AA Co earnings tipped to take a hit

Jon Condon, 09/06/2011


The world’s largest beef producer, the Australian Agricultural Company, has downgraded its 2011 earnings forecast on the strength of the impact of the closure of live export market access to the dominant market of Indonesia.

In a statement issued this morning, AA Co advised the market that it now anticipates its 2011 before-tax earnings (EBITDA) to be in the range of $50-60 million. That’s $10-$15m down from an earlier guidance forecast made on May 9 of $60-$65m.

The statement said the AA Co board welcomed the commitment by Ag Minister Joe Ludwig to work with the industry to ensure the important live cattle trade was humane and sustainable in the immediate and longer term.

AA Co said it supported Mr Ludwig’s decision to temporarily suspend the live animal trade with Indonesia.

“The Board, management and staff of AA Co were equally disturbed, along with all Australians, to view the graphic and horrific footage recently shown of animals being mistreated in some Indonesian abattoirs. The Company does not condone the mistreatment of animals in any form,” the statement said.

Indonesia has been long a destination market for AA Co cattle, however the company said it would not resume sales to Indonesian importers until a full cycle of humane, proper and correct processing could be demonstrated and secured by the importer.

The downgraded earnings forecast assumes that the recent market prices for cattle in Australia and the Company’s markets do not change materially throughout the rest of the 2011 delivery period.

The statement said the forecast impact of the suspension has been partially mitigated through:

  • excellent seasonal conditions being experienced on many company properties;
  • AA Co livestock management systems and processes; and
  • favourable results arising from completion of the 2011 cotton harvest and other cropping programs.

Cattle previously designated for live export could potentially be redeployed to AA Co’s properties for other sales programs. Appropriate reductions could then be made to the previously forecast cattle purchases that would no longer be required.

AA Co’s current immediate exposure is limited to 976 head of cattle sold to an exporter and held by the exporter in quarantine facilities ready for export to Indonesia in Darwin. AA Co has shipped about 50pc of its previously-forecast 2011 cattle consignments.

The company said its plans for the construction of its own abattoir near Darwin is well advanced, with a due date for commissioning set down in the second half of 2012. Engineering considerations are being studied to increase the designed processing capacity of the current proposed operating model.

The Company will be seeking NT and Federal Government assistance in expediting that process, the statement said.

AA Co would continue its work with industry, and Australian and Indonesian Governments to find a speedy and appropriate resolution to the problems identified.

“We urge all parties to proceed with urgency in this matter, mindful of objectives of immediate improvements in animal welfare, cattle flow in Northern Australia, and the viability of livelihoods on Northern stations, within townships and indigenous communities,” chief executive David Farley said.

“The current uncertainty will create unprecedented social and financial consequences in northern Australia. It may also create longer term food and protein supply issues for the people of Indonesia,” he said.


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