 2017

25,677

131,043

428,254

21,811

606,785

-

1,326

18,059

(19,385)

18 (5,316) -

307 (8,206) 17

32,285 -

32,610 (13,941) 17

34,711

625,471

Additions Disposals Effect of movements in exchange rates Balance at 30 September 2018

(419) -

$000

Total

Cost Balance at 1 October 2016 Transfers from capital work-in-progress Additions Disposals Effect of movements in exchange rates

Transfers from capital work-in-progress

$000

Work in progress

$000 576,580 30,646 (454) 13

-

25,258

127,071

438,431

Depreciation and impairment losses Balance at 1 October 2016 Depreciation Provision for writedown Disposals Effect of movements in exchange rates

68 -

76,639 2,259 -

292,531 15,379 (63) (404) 2

-

369,170 17,638 5 (404) 2

Balance at 30 September 2017

68

78,898

307,445

-

386,411

Balance at 1 October 2017 Depreciation Provision for writedown Disposals Effect of movements in exchange rates

68 10 -

78,898 2,299 (4,622) -

307,445 16,449 (6,767) 5

124 -

Balance at 30 September 2018

78

76,575

317,132

124

393,909

25,677 25,609 25,180

48,222 52,145 50,496

105,556 120,809 121,299

27,955 21,811 34,587

207,410 220,374 231,562

Net book value Balance at 1 October 2016 Balance at 30 September 2017 Balance at 30 September 2018

386,411 18,882 (11,389) 5

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ALLIANCE ANNUAL REP ORT 2018

MEASUREMENT & RECOGNITION Owned assets Items of property, plant and equipment are measured at cost less accumulated depreciation and impairment losses. Cost includes expenditures that are directly attributable to the purchase of the asset. The cost of selfconstructed assets includes the cost of materials and direct labour, any other costs directly attributable to bringing the asset to a working condition for its intended use and the costs of dismantling and removing the items and restoring the site on which they are located. Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment. Where parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items of property, plant and equipment. Impairment The carrying value of property, plant and equipment are reviewed at each reporting date. If an indicator of impairment exists, then the recoverable amount is estimated. An impairment loss is recognised in the income statement if the carrying amount exceeds the recoverable amount. Disposals The gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sale proceeds and the carrying amount of the asset and is recognised in the income statement. Depreciation Depreciation of property plant and equipment assets is calculated on a straight-line or diminishing value basis. This allocates the cost of an asset, less any residual values (estimated value at time of disposal) over the over the estimated remaining useful life of the asset. Leased assets are depreciated over the shorter of the lease term and their useful lives. Land is not depreciated. KEY JUDGEMENT Alliance makes estimates of the remaining useful lives of assets, which are as follows: – buildings 15-50 years; –

plant and equipment 4-25 years.

The residual value and useful lives are reviewed and if appropriate adjusted, at each reporting date. B2

INVENTORIES GROUP 2018 Raw materials and consumables Livestock Trading stocks Total inventories

2017

$000 10,402 355 100,604

$000 8,643 1,707 67,518

111,361

77,868

MEASUREMENT & RECOGNITION Inventories are valued at the lower of cost and net realisable value. Cost: Consistent with other meat processors, Alliance utilises the “retail method”, in accordance with NZ IAS 2 - Inventory, to value the cost of inventory. Under the “retail method”, the cost of inventory is ascertained by deducting from sales value an estimated profit margin expected to be earned on the future sale of inventory. Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale. Livestock is valued at fair value.

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ALLIANCE ANNUAL REP ORT 2018

KEY JUDGEMENT Alliance determines the sale values used to calculate the cost of inventory by reference to: – contract sale prices, or – B3

for uncontracted inventory, the future anticipated realisable value.

INTANGIBLE A SSE T S Resource consents Group

Software

$000

Goodwill

$000

Work in progress

Total

$000

$001

Net book value at 30 September 2017 Additions Amortisation expenses

435 333 -

677 964 (605)

692 -

2,838 1,530 -

4,642 2,827 (605)

Net book value at 30 September 2018

768

1,036

692

4,368

6,864

Cost Less accumulated amortisation

768 -

5,502 (4,466)

692 -

4,368 -

11,330 (4,466)

Net book value at 30 September 2018

768

1,036

692

4,368

6,864

MEASUREMENT & RECOGNITION Costs incurred in obtaining resource consents for Alliance’s processing sites are capitalised and amortised from the granting of the consent on a straight line basis for the period of the consent. This represents a change in policy from prior years where costs incurred in obtaining resource consents were expensed as they were incurred. Resource consents are granted for periods 5-35 years Costs associated with acquiring and developing software are capitalised at cost and amortised over the life of the assets. The useful life of software is 2-15 years. Goodwill represents the future potential earnout obligation in relation to the purchase of Goldkiwi Asia Marketing PTE Limited in Singapore.

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ALLIANCE ANNUAL REP ORT 2018

C. MANAGING FUNDING IN THIS SECTION This section explains how Alliance Group manages its capital structure and working capital along with the various funding sources. C1

C APITAL MANAGEMENT Alliance Group’s capital includes share capital, reserves and retained earnings. The Board’s objective when managing capital is to maintain a strong capital base to ensure Alliance are able to undertake future growth opportunities and maximise the return to shareholders. The board considers a strong capital base is necessary to protect the company from volatility and changes in capital and operating market conditions. The board monitors forecast capital inflows and outflows, and the level of shareholding relative to shareholders’ supply to ensure that the company retains a strong capital base, with a key reference point being the shareholders equity ratio.

C2

2018

2017

2016

2015

$000

$000

$000

$000

Total equity Total assets

333,073 519,505

323,159 459,989

301,828 427,800

308,869 536,123

Equity ratio

64.1%

71.0%

70.6%

57.6%

SHARE C APITAL Group

Share capital

2018

2017

$000

$000

86,339

76,328

As at 30 September 2018 there was a share issue pending of 386,000 shares. All shares have equal voting rights and shareholders are entitled to one vote per share. The maximum shareholding is 1.35 million 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 the capacity to be a transacting shareholder.

