The Australian Agricultural Co has reported an $8.4 million loss for its 2012 financial year ended December 31, down from a $10.5m profit a year earlier, due to challenging market conditions.

Delivering a summary of the company’s financial performance just minutes ago, managing director David Farley said the company had achieved a $63 million turnaround improvement in operating cash flow, and at year’s end had a record herd size poised to generate cash in 2013 and future years.

The world’s largest beef producer has held-back trading cattle to add weight to, and sell into a market it predicts will improve following recent rains – better aligning with the price gains seen on the global market.

That strategic decision taken in the second half has increased AA Co’s breeding herd to 330,000 head, allowing the company to maximise calf production in coming years, while good grass is available.

“AA Co has grown its herd to a record size while global supply has shrunk, and we’re now in an excellent position to generate cash by selling into rising global beef prices,” Mr Farley said.

He said the Federal Government’s 2011 suspension of live cattle exports to Indonesia and Indonesia’s subsequent halving of cattle imports quotas continued to affect property and cattle valuations across northern Australia.

As a result AA Co had written down $41 million in the value of its northern Australian properties due to the suspension. Of this $8.1m went through the profit and loss statement as impairment costs.

“The suspension resulted in an oversupply of cattle to the domestic market. In combination, dry conditions also meant an increased supply of grass-fattened cattle. These factors depressed Australian cattle prices during the second half, directly affecting the final valuation of the herd on a mark-to-market basis at year’s end,” he said.

Mr Farley said the development of AA Co’s Darwin abattoir, which is now in the tendering stage, would go some way to insulating the company from movements in domestic and live export pricing and open up another marketing channel to reduce market risk.

Several critical management initiatives were completed during the year, including a rollout of radio frequency identification ear tags to the entire herd. This would enable market-leading herd management and drive further improvement of herd management in the future.

Despite lower cattle prices and thanks to strong weightgain and brandings, AA Co managed to keep its gross margin relatively stable in a difficult market, delivering a 7.9pc decrease.

The company finished the year with net tangible assets of $2.04 per share, of which $1.58 is directly attributable to livestock and $1.93 to property, plant and equipment, balanced by $1.71 in liabilities.

Other factors affecting cash flow were lower cattle sale prices than estimated ($7.1m) and increased costs as a consequence of the late start to the 2012-13 wet season.

The company now estimates total losses as a result of the suspension of live trade, and the related devaluation of its northern Australian properties, to have grown to a total of $51.2 million (up from $8.5 million in 2011). Losses were also sustained from cattle falling out of specification and having to be delivered to other markets.

Drier season exerts impact

Season-wise, the last six months of the 2012 year were drier than anticipated with the late onset of wet conditions on properties outside of the Queensland Gulf region. The drier conditions had been a key contributing factor to the larger flows of grass-finished cattle coming to market, and depressing cattle prices towards year’s end.

Several stations were also impacted by fires in the second half, leading to increased labour, transport and feed costs while relocating cattle.

The recent rain deluge across Queensland and NSW missed the majority of AA Co’s cattle production areas, but would have a beneficial effect on cattle markets, Mr Farley said.

While sales revenue last year was comparable with 2011, the gross margin was 13pc lower due to the lower sale prices achieved per head. This effect were partly offset by a 16pc increase in the value of the herd due to increased weight and brandings.

The company had had a good operational year, performance-wise, meeting or exceeding its targets in weightgain and calf branding rates.

During the year 174,300 calves were branded – 80 pc of all joined cows and representing an 11.5pc increase on 2011. The branding result was AA Co’s best ever, due to tighter breeder herd management, a blanket preg testing program and segregation management improving productivity.

Total herd size at December 31 reached 682,000 head, a rise of 2.4pc.

The Board advised shareholders that no dividend would be declared for the 2012 financial year.