THE Australian Agricultural Co this morning announced its transformation program from a pastoral company to a vertically-integrated beef producer would result in a significant and positive uplift in operating earnings for the six months to September 30, 2015.

In a market update to financial analysts and media this morning, managing director Jason Strong said AA Co expected an improvement in operating pre-tax earnings* in the range of $8 million to $12 million for the half year.

This compares to a loss of $8.2m in operating EBITDA for the previous corresponding period last year.

Statutory EBITDA is expected to be in the range of $90-$100 million, helped by the rise in cattle prices and the impact on the herd valuation.

Statutory EBITDA for the previous corresponding period was a loss of $4.5m.

The results are subject to review by AA Co’s auditors and Board approval.

Thorner Station purchase

During this morning’s briefing, AA Co announced it has signed contracts to purchase the 46,800 ha Thorner Station in nortwest Queensland for $4.1 million. Thorner Station is surrounded by AA Co’s Headingly station.

The company will gain operational and cost synergies from this bolt-on acquisition, the briefing was told.

Thorner fits naturally into the existing Headingly operation, which supplies Wagyu cattle for the company’s grainfed business.

With the increasing emphasis on utilising Pell and La Belle Stations in the Northern Territory, AA Co confirmed that it has not exercised its option to renew an agistment agreement over Tipperary Station and has now exited the property.

Financing Facility Update

AACo has initiated changes to its financing facility to provide flexible, stable and appropriate funding at lower cost.

The company’s $400 million financing facility has been split into a $250m term debt facility and a $150m, 18-month working capital facility to improve liquidity, cost of funds and better align with the needs of the business as it continues to build out its integrated supply chains.

No Full-Year Guidance

The company’s statement issued this morning said it was not appropriate to provide full-year earnings guidance due to the volatility in international beef prices, exchange rates and the importance of seasonal conditions on weight gain and turnoff for the remainder of the financial year.

AA Co’s half-year results will be released on November 25, 2015. A full market update will be provided at that time.

• Come back later this afternoon for a more comprehensive breakdown of Mr  Strong’s market briefing comments, including a progress report on the company’s Livingstone (NT) meat processing facility, and his take on the current state of the Australian slaughter cattle and US meat markets
• * Operating EBITDA (earnings before interest, tax, depreciation and amortization) assumes all balance sheet inventory movements occur at a pre-defined standard price, in contrast to Statutory EBITDA which recognises unrealised movements in inventory at market price. For full explanation of this measure refer to Section 5 of the Operating Financial Overview in AA Co’s 31 March 2015 Annual Report.