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C3

ALLIANCE ANNUAL REP ORT 2018

R E S ERVE S Group 2018 $000

2017 $000

Foreign currency translation Cash flow hedge

(12,132) (10)

(14,726) (201)

Reserves

(12,142)

(14,927)

MEASUREMENT & RECOGNITION Foreign Currency Translation Reserve The foreign currency translation reserve comprises all foreign currency differences arising from the translation of the financial statements of foreign operations as well as from the translation of financial instruments that hedge the company’s net investment in a foreign subsidiary. Cash Flow Hedge Reserve The cash flow hedge reserve comprises the effective portion of the cumulative net change in the fair value of cash flow hedging instruments related to hedged transactions that have not yet been settled. C4

C A S H AND C A S H EQ U IVAL E NT S Group

Cash and cash equivalents Bank overdraft Net cash and cash equivalents C5

2018

2017

$000

$000

2,587 (12,455)

1,313 (9,167)

(9,868)

(7,854)

TR ADE AND OTHER RECEIVABL E S Group 2018

2017

$000

$000

Trade receivables – net of impairment Prepayments Receivables from related parties

103,543 2,214 10,836

83,456 1,806 13,752

Total receivables

116,593

99,014

301

20

Impairment losses included in trade receivables

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ALLIANCE ANNUAL REP ORT 2018

The status of trade receivables at the reporting date is as follows: Group Trade receivables

Not yet due

1-30 days overdue

> 30 days overdue

Total

$000

$000

$000

$000

74,827

7,957

692

83,476

-

-

Net receivable

74,827

7,957

672

83,456

2018 Gross receivable Impairment

81,568 -

20,192 -

2,084 (301)

103,844 (301)

Net receivable

81,568

20,192

1,783

103,543

2017 Gross receivable Impairment

(20)

(20)

MEASUREMENT & RECOGNITION Trade receivables are measured on initial recognition at fair value, and are subsequently carried at amortised cost. Receivables are reviewed on an individual basis to determine whether any amounts are unrecoverable and a specific provision is made. The provision for doubtful debts is the estimated amount of the receivable that is not expected to be paid. Debts known to be uncollectible are written off as bad debts to the profit and loss immediately. In assessing the collectability of receivables Alliance considers the customers credit history and historical recovery performance and trends. C6

T R A D E A N D O T H E R PAYA B L E S Group 2018

Trade payables and accrued expenses Pool surplus distributions payable

A1.2

2017

$000

$000

81,609 -

74,368 7,613

81,609

81,981

MEASUREMENT & RECOGNITION Trade payables and other accounts payable are recognised when the entity becomes obliged to make future payments resulting from the purchase of goods and services. No interest is charged on the trade payables. The entity has financial risk management policies in place to ensure that all payables are paid with in the credit timeframe. C7

INTERE ST-BE ARING LOANS AND B ORROWINGS Group 2018

Secured bank loans – current Secured bank loans – non-current

2017

$000

$000

12,100

9,000

60,000

10,000

72,100

19,000

MEASUREMENT & RECOGNITION Borrowings are initially measured at fair value, net of transaction costs. They are subsequently measured at amortised cost (using the effective interest method). Fees for establishing new borrowings are spread over the term of those borrowings. The loan facility comprises a Core Facility (expiring 30 September 2020) and a Seasonal Facility which is renewed on an annual basis. The loan facilities are secured against the property and assets of Alliance given under a Security Trust Deed. Interest rates under the Facility Agreement are floating rates based on bank bill interest rates. The financial covenants under these facilities have been fully complied with during the year.

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ALLIANCE ANNUAL REP ORT 2018

D. F I N A N C I A L I N ST RU M E N T S U S E D T O M A N AG E R I S K IN THIS SECTION This section explains the financial risks that the Alliance Group faces and how these risks are managed. This includes reviewing the hedging instruments used to manage risk. D1

MANAGEMENT OF FINANCIAL RISK Alliance is subject to a variety of financial risks relating to its operations that are managed by the Group’s Treasury Policy. This policy provides guidance to management on minimising the exposure to these risks and the use of derivative financial instruments. Alliance is exposed to foreign currency, interest rate, credit and liquidity risks which arise during the normal course of business. The group manages commodity risk through negotiated supply contracts. MANAGEMENT OF ALLIANCE’S KEY FINANCIAL RISKS Credit risk

Credit risk is the risk of financial loss to the Group if a customer or counter-party fails to meet its financial obligations. Exposure to credit risk primarily arises in relation to trade debtors. Refer to Note C5 for the status of trade receivables. This risk is managed through a credit approval process and on-going monitoring being undertaken. Offshore debtor credit risk is also partially managed by the use of confirmed letters of credit from reputable banks. There are no significant concentrations of credit risk. The carrying amount of financial assets represents the group’s maximum credit exposure. Liquidity risk

Liquidity risk represents the group’s ability to meet its contractual obligations as they fall due. In general, the group generates sufficient cash flows from its operating activities to meet its obligations arising from its financial liabilities and maintains adequate banking facilities to cover potential shortfalls. The Group is required to disclose the expected timings of cash outflows for each of its financial liabilities. The amounts in the table below are the contractual undiscounted cash flows (including interest), so will not always reconcile to the amount disclosed on the statement of financial position. Balance Contractual sheet cash flow

< 3 months

3-12 mths

1-5 yrs

$000

$000

$000

$000

$000

Loans and borrowings

72,100

72,354

254

12,100

60,000

2017 Loans and borrowings

19,000

19,008

8

9,000

10,000

2018

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ALLIANCE ANNUAL REP ORT 2018

INTERE ST R ATE RISK The group is exposed to interest rate risk on movements in floating interest rates on loans and borrowings. In managing interest rate risk, the group aims to reduce the impact of short-term fluctuations on the group’s earnings. Over the longer term, however, permanent changes in foreign exchange and interest rates will have an impact on profit. Cash flow sensitivity* At 30 September 2018, it is estimated that an increase in interest rates of 100 basis points would decrease the group’s profit before income tax by approximately $1.6 million (2017 $1.2 million). *Calculated using average of year rates Fair value sensitivity At 30 September 2018, it is estimated that for interest rate hedge instruments, an increase in interest rates of 100 basis points would increase the group’s profit before income tax by approximately $0.05 million (2017 decrease $0.04 million). FOREIGN CURRENCY RISK The group operates internationally, and is subject to the risk of financial losses arising from adverse exchange rate movements in USD, EUR, GBP CAD, JPY and AUD. To manage the foreign exchange risks arising the Group enters into financial market derivatives. The following table shows the estimated pre-tax impact on the group of a general 10% change in the value of the New Zealand dollar in respect to foreign exchange currency derivatives that the company had in place at balance date: 2018 Profit & loss

10% increase in value of NZD 10% decrease in value of NZD D2

2017 Equity

Profit & loss

Equity

$000

$000

$000

$000

1,789 (2,041)

2,947 (3,625)

2,734 (3,301)

2,264 (3,388)

D E RI VAT I VE F INANC IAL I N STRUME NT S What is a derivative? A derivative is a type of financial instrument typically used to manage the interest rate and foreign exchange risks that the Group faces due to its business operations. The different types of derivative used are: Forward exchange contracts: This contract enables the Group to purchase or sell foreign currency at a set rate at a future date. Foreign exchange option: An option gives the ability to manage risk with the potential to benefit from favourable foreign exchange movements, while defining the best/worst case cash-flow outcome on an agreed future date. Interest rate swap: This contract allows the Group to obtain a fixed interest rate on a fixed borrowing amount for a future date. RECOGNITION Derivative financial instruments are recognised at fair value on the date the contracts are agreed and are re-measured on a periodic basis. The recognition of movements in fair value depends upon the hedging instrument and its designation or classification, as summarised below:

