One of the UK’s biggest importers of New Zealand lamb has warned it faces lower profit margins amid a tightening of supply after this year’s vote to leave the EU.
Alliance Group (NZ) Ltd, the UK subsidiary of New Zealand-based sheepmeat exporter Alliance Group, saw a significant jump in profitability for the year ended 1 October 2016 on sales that rose by 1.9% to £100m.
Operating profits jumped from 267k in 2014/15 to £1.6m last year, with pre-tax profit rising to £1.3m from just £22k in 2014/15.
Alliance, which supplies retailers, wholesale and the food service sector, said this increase in profitability was particularly evident in frozen sales amid an improvement in trading margins.
The company said the sheepmeat market continued to be over-supplied in the first half, depressing prices on most commodity product lines, but that a tightening of supply from April to September due to lower numbers of lambs being processed in New Zealand helped firm up prices in the second half.
It cautioned that the UK supermarkets’ shift to “everyday low prices” and reduction of multi-buy offers had suppressed volume sales during the latter part of the year, while support for British lamb also reduced the number of New Zealand-sourced products on supermarket shelves.
Alliance cautioned the outlook for 2016/17 is for a further tightening of imported lamb into the UK given the plunge in the value of sterling after June’s Brexit vote.
“Trading margins are generally expected to reduce on current year levels as lamb buyers resist exchange rate drive price inflation,” the accounts stated.
However, it continues to forecast sales growth as it targets value-added business opportunities in the food service sector.
This, together with an ongoing focus on operation cost savings, should see profitability maintained at its 2015/16 levels.
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