Quote Originally Posted by Snoopy View Post
Vaygor, I was a PGW (or WRI as it was then) shareholder in 2005, the same time period you are assessing for ALF. That was the year that Rural Portfolio Investments took a controlling stake in WRI. Back in those days WRI was not as it is now (they had not yet merged with Pyne Gould Guinness and were in the throws of swallowing Willaims and Kettle). However the Grant Samuel compiled, Wrightson commissioned takeover report of the time does have some interesting comments on the outlook for trading livestock in FY2005. The report is dated September 2004 and I quote from page 9.

"Wrightson is New Zealand's largest and only nationwide livestock business serving the needs of farmers, meat processors and others in the livestock industry. The livestock operations include a core sale agency business, a live export operation, Wrightson Velvet and Integrated Livestock management. The business is primarily based on a sales margin/commission model, and accordingly when sales volumes or sales prices reduce income to Wrightson is also reduced. Given the heavy reliance on the agency business, profitability of the livestock division is impacted by the changing values and volumes of livestock being sold. Livestock prices peaked in 2002 and since then have progressively declined (Snoopy note: PGW EBIT for livestock subsequently rebounded in FY2005, but I don't know if this was a 'market effect' or a 'merger effect'). Accordingly the EBIT of Wrightson Livestock has reduced from $11.9m in 2002 to $4.2m in 2004. Livestock has a high fixed cost structure which further exacerbates the the variability in earnings."

"A relatively new initiative is for the Livestock business to procure specified live weight sheep for processors. Wrightson enters into agreements with farmers for the supply of product to very specific parameters through the season (Snoopys note: this sounds like a forerunner to the more recent Silver Fern farms supply agreement that went disasterously wrong for PGW - resulting in a multi million dollar contract write down- when they realized that would not be able to get the volume of stock they signed up to purchase for Silver Fern farms). As processors become more demanding in their requirements, this method of livestock procurement is expected to become more common. This method provides Wrightson with a more certain income stream (Snoopy adds: except when the shortage of supply of stock means an agreement like this causes a major default, with multi million dollar writedown implications)."

I realise that none of the above directly relates to ALF, but I do believe the comments are general enough to point to the same kind of market pressures that ALF woudl have been facing at the time, and indeed faces now.

SNOOPY
Quite right Snoopy.
2005 was not an easy year for ALF.
2005 was also a bad year for their merchandise division.
This makes 2005 a good year to select when trying to get a handle on what ALF might be able to recover to in the medium to long term.
Vaygor1.