Our Proposal

An Alternative Path Forward

Dear fellow Alliance Group Limited (AGL) shareholder,

Please consider this letter and the alternative finance proposal below, which should be read in full.

We, the undersigned, as a group of shareholders, would like to table the proposal outlined herein. Our wish is to retain AGL as a 100% NZ farmer owned co-operative. Our goal is to recapitalise the business to ensure the capital structure going forward is fit for purpose and successful at all levels, thereby maximising returns to its NZ farmer shareholders/suppliers.

There are several factors that lead us to believe that a farmer driven recapitalisation of AGL will be successful including:

  • The financial state of the farmer shareholders has improved dramatically since earlier recapitalisation proposals were first raised.
  • We have been informed that significant initiatives have been undertaken by AGL in “right sizing” the business. It has now returned to profit.
  • There is a strong desire from farmers to retain AGL’s proud legacy and history as 100% farmer owned co-operative.

The “offer” on the table from Dawn Meats, placing a value of $250m (this includes $40m loyalty carrot for continued future suppliers) for 65% of AGL, appears to significantly undervalue the business, wiping out circa $150m of shareholder equity (based on equity at the last balance date). This raises the question: Is a credible shareholder recapitalisation plan a better option than the proposed sale to Dawn Meats, both from a shareholders and community point of view?

We have not received the Information Memorandum that has informed and supports the Dawn Meats proposal. We have modelled “Best of Industry” advice in terms of performance which suggests the following profitability numbers are credibly attainable by AGL:

Season – NPBT – Tax @ 28% – NPAT

  • 25/26: $85m – $24m – $61m
  • 26/27: $28m – $8m – $20m
  • 27/28: $112m – $31m – $81m
  • 28/29: $160m – $45m – $115m
  • 29/30: $212m – $59m – $153m

We accept that AGL needs to be recapitalised. We believe the following scenario can work with your support.

Within the limits of the information currently available to us as shareholders we propose the following steps as a plan to put before the Banking syndicate currently supporting AGL:

Source of funds – Amount ($million)

Year 1
  1. Shareholders capital injection in cash of $5.00 per SU March/April 2026 = $50.0
  2. Sell down of non-essential assets could be (circa) = $10.0
  3. Total Capital Raised Year 1 = $60.0
Year 2
  1. 26/27 retentions from processing sheets: $2.00/lamb equivalent = $20.0
  2. Debt repayment from profits in 25/26* = $33.0
  3. Sell down of non-essential assets could be (circa) = $10.0
  4. Total Capital Raised Year 2 = $63.0
Year 3
  1. 27/28 retentions from processing sheets: $2/lamb equivalent = $20.0
  2. Debt repayment from profits in 26/27* = $45.0
  3. Total Capital Raised Year 3 = $65.0
Total funds to repay debt = $188.0

* Leaves a prospective surplus of $55m over the two financial periods (26/27) for capital expenditure (as required).
* We have assumed a return to profit in the current financial period. The above figures are based on the information we have available at this time and may be subject to change.

To enable the “Retention” process, a Product Disclosure Statement (PDS) needs to be live in the market. Making a “capital injection” in the current season provides the time needed to undertake the issuance of a PDS.

Retaining full ownership of AGL by farmer shareholders is critical as:

  • Alliance has taken significant steps to right size its business for the present and the future.
  • AGL is the last surviving 100% farmer shareholder owned red meat co-operative in NZ.
  • Alliance was set up in 1948 as farmers felt, at the time, the foreign owned companies were not giving them a fair deal. Do we want to run the risk of “going back there”?
  • As Fonterra has proven, under a renewed strategy and focus on the core business, exciting opportunities can be created to benefit NZ farmer shareholders.

Clearly, any recapitalisation of the company will require a review of current strategy and management.

Our decision to promote this alternative plan to recapitalise AGL is because we genuinely believe that 100% farmer ownership serves all farmers and their communities to best advantage in the long run. AGL has had its problems in the past, but it has remained resilient and stayed true to its founding principles, and we wish to retain that:

“As a co-operative, we partner with our farmers to produce the world’s finest red meat. We exist to create prosperity for our farmers by taking the results of their expertise and hard work to deliver healthy, natural food products to consumers all over the world.”

Alliance is $2 billion of farmer generated revenue funding our businesses, our communities and our way of life. It helps fund our roads, our schools, our towns and our sports clubs. Alliance is us. Recently it’s had its challenges but we can now revitalise the business, see it prosper and grow to pass on to our next generation of farmers. Let’s keep it 100% farmer owned so our sons and daughters can share in the legacy of what we and our founding shareholders have created.

Next steps:

  • Vote against the Dawn Meats proposal.
  • Embrace the alternative recapitalisation model proposed in this letter.

We understand farmers are worried that the banks will take control of AGL if the Dawn Meats offer is not accepted. They have not had a credible alternative offer to consider until now. A strong message with a commitment of financial support is crucial to enable our proposal to succeed. Banks have been strong partners throughout AGL’s history and with a renewed commitment from farmers, there is no reason this cannot continue.

We as a group do not support a “no vote” without a financial commitment as tabled above.

We have all got our hands up to help do everything we can to ensure AGL returns to be a strong performer in the industry and remains in farmer ownership.

Final thought… before we dismantle a fence on our farms, we give thought as to why it was put there. There was a reason.

Thank you for reading this letter.

Signatories:

  • Michael Wilkins – Ardlussa, Southland – 027 249 9317
  • Mark Gunton – Waikaia, Southland – 027 516 0955
  • Andrew Morrison – Willowbank, Southland – 027 664 4620
  • James Anderson – Waikaia, Southland – 027 545 5815
  • Dave Pinckney – Waikaia, Southland – 027 415 7701