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Fair value hedge: Changes in the fair value of hedges that are designated and qualify as fair value hedges are recorded in the income statement, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. If the hedge no longer meets the criteria for hedge accounting, the adjustment to the carrying amount of a hedged item is amortised to the income statement over the period to maturity. Cash flow hedge: Changes in fair value of hedges that are designated and qualify as cash flow hedges and are considered effective for accounting purposes are recognised thru other comprehensive income into the cash flow hedge reserve (in equity). The gain or loss relating to any ineffective element is recognised immediately in the income statement. Amounts accumulated in other comprehensive income are recycled in the income statement in the periods when the forecast transactions take place. M E A S U R E M E N T O F FA I R VA LU E Foreign exchange contract: Fair value is the difference between the contract exchange rate and the quoted forward exchange rates to close it out at the reporting date. This is calculated by using the present value of the estimated future cash flows and applying published forward exchange rates and discount rates based on the forward interest rate swap curve. Foreign exchange options: The fair value has two components being; â&#x20AC;&#x201C;

intrinsic value, being the difference between the option strike rate and the current market rate, and

â&#x20AC;&#x201C; time value, this can never be negative, and represents the dollar value that the option has of the time left to run to maturity. The intrinsic value of the option, if it is deemed effective is taken through the hedge reserve in equity. Time value is always taken through the profit and loss account. The fair value uses a discounted cash flow and applies observable option volatilities and quoted forward exchange and interest rates that match the maturity dates of the contracts. Interest rate derivative: The fair value is the estimated amount that the Group would pay or receive if the contract stopped at the reporting date. This is calculated by discounting the future interest and principal cash flows using published market interest rates that match the maturity dates of the contracts and discount rates based on the forward interest rate swap curve. The fair value uses a discounted cash flow and applies observable option volatilities and quoted forward exchange and interest rates that match the maturity dates of the contracts.

The following table details the notional principal amounts of derivatives at the end of the reporting period: 2018 Notional principal $000 Derivatives designated as cash flow hedges - Foreign exchange contracts Derivatives not designated as cash flow hedges - Interest rate swaps - Forward rate agreements - Foreign exchange contracts

2017 Fair value $000

Notional principal $000

Fair value $000

80,787

(10)

65,498

(279)

51,000 60,000 75,199

(499) (34) (123)

53,000 60,000 96,966

(723) (35) (419)

266,986

(666)

275,464

(1,456)

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ALLIANCE ANNUAL REP ORT 2018

E. G RO U P ST RU C T U R E IN THIS SECTION This section provides information to help readers understand the Alliance Group structure and how it affects the financial position and performance of the group. E1

SUBSIDIARIES The financial statements include the financial statements of Alliance Group Limited and the subsidiaries listed below. Subsidiaries are entities controlled by the group. Control exists when the group has the power to govern the financial and operating policies of the entity so as to obtain benefit from its activities. The financial statements of subsidiaries are included in the consolidated financial statements from the date on which control commences until the date on which control ceases. The company has the following investments:

(b)

E2

Investments in subsidiaries New Zealand Holdings (UK) Limited and its trading subsidiary Alliance Group (NZ) Ltd

Country

Balance date

United Kingdom

30-Sep

2018

2017

Ownership interest

Ownership interest

100.0%

100.0%

A SS O CIATE S MEASUREMENT & RECOGNITION Associates are those entities in which Alliance has significant influence, being the ability to participate in however not control the financial and operating decisions of the entity. Associates are accounted for using the equity method of accounting where the investment is recorded at cost plus its share of any profit or loss during the ownership period. Any dividends received are deducted from the investment value. If Allianceâ&#x20AC;&#x2122;s share of losses exceeds its interest in the associate, the carrying amount of that interest (including any long-term investments) is reduced to nil and the recognition of further losses is discontinued except to the extent that Alliance has an obligation or has made payments on behalf of the entity.

The notes to the Group financial statements form an integral par t of these financial statements.

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The company has the following investments: Country Balance date

2018

2017

Ownership interest

Ownership interest

Associates The Lamb Co-operative Inc.

USA

30-Sep

44.9%

45.8%

The NZ and Australian Lamb Company Ltd Porkcorp New Zealand Ltd Alpine Origin Merino Ltd High Health Alliance Limited

CAN NZ NZ NZ

30-Sep 30-Sep 30-Sep 30-Sep

43.0% 50.0% 50.0% 50.0%

44.8% 50.0% 50.0% 50.0%

2018

2017

$000

$000

Investments in equity accounted investees Movements in carrying value of equity accounted investments: Balance at beginning of year Investment in share capital Add patronage dividends issued as advances Add patronage dividends reinvested Less withholding tax on dividends Less promissory notes repaid Add/(less) share of foreign exchange translation reserve

Add share of profit after tax Less dividends received

27,682 3,415 92 (850) (3,468) 574

20,894 190 3,834 2,800 186

27,445

27,904

1,482 -

428 (650)

Closing balance

28,927

27,682

This balance comprises: Shares in associate companies and joint ventures Advances to associated companies at cost Share of post-acquisition increases in net assets Share of foreign exchange translation reserve

6,430 10,896 15,306 (3,705)

6,430 10,896 14,635 (4,279)

Closing balance

28,927

27,682

Summary financial information for equity accounted investees and proportionately consolidated entities, not adjusted for the percentage ownership:

Associates and joint ventures 2017 2018

Total assets

Total liabilities

Revenues

Profit (loss)

$000 120,593 135,356

$000 80,454 84,047

$000 617,391 764,419

$000 8,073 11,904

The notes to the Group financial statements form an integral par t of these financial statements.

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F. O T H E R IN THIS SECTION This section includes information required to comply with financial reporting standards that is not covered in other sections. F1

R E L AT E D PA RT I E S Transactions with related parties, including directors, are made on terms equivalent to those that prevail in arm’s length transactions. PA R E N T A N D U LT I M AT E C O N T RO L L I N G PA RT Y The immediate parent and ultimate controlling party of the Group is Alliance Group Ltd. I D E N T I T Y O F R E L AT E D PA RT I E S The Company has a related party relationship with each of its subsidiary companies outlined in Section E. The Company has a related party relationship with its key management personnel. Transactions with related parties

Group 2018

2017

Income Sales to associates Rebates received from associates Dividends from associates Interest received by the Company from associates Purchases from related parties Receipts from related parties

$000

$000

177,028 3,415 144 9,639 907

175,319 3,834 650 144 7,464 792

Balances with related parties Amounts owed to the Company by associates Loans to associates

10,836 20,046

13,752 19,502

Key management personnel compensation

Short-term employee benefits Post-employee benefits Directors’ fees – Alliance Group Ltd

Group 2018

2017

$000

$000

5,050 214 775

3,772 175 697

Key management personnel are the Alliance Group Executive Leadership Teams) and Alliance Group’s Board of Directors. Benefits paid to the Leadership Team include salaries, non cash benefits and contributions to post employment superannuation schemes. F2

AUDITOR S’ REMUNER ATION Group

Audit fees – KPMG Audit fees – Grant Thornton (UK) Fees for other services – KPMG Fees for other services – Grant Thornton Total Other services performed by Grant Thornton are for taxation services.

