AACo's pivoting to capture premiums delivers positive financial result

AACo's pivoting to capture premiums delivers positive financial result

Beef
STEWARDS: AACo cattle and country. The company, which has just handed down it's half-yearly financial results, has a big announcement on sustainability planned for tomorrow.

STEWARDS: AACo cattle and country. The company, which has just handed down it's half-yearly financial results, has a big announcement on sustainability planned for tomorrow.

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AACo posts half-yearly operating profit jump of $6.5m

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A LIFT in price per kilogram of beef sold and higher cattle sale margins has delivered an improved operating profit of $30 million to the country's largest beef producer, Australian Agricultural Company.

The business today handed down its half yearly financial results, the highlight of which was a $6.5m increase in operating profit compared to the previous corresponding period.

The result comes despite lower meat volumes sold due to reduced calving levels between 2018 and 2020 as a result of prolonged drought and the Gulf flood.

Managing director and chief executive officer Hugh Killen said it demonstrated the strength of AACo's business in what was still an uncertain operating environment.

The overall 9 per cent increase in average meat sales pricing was underpinned by AACo's ability to pivot to capture emerging premiums in different markets, influenced largely by pandemic effects.

Higher margins in-market as a result of growing brand awareness and an increased proportion sold through brands also contributed.

"A particular highlight is our performance in North America, where the average price per kilogram of branded beef sold is up 33pc," Mr Killen said.

"That reflects a strong demand for higher marble score loins and rumps in that region.

"We redirected product from Asia to capture these premium prices."

Asia, however, did continue to represent AACo's largest meat sales region, with a 53pc share.

AACo's brands Westholme and Darling Downs now represent 83pc of total branded meat sales.

Meanwhile, the company would never take it's eye off the domestic market, Mr Killen indicated.

"The Australian market is our heartland and very important to who we are as a company and we continue to manage volumes to optimise returns in this market," he said.

The company's balance sheet has strengthened further from a good position last year, with the value of AACo net assets now exceeding $1.1 billion and AACo net tangible assets per share increasing to $1.88.

Cattle market boost

Heftier margins on cattle sales courtesy of a record high market also played a role in the result, Mr Killen reported.

Those high prices were expected to remain for some time off the back of macroeconomic drivers in both the global beef market and Australian cattle market, he said.

Continuing protein shortages in China as a result of African swine fever was contributing to very strong global demand for beef.

"We are also seeing increased demand from developed markets as COVID-19 restrictions are lifted," Mr Killen said.

"The second important dynamic is clear emerging constraints on supply. Key export players including Argentina, Brazil and Australia are already restricted and United States production and export is forecast to be lower in 2022, reflecting a likely peak in their herd rebuild this year.

"Closer to home, the national herd rebuild is still going on in earnest. Demand exceeds supply in the market which has driven the EYCI (Eastern Young Cattle Indicator) to an all-time high this week."

The lower volumes of beef to sell had not been restricted to AACo this year.

"The national herd level reached a 25-year low in 2020 and Meat & Livestock Australia is forecasting slaughter rates to drop to a 36-year low by end of this year," Mr Killen said.

"These rates are expected to return to normal in calendar year 2023 and at AACo we anticipate lower meat sale volumes through the rest of this year and into 2023.

"At same time, our AACo cattle herd rebuild is continuing well. Brandings are up and total kilograms produced is also up 31pc versus the prior period.

"This gives us confidence production is continuing to move strongly in the right direction."

Sustainability Framework

AACo will tomorrow release a sustainability framework that Mr Killen said would underpin the company's future as a food producer and landowner.

"Sustainability has always been at heart of AACo, as it is for all regional and rural areas in Australia. For almost 200 years, we have cared for some of most important country in Australia," he said.

"The framework will embed sustainability at the core of our business and will be used to prioritise our activities, set goals and hold ourselves accountable. It deals with the here and now while helping us evolve together to benefit future generations."

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