The 6.4 million hectare Australian Agricultural Company beef business is bracing for higher global supply and production costs while also budgeting to splash out on big irrigated cropping and stock water developments on its northern pastoral stations.
The irrigation expansion will develop Gulf of Carpentaria river water rights it has held for some years to initially support forage cropping on Dalgonally, Carrum and the Canobie aggregation.
Opportunities to explore a broader cropping base are also possible following the success of recent dryland crop trials in the Gulf.
AACo has also begun an ambitious plan to convert more than 600 bore sites on its 20-plus stations and farms from diesel to solar power and replace turkey's nest dams with storage tanks in the next few years.
Last year's cash profit was not substantial and we have very significant work to do investing in the business.- Donald McGauchie, Australian Agricultural Company
"This is a capital hungry business," chairman, Don McGauchie, told shareholders as he explained why the branded beef company continued a 14-year freeze on dividend payments.
"Last year's cash profit was not substantial and we have very significant work to do investing in the business.
"Rather than paying a dividend for the 2021-22 financial year, we will be reinvesting back into our assets to drive future growth.
"We have a strategy in place. We have capital to deploy in key areas for growth, which includes development on our properties."
Mr McGauchie noted AACo was "not in the business of borrowing any more money", having done that in the past and now was concentrating on streamlining debt and costs where possible.
Re-investing in the company's $1.2 billion asset base would utilise the land efficiently, effectively and sustainably to boost carrying capacity.
"The strength of these assets enables us to produce the highest quality beef at scale and this is key to supporting our branded beef strategy," he said.
"The future is ours to build and we have all the fundamentals in place."
At the same time, however, he acknowledged rising geopolitical risks and costs would impact AACo's global supply chains in the year ahead as it ramped up efforts to get its premium priced Wagyu-based beef into affluent overseas markets.
Rising inflationary pressures were making key inputs more costly across the beef supply chain.
Acting chief executive officer, Dave Harris, confirmed expectations of rising production cost pressures and input prices, while also noting overseas supply chains and markets were experiencing difficulties because of higher interest rates and inflation.
The company must also consider mitigation practices on its properties to cope with potential risks from foot and mouth disease and lumpy skin disease.
Mr McGauchie believed AACo had the discipline, capability and resilience to manage these pressures.
Resilience, discipline and ingenuity had handled the past few years of market and seasonal challenges to produce a fourth consecutive year of positive operating cash flow in 2021-22, improved operating profit margins, and a stronger balance sheet.
He paid tribute to the strength of the AACo team, its partners and customers and thanked former CEO, Hugh Killen, who left in June, for his "significant contribution over the last five years".
Although the AGM attracted remarkably few pointed questions from shareholders, Mr McGauchie was forced to defend AACo's decision to raise directors' fees while refusing to pay shareholder dividends.
He said fees had not increased since 2017, but had actually been cut when the coronavirus pandemic erupted, then returned to their previous levels when lockdowns lifted.
"If we want to attract and retain board members and senior management of sufficient calibre, we need to pay them appropriately," he said.
Acting CEO, Mr Harris told shareholders while there were costs and challenges ahead, there were plenty of positives, too.
A strong post-lockdown rebound in the foodservice market was anticipated to continue in key markets, which would help AACo deliver its brands' full potential.
The company's branded beef program was bolstered by a 42,000 head increase in its herd in the past year to 382,000 animals, with most of that increase being high quality Wagyu cattle.
"This positions us well to take advantage of a rise in global demand for quality beef through FY23 and beyond."
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