AACo posts $148m loss after floods, drought and cattle price dip

AACo posts $148m loss after floods, drought and market hits


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Drought de-stocked AACo cattle being yarded for sale at Longreach in March.

Drought de-stocked AACo cattle being yarded for sale at Longreach in March.

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AACo has written off $47 million to herd losses and emergency expenses to flooding, plus $60m for drought feed and transport costs

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Drought and exceptional North Queensland flooding in February have cost the Australian Agricultural Company $107 million, sinking its 2018-19 statutory trading result to a $148.4m loss.

The badly weathered result was a further 45 per cent down on last year's $102.6m loss.

The big branded beef marketer and cattle station operator has confirmed 43,000 cattle died after 500 millimetres of rain, and cold windy conditions, swept across four of its 21 properties, inundating 800,000 hectares and destroying fencing, roads and infrastructure.

About 2000 of those stock were from the company's high value Wagyu beef herd.

AACo has written off $47m to herd losses and emergency expenses outlayed during the flood, plus $60m for feed and transport costs associated with drought.

Feed costs were significant because the company has maintained a growth agenda for its Wagyu herd, rather than scaling back production during the tough season.

I'm more confident than ever we are on the right course and progressing - Hugh Killen, AACo

However, AACo's underlying operating profit, excluding flood costs, increased to $23.7m - up from a $13.5m loss last financial year.

Net operating cash inflow also lifted almost $53m on last year to $13m, although total meat sales revenue fell 26pc to $246.3m, despite Wagyu meat revenue rising 4.5pc.

Total company revenue fell 4.1pc to $364m, resulting in statutory earnings before interest tax depreciation and amortisation sinking $183m into the red.

Managing director, Hugh Killen, said like much of regional Australia, AACo had faced unprecedented challenges resulting from weather conditions in the past year.

"But I'm more confident than ever we are on the right course and progressing," he said.

The company continued to make progress implementing its premium branded beef strategy, despite facing extreme operating conditions.

"While we have room for improvement in our results, when you exclude the Gulf flood event our underlying operating results are positive year on year, despite absorbing an additional $60m in drought related costs.

Hugh Killen

Hugh Killen

"Underlying operating profit is up more than $37m.

"Significantly, despite the tough weather, our Wagyu herd - the engine of our business - grew by three per cent."

Also, despite the loss of so many cattle to flooding, there would not be an impact on the company's ability to "fulfill supply obligations or the rollout of the premium branded beef strategy".

AACo was reaching the end of a transition period following the suspension of meat processing operations at its Livingstone Beef plant, south of Darwin, and the short grain-fed 1824 branded beef category.

"We have made some tough decisions, with the outcome being business simplification and a more efficient AACo," he said.

"They have proven to be sound decisions, especially when you consider the drought, and they have helped to set the company up for the next decade."

Mr Killen said the company's debt to equity gearing ratio of 29.9pc was still within its target range and there was significant head room in its debt covenants.

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Frustratingly, AACo's non-Wagyu beef herd's performance had taken a significant hit from the Gulf of Carpentaria flooding, plus an increased sell off program due to the dry season and the suspension of the Livingstone Beef and the 1824 supply chain.

Poorer cattle market prices had also resulted in unrealised losses $30.4m for the non-Wagyu herd and $63.9m for the Wagyu herd.

We saw growth across key markets in Asia, launched the Westholme brand in Dubai and opened our US commercial office in Los Angeles - Hugh Killen

However, the premium beef strategy had gained momentum in 2018-19.

"We saw growth across key markets in Asia, launched the Westholme brand in Dubai and opened our US commercial office in Los Angeles," Mr Killen said.

"Overall, our Westholme and Wylarah brand revenue growth is up 6pc on last year, while our heritage Wagyu fullblood brands are up 41pc.

"Wagyu revenue growth in established markets included 26pc in Asia, 10pc in Australia and 6pc in the European Union.

"We are well advanced progressing launches in larger markets, demonstrating our unmatched ability to produce the highest quality beef at scale."

Sustainability scrutiny

Australia's biggest beef pastoralist, had also responded to increasing consumer scrutiny of the beef production sector, developing a sustainability policy to help guide future decision making, responding to increasing consumer scrutiny of the beef production sector.

"We are seeing an emerging narrative in the community about the impact of beef production on the environment," he said.

"Responsible business is good business and our policy shows a commitment to continuous improvement and innovation in this important area."

Meanwhile, in the wake of the "once in century flood event" and ongoing drought, the pastoral giant was progressing plans to mitigate the potential future impact of extreme seasonal conditions.

We can't control the weather, but we can look at how we respond when the weather turns against us - Hugh Killen

The flooding which caught north western Queensland by surprise, despite pastoralists being well prepared with fuel stocks, raised refuge areas and rehearsed emergency strategies, was, at least, a one in 100 years event, Mr Killen said.

Managing weather risk

"We can't control the weather, but we can look at how we respond when the weather turns against us," he said.

"Things we are examining include how we better handle stock and feed in high-risk areas and reviewing our station business model to further de-risk.

"Tough weather conditions are forecast to continue, at least in the short term, which makes our strategy and response in this area even more important."

The company would spend a further $6m to $8m rebuilding lost fencing and infrastructure on its flood impacted Wondoola, Canobie, Dalgonally and Carrum stations.

"This is a chance to rebuild better and stronger."

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