74

2018

2017

$000 217 56 15

$000 212 48 10 9

288

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COMMITMENTS Group Operating leases Non-cancellable operating lease rentals are payable as follows: Less than one year Between one and five years After five years

Operating lease expense recognised

2018

2017

$000

$000

3,504 5,002 1,549

2,787 3,950 19

10,055

6,756

4,120

3,739

MEASUREMENT & RECOGNITION Operating leases are leases where the lessors retain substantially all the risks and benefits of ownership of the leased items. Lease payments including any incentives received are recognised in the income statement on a straight-line basis over the term of the lease. F3

C APITAL E XPENDITURE COMMITMENT S Group

Balance of payments for approved capital expenditure

2018

2017

$000

$000

10,579

26,002

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F4

ALLIANCE ANNUAL REP ORT 2018

STATEMENT OF CHANGE S IN EQUIT Y FOR THE YEAR ENDED 30 SEPTEMBER 2018 Components that make up the capital and reserves of Alliance Group and the changes of each component during the year Reserves

Group

Foreign currency translation

$000

$000

Balance at 1 October 2016

70,715

(16,159)

Profit after tax for the year

-

-

-

-

-

1,433

-

1,433

Net change in fair value of financial instruments Movement in foreign currency translation reserve Total comprehensive income for the year Shares issued – ordinary shares

Cashflow hedge $000 (59) (142) (142)

Retained earnings

Total

$000

$000

247,331

301,828

14,426

14,426

-

(142)

-

1,433

14,426

15,717

4,207

-

-

-

4,207

(2,756)

-

-

-

(2,756)

Share issue pending

4,162

-

-

-

4,162

Total transactions with owners

5,613

-

-

-

5,613

Shares surrendered – ordinary shares

Balance at 30 September 2017

76,328

(14,726)

(201)

261,757

323,158

Balance at 1 October 2017

76,328

(14,726)

(201)

261,757

323,158

Profit after tax for the year

-

-

-

6,602

6,602

-

-

191

-

191

-

2.594

-

-

2,594

-

2,594

191

6,602

9,387 (9,483) 3,064 (2,923) 9,870

Net change in fair value of financial instruments Movement in foreign currency translation reserve Total comprehensive income for the year

76

Share capital

Bonus share issue Shares issued – ordinary shares Shares surrendered – ordinary shares Share issue pending

3,064 (2,923) 9,870

-

-

(9,483)

Total transactions with owners

10,011

-

-

(9,483)

Balance at 30 September 2018

86,339

(12,132)

(10)

-

258,876

528 333,073


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ALLIANCE ANNUAL REP ORT 2018

F 5 E V E N T S S U B S E Q U E N T T O B A L A N C E D A T E T here have been no events subsequent to balance date which have had a material effect on the financial performance and financial position reported in these statements. F 6 N E W S T A N D A R D S A N D I N T E R P R E T A T I O N S N O T Y E T A D O P T E D A number of new standards, amendments to standards and interpretations are not yet effective for the year ended 30 September 2018, and have not been applied in preparing these consolidated financial statements: NZ IFRS 9 (2014) Financial Instruments, replaces the existing guidance in NZIAS 39 Financial Instruments: Recognition and Measurement. This standard includes revised guidance on the classification and measurement of financial instruments, including a new expected credit loss model for calculating impairment on financial assets, and the new general hedge accounting requirements. It also carries forward the guidance on recognition and de recognition of financial instruments from NZIAS 39. The directors do not anticipate the application of NZ IFRS will have a material impact on the financial performance or financial position of the Group when it becomes effective in the 2019 financial statements. NZ IFRS 15 Revenue from Contracts with Customers. This standard introduces a new revenue recognition model for contracts with customers. The directors do not anticipate the application of NZ IFRS will have a material impact on the financial performance or financial position of the Group when it becomes effective in the 2019 financial statements. NZ IFRS 16 Leases has been issued. This standard eliminates the classification of leases as either operating leases or finance leases. The standard uses a single lessee model which requires a lessee to recognise on the Statement of Financial Position assets and liabilities for all leases with a term of more than 12 months. The standard is effective for the Groupâ&#x20AC;&#x2122;s 2020 financial statments. As at 30 September 2018, Alliance Group has non-cancellable operating lease commitments of $10 million (note F3). A preliminary assessment indicates that these arrangements will meet the definition of a lease under NZ IFRS 16, therefore the Group would recognise a right-of-use asset and a corresponding liability in respect of all these leases unless they qualify as low value or short-term leases upon the application of NZ IFRS 16. Although the directors are yet to complete their assessment it is likely that a material right-of-use asset and corresponding lease liability will be recognised in the Statement of Financial Position at 30 September 2020. The related impact on the Income Statement has not yet been estimated.

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A B O U T T H I S R E P O RT IN THIS SECTION The notes to the financial statements within sections A to F include information that is considered relevant and material to assist the reader in understanding changes in Alliance Groups financial position or performance. Information is considered material if:

- the amount is significant because of its size and nature;

- it is important for understanding the results of Alliance;

- it helps explain changes in Allianceâ&#x20AC;&#x2122;s business; or

- it relates to an aspect of Allianceâ&#x20AC;&#x2122;s operations that is important to future performance.

REP ORTING ENTIT Y Alliance Group Limited is a for-profit entity domiciled in New Zealand and registered under the Companies Act 1993 and the Co operative Companies Act 1996. The company is an FMC Entity in terms of the Financial Markets Conduct Act 2013 and prepares its financial statements in accordance with this Act and the Financial Reporting Act 2013. The consolidated financial statements are for Alliance Group Limited and its subsidiaries (together referred to as "Alliance") and Allianceâ&#x20AC;&#x2122;s interests in associates as at and for the year ended 30 September 2018. Alliance is primarily involved in meat processing and export sales. S TAT E M E N T O F C O M P L I A N C E A N D B A S I S O F P R E PA R AT I O N The financial statements have been prepared:

- i n accordance with Generally Accepted Accounting Practice (GAAP) in New Zealand and comply with International Financial Reporting Standards (IFRS) and the New Zealand equivalents (NZ IFRS), as appropriate for a for-profit entity;

- o n the basis of going concern. The directors, having considered projected future performance and the availability of financing, consider the going concern basis to be appropriate; and

- i n New Zealand dollars, with all values rounded to the nearest thousand dollars unless otherwise stated.

In preparing the Group financial statements, all material intragroup transactions, balances, income and expenses have been eliminated. Subsidiaries are consolidated on the date on which control is obtained to the date on which control is lost.

