AACo defies drought, rebounds with profit

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

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TOUGH TIMES: AACo managing director Hugh Killen has bounced back despite harsh economic conditions.

TOUGH TIMES: AACo managing director Hugh Killen has bounced back despite harsh economic conditions.

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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.

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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 Australian Agricultural Company managing director Hugh Killen said the business was bracing for a highly uncertain operating environment for 2020-21.

Coronavirus strikes foodservice, exports

"By the second week of March all of our 16 foodservice export markets had been impacted in some way by COVID-19," Mr Killen 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.

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.

He also noted fresh European orders were trickling in as lockdown rules were eased.

"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."

More at stockandland.com.au.

The story AACo defies drought, rebounds with profit first appeared on Stock & Land.

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