AACo swings from loss to $15.2m profit despite drought year

Despite ongoing drought and the early impact of coronavirus, the Australian Agricultural Company has bounced back from last year's $23 million loss to post a full-year underlying operating profit of $15.2m for 2019-20.

Although drought continued weighing on the result across many of its 26 cattle holdings and costing $42m in feed alone, the big beef business has rebounded on the back of a 20 per cent lift in global Wagyu beef sales volumes and meat price growth.

It has also stripped back "controllable" running costs as management works to simplify AACo's business model, achieving a $31m cut to operating expenditure.

The price return on its Wagyu beef sales lifted 8pc per kilogram last year, while live cattle earnings responded to the market's recovery from sharp price declines early in 2018.

Meat sales increased $15.6m to total almost $230m in 2019-20, although cattle sales dipped $13.4m to $104.5m.

The 196-year-old business has also reported its strongest cash flow in three years of $20m and statutory earnings before interest tax and amortisation of $80m compared to last year's $186m loss.

The subsequent statutory profit in the year to March 31 was $31.3m, rebounding from a $148m loss.

The previous year's results had been hurt hard by flooding and stock losses in north western Queensland which cost $45.6m in livestock write-offs and a $65.5m decline in AACo's composite herd value caused by the closure of its Livingstone abattoir near Darwin and the wind down of its 1824 non-Wagyu meat brand supply chain and drought destocking.

Fortunately for the latest financial results period, the economic impact of the coronavirus emergency around the globe did not register, but managing director Hugh Killen said the business was bracing for a highly uncertain operating environment for 2020-21.

"By the second week of March all of our 16 food service export markets had been impacted in some way by COVID-19," he said.

Given the dynamic nature of the pandemic and the significant increase in economic uncertainty, the impact of COVID-19 "could not be reasonably estimated at this stage".

"These are uncertain times for food service globally and the impact is still to be fully understood as the world comes to terms with the long-term recovery from COVID-19 on everyday life," he said.

As top end restaurants remained closed, a big effort had been made to redirect AACo's branded beef to the retail sector, with Asian consumers responding strongly to high quality, pre-packed Wagyu beef offering in supermarkets.

Retail sales normally make up only about 45pc of AACo's market mix but the company was working with distributors and wholesalers to accelerate supplies to some of the world's largest supermarkets and gourmet butchers.

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Distribution to some retailers and via online orders would include unbranded product.

Online orders had also flourished, prompting the company to work on expanding its online database and activities.

"As we manage the ongoing and uncertain impacts of COVID-19, we reflect on a satisfying year for AACo," Mr Killen said, noting fresh European orders were trickling in as lockdown rules were beginning to ease.

"We had made meaningful progress in the execution of our branded beef strategy last year, with the sales momentum gained during the first half continuing throughout the second half."

In fact, AACo sales of Wagyu beef to its food service, retail and wholesale sector buyers recorded strong growth in all international markets until the final month of the trading year.

The Westholme brand notched up a 155pc lift in sales value and doubled its volumes compared to the previous year as it was rolled out to four- and five-star restaurants and premium butchers in a further 20 cities worldwide.

Westholme now represents more than 11pc of the company's meat sales.

AACo's other Wagyu brands include the premium, high marble score Wylarah and Master Kobe lines served up in fine dining restaurants, Darling Downs Wagyu sold to supermarkets, butchers and casual dining food service venues and the mass distribution retail and wholesale beef trading category, AACo.

About two thirds of the company's Wagyu beef went to Asia, with sales up almost 20pc on the previous year led by $69m revenue from South Korea and $34m from China.

"We have deep market presence in the retail sector in South Korea where Darling Downs Wagyu is a household name and there continues to be strong demand for our products in that market."

However, the company has been forced to seek new buyers for almost two thirds of the beef it previously sent to China following Beijing's suspension of imports from four Australian abattoirs last week.

China represented about 15pc of AACo's total beef sales last financial year.

The company was working with government and industry stakeholders, including its various beef processing partners, "to respond to the potential implications".

Mr Killen said AACo's global footprint and customer base enabled product to be moved to other markets, if required.

He noted African swine fever had left a "massive pork gap" in China and elsewhere which was expected to bolstering global protein demand for a few years.

In North America, where total AACo's Wagyu sales represent only 7pc of the global turnover, revenue jumped 34pc after launches in Los Angeles, Las Vegas, Chicago, Miami and New York, while the European and Middle East markets grew 17pc.

Back at home, where AACo launched its Westholme Wagyu brand and distribution partnerships in Sydney, Melbourne and Brisbane last year, the company reported a 16pc lift in total revenue growth, lifting Australian sales to 15pc of its total Wagyu market.

In the paddock, AACo had continued to "strategically destock" its non-Wagyu herd last year, cutting its total numbers in line with a forecast 14pc drop in the national herd because of drought.

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