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FOREIGN CURRENCY Transactions denominated in a foreign currency are converted at the exchange rates at the dates of the transactions. Foreign currency assets and liabilities (such as receivables and payables) are translated at the rate prevailing at balance date. The assets and liabilities of international subsidiaries are translated to New Zealand dollars at the closing rate at balance date. The revenue and expenses of these subsidiaries are translated at rates approximating the exchange rates at the dates of the transactions. Exchange differences arising on the translation of subsidiary financial statements are recorded in the foreign currency translation reserve (equity). Cumulative translation differences are recognised in the income statement in the period in which any international subsidiary is disposed of. The principal functional currency of international subsidiaries is UK dollars; the closing rate at balance date was 0.5058 (30 September 2017: 0.5379). A full list of international subsidiary functional currencies is in note E1 Subsidiaries. OTHER ACCOUNTING POLICIES Other accounting policies that are relevant to an understanding of the financial statements are provided throughout the notes to the financial statements. The accounting policies have been consistently applied to the periods in these financial statements. Where applicable comparatives have been amended to align with current yearâ&#x20AC;&#x2122;s expenses. CRITIC AL JUD GEMENT S AND E STIMATE S The preparation of financial statements requires management to exercise its judgement in applying Allianceâ&#x20AC;&#x2122;s accounting policies. Estimates and judgements are reviewed by management on an on-going basis, with revisions recognised in the period in which the estimate is revised and in any future periods affected. Areas of estimate or judgement that have most significant impact on the amounts recognised in the financial statements are:

- Note B2

Inventories;

-N  ote D2

Derivative financial instruments.

R E - P R E S E N TAT I O N O F C E RTA I N P R I O R Y E A R C O M PA R AT I V E S To assist the users understanding of these financial statements, the following reclassifications and disclosure adjustments have been made:

- T he classification of interest bearing loans and borrowings between current and non-current have been reclassified. The result is a reclassification in 2017 figures of $9 million from non-current interest bearing loans and borrowings to current interest bearing loans and borrowings

- C ertain intangible assets have been reclassified from software to work in progress. The result is a reclassification of 2017 figures from nil to $2.8m

- A change in the basis which capital expenditure commitments is determined resulted in the 2017 figure of $31.7m being changed to $26.0m

These reclassification and adjustments have no impact on the financial performance of Alliance.

M J Taggart DIRECTOR

P M Schuyt DIRECTOR

22 November 2018

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ALLIANCE ANNUAL REP ORT 2018

IInndependent Audi t or’ s Report Independent dependent Audi Audittor’ or’ss Report Report To the shareholders of Alliance Group Limited

Report on the consolidated financial statements To the shareholders of Alliance Group Limited To the shareholders of Alliance Group Limited Opinion Report on the consolidated financial statements Report on the consolidated financial statements In our opinion, the accompanying consolidated Opinion financial statements of Alliance Group Limited (the Opinion In our opinion, thesubsidiaries accompanying company) and its (theconsolidated group) on pages financial statements of Alliance Group Limited (the In opinion, the accompanying consolidated 57our to 79: company)statements and its subsidiaries group) on pages financial of Alliance(the Group Limited (the i. present fairly in all material respects the Group’s 57 to 79: and its subsidiaries (the group) on pages company) financial position as at 30 September 2018 and 57 to 79: i. present fairly in all material respects the Group’s its financial performance and cash flows for the financial position at 30and September 2018 and i. year present fairly allasmaterial respects the Group’s ended oninthat date; its financial performance cash flows forand the financial position as at 30and September 2018 ii. comply with New Zealand Equivalents to year ended on that date; and cash flows for the its financial performance International Financial Reporting Standards and year ended on that date; and ii. International comply with New Zealand Equivalents to Financial Reporting Standards. International Financial Reporting Standards ii. comply with New Zealand Equivalents to and Standards.and International Financial Reporting Standards International Financial Reporting Standards.

We have audited the accompanying consolidated financial statements which comprise: We have audited the accompanying consolidated — the consolidated statement of financial position financial comprise:consolidated We havestatements audited thewhich accompanying as at 30 September 2018; financial statements which comprise: — the consolidated statement of financial position — consolidated income statement, as atconsolidated 30 September 2018; of financial position — the the statement statements of other comprehensive income, as at 30 September 2018; — the consolidated statement, changes in equityincome and cash flows for the year statements of other comprehensive — the consolidated income statement, income, then ended; and changes in equity and cash flows forincome, the year statements of other comprehensive — notes, including a summary of significant then ended; and and cash flows for the year changes in equity accounting policies and other explanatory ended; and — then notes, including a summary of significant information. accounting policies and otherofexplanatory — notes, including a summary significant information.policies and other explanatory accounting information.

Basis for opinion We conducted our audit in accordance with International Standards on Auditing (New Zealand) (‘ISAs (NZ)’). We Basis for opinion believe thatBasis the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. for opinion We conducted our audit in accordance with International Standardsand on Ethical Auditing (New Zealand) (‘ISAs (NZ)’). are independent of the group in accordance with Professional Standard 1 (Revised) Code of We believe that theour audit evidence weissued havewith obtained is sufficient and appropriate to(New provide a basis(‘ISAs for our opinion. We conducted audit in accordance Standards on Auditing Zealand) (NZ)’). We Ethics for Assurance Practitioners by International the New Zealand Auditing and Assurance Standards Board and the We are that independent of the group accordance Professional andfor Ethical Standard 1 a(Revised) Code of believe the audit evidence weinhave obtainedwith is sufficient appropriate to provide basis for(IESBA our opinion. International Ethics Standards Board for Accountants’ Code ofand Ethics Professional Accountants Ethics Assurance Practitioners issued by the New Professional ZealandinAuditing and with Assurance Standards Board We arefor independent of the group in accordance with and Ethical Standard 1 (Revised) Code of the Code), and we have fulfilled our other ethical responsibilities accordance these requirements andand the International Ethics Standards Board for Accountants’ Code of Auditing Ethics forand Professional (IESBA Ethics for Assurance Practitioners issued by the New Zealand AssuranceAccountants Standards Board and the IESBA Code. Code), and we haveStandards fulfilled our other ethical responsibilities inEthics accordance with theseAccountants requirements and the International Ethics Board for Accountants’ Code for Professional (IESBA Our responsibilities under ISAs (NZ) are further described in of the auditor’s responsibilities for the audit of the IESBA Code. Code), and we have fulfilled our other ethical responsibilities in accordance with these requirements and the consolidated financial statements section of our report. Our responsibilities under ISAspartners (NZ) areand further described auditor’s responsibilities the on audit of theterms IESBA Code. Subject to certain restrictions, employees of in ourthe firm may also deal with thefor group normal consolidated financial statements section of our report. Our responsibilities under ISAs (NZ) are further in the responsibilities forhave the audit of the our within the ordinary course of trading activities ofdescribed the business ofauditor’s the group. These matters not impaired Subject to certain restrictions, andoffirm employees of ourrelationship firm may also deal the in, group normal terms consolidated financial statements section ourhas report. independence as auditor of thepartners group. The no other with, or with interest the on group. within the course of trading activities of the business of the group. matters have on notnormal impaired our Subject to ordinary certain restrictions, partners and employees of our firm may also These deal with the group terms independence as auditor group. The firmofhas other relationship with, or interest the not group. within the ordinary courseofofthe trading activities theno business of the group. These mattersin,have impaired our independence as auditor of the group. The firm has no other relationship with, or interest in, the group.

