2020 Annual Report

The Directors of Allied Farmers Ltd ("Allied" or "Allied Group") (ALF:NZX) are pleased to report an audited net profit before tax for the year to 30 June 2020 of $1.099million (FY19 $2.221million). The first 6 months of the financial year saw strong performance despite the ongoing mycoplasma bovis outbreak. However, since Christmas several factors which were outside of the company's control negatively impacted activity levels. The livestock business has had to absorb the negative impact and disruption of severe drought conditions across many parts of the country, and the COVID-19 pandemic. Taking these factors into the account, the Directors consider that the result produced was satisfactory. Shareholders should be proud of the way staff responded to the challenges that were placed in front of them. While it would have been easy to point to the COVID-19 disruption as being a reason not to deliver our services to our food producing clients, our staff instead took on the challenge and came up with innovative ways to tackle some of the constraints our clients were facing. The Directors wish to acknowledge the dedicated and hardworking team led by Chief Executive Steve Morrison that continues their focus on Working with Farmers for Farmers. The Directors believe that strong governance is the cornerstone on which success is built. During the year, the Directors were pleased with the ongoing improvements to the company's policies and governance including: o improving our approaches to identifying and managing risks, including health and safety; o extending the benefits provided to our staff around health and wellbeing; o adoption of a Diversity Policy and a Sustainability Statement; o the further strengthening of the Board with the appointment of Ross Verry to Chair our Finance business and lead the development of that opportunity; o the appointment of KPMG as the new external auditors including the refining and improvement of our annual financial statements to "cut the clutter" and improve transparency and understanding of our financial performance; and o the clarity obtained in challenging and resolving an issue with the Commissioner of Inland Revenue in respect of using the accumulated tax losses of the company. As always our mission is to assist our clients, who are important links in the global food chain, and important contributors to New Zealand's economy through the export earnings they generate, to meet the challenges that are placed in front of them. Strategy and Vision Over the past twelve months the Board and Management have continued to refine our strategy and vision. The company is more convinced than ever that its vision is correct: To be the major solution provider to agricultural producers, growing value for those producers and our investors. Our focus continues to be on improving and growing our existing business while simultaneously exploring and progressing new initiatives. The company has recently announced several initiatives which it is pursuing to further this vision. These include investment in the growth of our rural-focused finance business, innovation initiatives, and investment in digital technologies. Investment in growth of rural-focused finance business The Allied Group has a well-established finance operation providing short term seasonal livestock financing. The finance business has operated profitably and has given the Allied Group significant experience in rural financing. It has become apparent that New Zealand food producers are seeking sources of finance from other than the traditional banks. As a result, the Allied Group has decided to invest in the expansion of its financing operation. The expansion will focus on unlocking potential for good food producing operators who are constrained by traditional financing structures. Allied Group will continue to do this by providing insight and advice, on time, on point and when it matters. Simple. Flexible. Easy. Innovation and Digital Allied recognises that food producers are facing constant challenges relating to compliance, technology, environment and market expectations. Allied believes that there are many potential innovative solutions which can assist farmers to meet these challenges. One such challenge was presented by the COVID-19 lockdown which forced the cessation of livestock sale yard operations. Allied Group subsidiary New Zealand Farmers Livestock Ltd ("NZFL") demonstrated its ability to respond quickly, and, through the introduction of the leading innovative online/live sales process via its website MyLivestock, was able to provide farmers with an effective means to buy and sell livestock in real time both on-site and on-line - a 'hybrid' auction that supported our leadership of safe yard re-opening at COVID-19 Level 3, met urgent farmer needs for livestock trade and price discovery, and continues to enhance the operation of this important market channel. The successful creation and deployment of this technology is an example of Allied's strategy to invest in innovation that will directly benefit food producers. Allied's intention is to continue to invest in these types of initiatives including: o Further development of the MyLivestock website to enhance and improve this service to farmers, leading to growth in its use; o Investigate ways in which Allied can connect Agritech providers with farmers, facilities and industry knowledge in order to trial, test and refine potential solutions and products of real value to farmers; and o Partnering with other companies and providers to develop a modest programme of research and development aimed to identify and develop potential solutions. Allied is conscious of the growing desire of consumers for products that are sustainable and high quality, and, in addition to the above, is currently in the early stages of an investment proposal to support the development of an important technology which will further enhance the innovation reputation of New Zealand dairy farmers. Allied's intention is to continue to evaluate and potentially invest in profitable and innovative technologies either by strategic partnership or through direct investment within a disciplined and ethical investment framework. Capital Raising To support these initiatives and to enable Allied to achieve its goals, we have announced our intention to explore various capital raising options. These will include raising equity, potentially through an entitlement issue to existing shareholders, and possibly a placement to new shareholders. In addition, the company is exploring raising additional debt finance through a wholesale bond issue in order to support the finance operations. Further details will be provided as these options develop. Outlook for 2021 Allied Farmers continues to have a positive yet cautious outlook for the New Zealand rural sector. Notwithstanding the challenges of the 2019/2020 drought and advent of COVID-19, the New Zealand rural sector continues to be a significant contributor to the nation's current and ongoing prosperity. As global population grows, and consumer expectations and tastes change, food production must adapt and increase, and the global productive land is limited. Moreover, with growing income levels families will also desire more and higher quality protein that must be delivered from sustainable agricultural sources and have lower environmental footprints. New Zealand is well positioned to provide these products, with a reputation for providing high quality, natural and wholesome food products. While we must acknowledge that the global economic outlook has rapidly deteriorated and may take several years to recover, we believe the impact on the New Zealand agricultural sector will be disproportionately less than experienced by some other sectors. We remain optimistic that the challenges facing the New Zealand agricultural sector, including COVID-19 fall out and reducing the sector's impost on the environment, can be successfully over-come with sensible policy development and appropriate changes to farming and wider community practices. We are already seeing a greater focus and support for our sector than arguably existed pre COVID-19 and we consider the opportunities to work with our food producers and other stakeholders, and to continue to innovate and invest, will be key to ensuring the ongoing strength of our sector and of our Company. We are proud to have a company history that dates back over a hundred years and has seen and responded to many previous economic and global challenges. Agricultural products, and particularly dairy, meat and wool, still support New Zealander's expected living standards, and these products are a material, resource-efficient and valued contribution to the global community facing the challenge of feeding the world's growing population. Now is not the time to sit still and hope - we must continue to work hard to keep rising to the opportunities the environment has created and overcome the challenges faced. Allied Farmers was well placed to withstand these last year, and we remain well placed to deliver for the future for the benefit of all our stakeholders. Consistent with previous years, the Board will consider the payment of a dividend in respect of FY20 at the time of the November 2020 Annual Meeting. It is proposed that any dividend declaration will be announced at that time, and is likely to be paid in late January 2021, after the company passes its peak working capital requirements. Richard Perry Chairperson End CA:00358985 For:ALF Type:ANNREP Time:2020-08-31 13:14:42