Other information

The Directors, on behalf of the group, are responsible for the other information included in the entity’s Annual Other information Report. Other information includes the Chairman and Chief Executive’s report and disclosures relating to Other information The Directors, on behalf ofstatutory the group, are responsible forother the other information included the entity’s corporate governance and information and the information included in theinAnnual report.Annual Our Report. Other the Chairman and Chief Executive’s report and disclosures to The Directors, on behalf ofincludes the group, are responsible for other included in the entity’s Annual opinion on the information consolidated financial statements does notthe cover anyinformation other information and we relating do not express corporate governance and statutory information other information included in the Annual report. Report. information includes the Chairmanand andthe Chief Executive’s report and disclosures relating toOur any formOther of assurance conclusion thereon. opinion ongovernance the consolidated financial statements does not cover any otherour information andAnnual we not corporate and statutory and the other information included in the Ourother In connection with our audit of theinformation consolidated financial statements responsibility is do to report. readexpress the any formonofthe assurance conclusion thereon. opinion consolidated financial statements does coverinformation any other information and inconsistent we do not express information and, in doing so, consider whether thenotother is materially with the In connection with ourconclusion audit of the financial statements our responsibility to read the other any form of assurance thereon. consolidated financial statements or consolidated our knowledge obtained in the audit or otherwiseis appears materially information doing so,ofconsider whether theweother information materially with the In connection within our audit the have consolidated financial statements ourisresponsibility is to read the misstated. If,and, based on the work we performed, conclude that there is a materialinconsistent misstatement ofother this consolidated financial statements our whether knowledge obtained in thetoaudit orin otherwise appears materially information and, in so, consider other information is materially inconsistent with the other information, wedoing are required toorreport that fact.the We have nothing report this regard. misstated. If, financial based on statements the work weorhave conclude material misstatement of this consolidated our performed, knowledgewe obtained in that the there audit isora otherwise appears materially other information, weonare to have reportperformed, that fact. We nothing reportis ina this regard. misstated. If, based therequired work we wehave conclude thattothere material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. © 2018 KPMG, a New Zealand partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. © 2018 KPMG, a New Zealand partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.

8©02018 KPMG, a New Zealand partnership and a member firm of the KPMG network of independent

member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.


ALLIANCE ANNUAL REP ORT 2018

Independent Auditor’s Report Independent Auditor’s Report Use of ofthis independent To the shareholders Alliance Group Limited auditor’s

report

Report on the consolidated financial statements This independent auditor’s report is made solely to the shareholders as a body. Our audit work has been undertaken so that we might state to the shareholders those matters we are required to state to them in the To the shareholders of Alliance Group Limited Opinionauditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept independent Report on responsibility the consolidated financial statements or assume to anyone other than the shareholders as a audited body forthe ouraccompanying audit work, this independent In our opinion, the accompanying consolidated We have consolidated auditor’s or any of of Alliance the opinions we have formed. financialreport, statements Group Limited (the financial statements which comprise:

Opinion

company) and its subsidiaries (the group) on pages — the consolidated statement of financial position In opinion, the accompanying consolidated We have audited the accompanying consolidated 57our to 79: as at 30 September 2018; financial statements of Alliance Group Limited (the financial statements which comprise: i. present fairly in all material respects the Group’s Responsibilities of the Directors for the consolidated company) and its subsidiaries (the group) on pages — consolidated incomefinancial statement, — the the consolidated statement of financial position financial position as at 30 September 2018 and 57 to 79: statements of other comprehensive income, statements as at 30 September 2018; its financial performance and cash flows for the changes in equity and cash flows for the year i. Directors, present fairly inthat all material respects are theresponsible Group’s year ended date; The onon behalf of theand company, for: — the thenconsolidated ended; and income statement, financial position as at 30 September 2018 and statements of otherincomprehensive comply with New Equivalents to consolidated financial —ii. the preparation andZealand fair presentation of the statements accordance withincome, generally — notes, including a summary of significant its financial performance and cash flows for the changesEquivalents in equity and cash flows forFinancial the year International Financial Reporting Standards accepted accounting practice in New Zealandand (being New Zealand to International accounting policies and other explanatory year ended on that date; and then ended; and International Financial Reporting Standards. Reporting Standards) and International Financial Reporting Standards; information. ii. comply with New Zealand Equivalents to — notes, including a summary — implementing necessary internal control to enable the preparation of a consolidated setofofsignificant financial International Financial Reporting Standards and accounting policies and other statements that is fairly presented and free from material misstatement, whether due toexplanatory fraud or error; and International Financial Reporting Standards. information. — assessing the ability to continue as a going concern. This includes disclosing, as applicable, matters related to goingBasis concern andopinion using the going concern basis of accounting unless they either intend to liquidate or to for cease operations, or have no realistic alternative but to do so. We conducted our audit in accordance with International Standards on Auditing (New Zealand) (‘ISAs (NZ)’). We believe thatBasis the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. for opinion We are independent of the group in accordance with Professional and Ethical Standard 1 (Revised) Code of Auditor’s responsibilities audit ofonthe consolidated financial We conducted our audit in accordance with Standards Auditing (New Zealand) (‘ISAs (NZ)’). We Ethics for Assurance Practitioners issued by International thefor Newthe Zealand Auditing and Assurance Standards Board and the believe that the audit evidenceBoard we have obtained is sufficient and appropriate to provide a basis for(IESBA our opinion. International Ethics Standards for Accountants’ Code of Ethics for Professional Accountants statements We areand independent of the group in accordance with Professional and Ethical Standard 1 (Revised) Code of Code), we have fulfilled our other ethical responsibilities in accordance with these requirements and the Our objective is: Ethics for Assurance Practitioners issued by the New Zealand Auditing and Assurance Standards Board and the IESBA Code. International Standards for further Accountants’ for Professional Accountants (IESBA Our responsibilities underassurance ISAsBoard (NZ) about are described in of theEthics auditor’s responsibilities for audit of free the — to obtain Ethics reasonable whether theCode consolidated financial statements as athe whole are Code), and we have fulfilled our other ethical responsibilities in accordance with these requirements and the consolidated financial statements section of our report. from material misstatement, whether due to fraud or error; and IESBA Code. Subject to certain restrictions, partners and employees of our firm may also deal with the group on normal terms — issue an independent report that includes ourthe opinion. Our to responsibilities under ISAs (NZ) are further in responsibilities forhave the audit of the our within the ordinary course of auditor’s trading activities ofdescribed the business ofauditor’s the group. These matters not impaired consolidated financial statements section of our report. independence as auditor of the group. The firm has no other relationship with, or interest in, the group. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance Subject toNZ certain restrictions, andmisstatement employees ofwhen our firm may also deal with the group on normal terms with ISAs will always detectpartners a material it exists. within the ordinary course of trading activities of the business of the group.if,These matters impaired our Misstatements can arise from fraud or error. They are considered material individually or have in thenot aggregate, independence as auditor the group. The firm has no other relationship or taken interest group. they could reasonably be of expected to influence the economic decisions ofwith, users on in, thethe basis of these

Other information

consolidated financial statements. A further description of our responsibilities for the audit these consolidated is located The Directors, on behalf of the group, are responsible forofthe other informationfinancial includedstatements in the entity’s Annualat the External Reporting Board (XRB) website at: http://www.xrb.govt.nz/standards-for-assuranceReport. Other information includes the Chairman and Chief Executive’s report and disclosures relating to Other information practitioners/auditors-responsibilities/audit-report-5/ corporate governance and statutory information and the other information included in the Annual report. Our This description forms part of our independent auditor’s report. The Directors, behalf of the group, are responsible the other includedand in the Annual opinion on the on consolidated financial statements does for not cover anyinformation other information we entity’s do not express The engagement partner on the audit resulting in this independent auditor's report is Peter Taylor. Report. information includesthereon. the Chairman and Chief Executive’s report and disclosures relating to any formOther of assurance conclusion corporate governance and statutory andfinancial the otherstatements informationour included in the Annual Ourother In connection with our audit of theinformation consolidated responsibility is to report. read the For and on the behalf of opinion consolidated statements does coverinformation any other information and inconsistent we do not express information and, in doing financial so, consider whether thenotother is materially with the any form of assurance consolidated financial conclusion statementsthereon. or our knowledge obtained in the audit or otherwise appears materially In connection with our audit of we the have consolidated financial statements our responsibility is to read theofother misstated. If, based on the work performed, we conclude that there is a material misstatement this information and, in doing so, consider whether the other information is materially inconsistent with the other information, we are required to report that fact. We have nothing to report in this regard. KPMG consolidated financial statements or our knowledge obtained in the audit or otherwise appears materially Christchurch misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this 22 November 2018we are required to report that fact. We have nothing to report in this regard. other information, © 2018 KPMG, a New Zealand partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. © 2018 KPMG, a New Zealand partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG © 2018 KPMG, a New Zealand partnership and a member of the KPMG network of independent International Cooperative (“KPMG International”), a Swiss firm entity. member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.

2

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S E C T I O N 1 3 : Statutory Information and Five Year Review

ALLIANCE ANNUAL REP ORT 2018

Section 13

STAT U T O RY I N FO R M AT I O N AND FIVE YEAR REVIEW

82


S E C T I O N 1 3 : Statutory Information and Five Year Review

ALLIANCE ANNUAL REP ORT 2018

83


S E C T I O N 1 3 : Statutory Information and Five Year Review

ALLIANCE ANNUAL REP ORT 2018

STAT U TO RY I N F O R M AT I O N The directors present to shareholders the seventieth Annual Report and Financial Statements of the company for the year ended 30 September 2018. F I N A N C I A L R E S U LT

INTERESTS REGISTER

The result for the year is a profit of $6.6 million

The company maintains an Interests Register in

after tax.

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 for the period 1 October 2017 to 30 September 2018.

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S E C T I O N 1 3 : Statutory Information and Five Year Review

ALLIANCE ANNUAL REP ORT 2018

DISCLOSURES OF INTEREST Directors have disclosed interests in the following entities pursuant to Section 140 of the Companies Act 1993:

Director

Entity

Relationship

S M Brown

Sarah Brown and Associates Ltd

Director

Wanganui Collegiate Schoolâ&#x20AC;&#x201D;College Board of Trustees

Trustee

Arrow Dairy Limited

Independent Advisor

Benmore Downs Limited

Director

Kakapo Farms Partnership

Chairman

Platinum Dairies Limited

Chairman

Takitimu Discussion Group

Facilitator

R G Drummond

Takitimu Discussion Group

Member

G R Milne

Elviti Holdings Ltd, and subsidiaries

Director

Farmright Ltd

Director

FMG Insurance Ltd

Director

GR & JA Milne

Partner

Nyriad Ltd, and subsidiaries

Chairman

PF Olsen Group Ltd, and subsidiaries

Chairman

Pro-Form Ltd Advisory Board

Chairman

Rimanui Farms Ltd Advisory Board

Chairman

Rockhaven Trust

Trustee

Synlait Milk Ltd, and subsidiaries

Chairman

Terracare Fertilisers Ltd

Chairman

Waikato University

Council Member

Alpha Sheep Genetics Group

Member

DG & BC Morrison Ltd

Director

Pure Taste New Zealand (NZ) Ltd

Director

J G Collie

D G Morrison

Waikaka Group

Chairman

H D Sangster

Red Meat Profit Partnership Understanding Your Farming Business

Facilitator

P M Schuyt

Dairy Investment Fund Ltd

Chairman

DairyNZ Ltd

Director

Department of Corrections Audit & Risk Committee

Chairman

Foodstuffs North Island Ltd

Director

Tatua Co-op Dairy Co Ltd

Director

Tax Management NZ Ltd

Chairman

TSB Bank Ltd

Director

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S E C T I O N 1 3 : Statutory Information and Five Year Review

ALLIANCE ANNUAL REP ORT 2018

Statutor y Information (continued)

Director

Entity

Relationship

V C M Staddart

Defence Employer Support Council

Chair

Department of Conservation Audit & Risk Committee

Member

Financial Markets Authority

Member

Global Women Trust Advisory Board

Chair

Heartland Bank Ltd

Director

Kings College School Board of Trustees

Member

Ministry of Business, Innovation & Employment Audit & Risk Committee

Chair

Tertiary Education Commission Board

Member

The New Zealand Refining Co Ltd

Director

The Warehouse Group Ltd

Director

Ballance Agri-Nutrients Ltd

Director

FMG Insurance Ltd

Director

Oxford Health Charitable Trust

Trustee

Oxford Health Charity Ltd

Director

North Canterbury Farmersâ&#x20AC;&#x2122; Charitable Trust

Trustee

M J & R M Taggart Partnership

Partner

M J Taggart

R E L E VA N T I NT ERE ST S IN S HA RE S Directors have disclosed the following holdings of relevant interests in Alliance Group Ltd shares pursuant to Section 148 of the Companies Act 1993: Shares Held at 30 September 2017

Shares Acquired since 30 September 2017

Shares Held at 30 September 2018

J G Collie

102,348

-

102,348

R G Drummond

Director

140,797

21,524

162,321

J A Miller

94,238

14,200

108,438

D G Morrison

38,157

4,072

42,229

H D Sangster

65,139

13,296

78,435

M J Taggart

49,464

7,566

57,030

All share transactions were carried out at their nominal value of $1.00 per share. R E L AT E D PA RT Y T R A N S A C T I O N S The company has frequent transactions with its elected directors conducted on an armâ&#x20AC;&#x2122;s length basis in the ordinary course of business.

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ALLIANCE ANNUAL REP ORT 2018

DIRECTOR S REMUNER ATION The following remuneration was paid during the 2018 financial year:

$250,001-$260,000

1

$260,001-$270,000

1

$290,001-$300,000

1

$310,001-$320,000

1

$320,001-$330,000

2

S M Brown*

36,150

J G Collie

68,750

R G Drummond

68,750

J A Miller

68,750

$350,001-$360,000

1

G R Milne

68,750

$380,001-$390,000

2

D G Morrison

68,750

$410,001-$420,000

2

J H Ogden**

12,500

$520,001-$530,000

2

H D Sangster

68,750

$1,340,001-$1,350,000

1

P M Schuyt***

66,250

V C M Stoddart

76,000

M J Taggart

171,250

Our remuneration policy and practices are designed to attract, retain and reward high calibre senior leaders for the delivery of results that create value for our shareholders. This is achieved through market

*S M Brown was appointed a director in March 2018. ** J H Ogden retired from the board in November 2017. ***P M Schuyt was appointed a director in

benchmarked remuneration that balances fixed and variable pay linked directly to the performance of the

December 2017.

co-operative. The remuneration package for the Chief

During the year the total number of directors holding

annually by the Remuneration and Nominations

office increased from nine to ten with the appointment

Committee taking into account company results,

of S M Brown to the board. Under the constitution of the

individual performance and market data supplied by

company the board may increase the total remuneration

external specialist remuneration advisors.

Executive and Executive Leadership Team is reviewed

by such amount as is necessary to enable the company to pay to the additional director remuneration not exceeding the average amount then being paid to each of the other directors (other than the Chairperson) of

by the company’s UK based subsidiary, Alliance Group (NZ) Ltd and 13 employees whose employment ceased including redundancies and retirement.

the company.

CO-OPER ATIVE STATUS

EMPLOYEE REMUNER ATION

As required by Section 10 of the Co-operative Companies

During the year, the numbers of employees of the group who received remuneration including benefits, of $100,000 or more were: Remuneration

The above details include eight employees employed

Act 1996, the following resolution was passed by the board on 13 November 2018. All directors present voted in favour of the resolution:

No. of Employees

“It was the opinion of the board that Alliance Group

$100,000-$110,000

57

$110,001-$120,000

18

$120,001-$130,000

12

$131,001-$140,000

12

$140,001-$150,000

7

$150,001-$160,000

9

$160,001-$170,000

5

(b) the constitution of Alliance Group Ltd states

$170,001-$180,000

6

its principal activities as being co-operative

$180,001-$190,000

3

$190,001-$200,000

1

$200,001-$210,000

4

$210,001-$220,000

2

Ltd has, throughout the year ended 30 September 2018, been a co-operative company within 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;

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 Co-operative Companies Act 1996.”

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S E C T I O N 1 3 : Statutory Information and Five Year Review

ALLIANCE ANNUAL REP ORT 2018

Statutor y Information (continued) DIRECTORS

C O M PA N Y ’ S A F FA I R S

The names of persons holding office as directors of

A profit for the year has been recorded and the

the company as at 30 September 2018 are listed in the

company’s balance sheet remains robust with an

directory on the inside of the back cover.

equity ratio of 64.1%. Further details of the year under

Mr J G Collie and Mr J A Miller retired by rotation and offered themselves for re-election. No further nominations were received and Mr Collie and Mr Miller were declared re-elected.

review, including material changes in the nature of the business of the company or any of its subsidiaries, are included in the Chairman’s and Chief Executive’s Review and the financial statements of the company accompanying this report.

AUDITORS Under Section 200 of the Companies Act 1993 KPMG, Chartered Accountants, continue in office as auditors.

M J Taggart DIRECTOR

22 November 2018

88

P M Schuyt DIRECTOR


S E C T I O N 1 3 : Statutory Information and Five Year Review

ALLIANCE ANNUAL REP ORT 2018

FIVE YEAR REVIEW

2018

2017

2016

2015

2014

$000’s

$000’s

$000’s

$000’s

$000’s

1,767,959

1,533,408

1,357,609

1,498,838

1,459,279

10,435

28,737

12,081

9,192

20,473

Restructuring costs

79

603

1,970

1,325

2,900

Pool surplus distributions

26

11,387

9,795

-

7,000

6,602

14,426

102

4,625

6,210

Fixed assets

231,562

220,374

207,410

196,364

201,775

Total assets

519,505

454,989

427,800

536,123

504,755

Shareholders’ funds

333,073

323,159

301,828

308,869

296,684

Shareholders’ funds as a percentage of total assets

64.1%

71.0%

70.6%

57.6%

58.8%

Ordinary shares

76,467

72,166

67,008

67,565

70,086

Turnover Net profit before restructuring costs and pool surplus distributions

Profit after tax

89


S E C T I O N 1 4 : Directory

ALLIANCE ANNUAL REP ORT 2018

Section 14

D I R E C T O RY CORP OR ATE OFFICE

MANAGERS

51 Don Street

Dannevirke Plant

B A Poole

PO Box 845, Invercargill 9840

Levin Plant

P L Hansen

Telephone: 03 214 2700

Lorneville Plant

R M Mitchell

Email: executive@alliance.co.nz

Mataura Plant

D J Hailes (Acting)

Website: www.alliance.co.nz

Nelson Plant

S J Baird

Pukeuri Plant

P S Shuker

CHRISTCHURCH OFFICE

Smithfield Plant

I J Docherty (Acting)

Level 3

Alliance NZ Sales

J E M Skurr

123 Victoria Street

Alliance Group (NZ) Ltd

Christchurch Central 8013

(UK subsidiary)

D G Smith

Alliance Asia

A K J Kent

ELECTED DIRECTORS J G Collie

Winton

AUDITORS

R G Drummond

Avondale

KPMG

J A Miller

Southdown

D G Morrison

Gore

BANKERS

H D Sangster

Ranfurly

ANZ Bank Ltd

M J Taggart (Chairman)

Oxford

Bank of New Zealand The Hongkong and Shanghai Banking Corporation Ltd

APPOINTED DIRECTORS

Rabobank NZ Branch

S M Brown

Kimbolton

G R Milne

Hamilton

REGISTERED OFFICE

P M Schuyt

Wellington

Level 3

V C M Stoddart

Auckland

EXECUTIVE LEADERSHIP TEAM Chief Executive

D R Surveyor

Company Secretary

D J Hailes

Chief Financial Officer

C J Mathewson

Chief Information Officer

M D Blandford

General Manager Sales

S S Kingston

General Manager Supply Chain

G W Faber

General Manager Strategy

N C Jones

General Manager Marketing

P S Russell

51 Don Street Invercargill 9810

General Manager People and Safety C B Selbie General Manager Livestock and Shareholder Services

H J Stacy

General Manager Manufacturing

W P Wiese

The information in this annual report is for shareholders only and is not to be reproduced in whole or in part without the consent of Alliance Group Ltd.

90


51 Don Street, Invercargill 9810 PO Box 845, Invercargill 9840 0800 354 435 03 214 2700 executive@alliance.co.nz

W W W. A L L I A N C E . C O. N Z

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Annual Report 2018  

Annual Report 2018