AA Co remains upbeat, despite past year’s drought and flood challenges

Jon Condon, 31/07/2019

THE world’s largest beef producer, the Australian Agricultural Co, remains upbeat about its future prospects, despite the ravages of drought and flood across the company’s far-flung northern operations so far this year.

Chairman Don McGauchie told shareholders at this morning’s 2019 AA Co annual general meeting in Brisbane that 2019 had been a year of ‘progress and great challenges,’ but the company was stronger for them and remained well-positioned for the future.

Chairman Don McGauchie addressing this morning’s AA Co annual general meeting

“I am more confident than ever that our branded beef strategy is the right strategy for AA Co,” he said. “Today our underlying operating profit has improved – even including seasonal impacts. We are delivering in new markets following our brands’ launch in Dubai in October and establishing a new platform for our US engagement.”

In financial year 2018-19 AA Co improved the price for most cuts sold under its Wylarah and Westholme Wagyu labels, and grew its core Wagyu herd, while controlling cost of production.

“These are vital markers of the value of our strategy, and our progress against it,” Mr McGauchie said.

Back in May, the company reported its 2018-19 financials, logging a pre-tax earnings loss of $182.7 million and underlying operating profit after flood and drought impacts were removed of $23.7 million for its financial year ended 31 March.

The operating profit figure, representing a $37m turnaround from a loss of $13.5m the previous year, excluded almost $47m in losses and expenses associated with the February flood event across Northwest Queensland.

The impact of the gulf floods, where cattle losses on four AA Co properties were estimated at 43,000 head, when combined with the impact of drought related conditions valued at $60m, represented a cost of $107m to the company’s balance sheet.

“We, as a company, are responsible for one percent of Australia’s land mass, and we are leveraging this diverse group of remarkable properties to support our unique value chain,” Mr McGauchie told this morning’s AGM.

“This positions us to face a rapidly changing world with confidence. Global commodity markets continue their generational transformation, and the global trading environment remains uncertain – yet the premium on quality product remains very strong,” he said.

“Owning, and carefully building our own brands strengthens and protects that premium and our deep and direct connection with our customers helps insulate us from this uncertainty.”

“As each week passes, we are deepening our understanding of these customers. We know they want quality, we know they want a special experience and we know they want to be part of the story of our product – a story they can be proud of, but increasingly we are seeing that our customers want to know more about us. They want to know about our people and the places where we raise our cattle. They want to know how we do it and they want to know why we do what we do – what moves us.”

“This is what it means to build a global premium brand. It can’t be confected overnight; it’s not a paint by numbers process. You cannot survey a potential customer demographic and reverse engineer a story. You must believe in what you are doing and be willing to commit for the long term to chasing perfection.”

“Put simply, our customers want to know that we do the right things, for the right reasons,” Mr McGauchie said.

An important part of the story the company was telling was its strength, resilience and the love of the land its people felt.

“We’ve seen this in the last year with our response to the Gulf floods. This unprecedented event impacted our people, our animals and our properties and those of our neighbours and friends – but every one of our people pulled together, and we pulled through. We will learn from this and be stronger for it,” he said.

Mr McGauchie said AA Co had also come through another tough year with drought, which had impacted its financial numbers, but the core Wagyu herd remained strong and is growing.

“Our spread of properties provides flexibility to manage seasonal impacts. The difficult decisions we made to shut down Livingstone and the 1824 branded beef line have reduced our exposure, and through it all we have protected our cost of production,” he said.

At the end of Financial Year 2019, the company was well-positioned to realise the unique value proposition of the business for its shareholders.

“We have demonstrated improved underlying operating profit despite seasonal and external challenges. We are growing our core Wagyu assets and driving stronger prices in the market, and expanding in new markets and cultivating a global premium brand portfolio,” Mr McGauchie said.

Board changes

During the AGM, shareholders supported the election of luxury food, hospitality and brand specialist Marc Blazer to the board (see earlier report), and the re-election of Anthony Abraham, Stuart Black and Neil Reisman.

Chairman Don McGauchie announced that David Crombie, who stepped down from the board after eight years at today’s AGM, will chair a new AA Co Pastoral Advisory Committee, advising the board and management about operational matters.

Lease of Rewan Station

AA Co also announced this morning that it has reached a ten year lease agreement over showcase Central Queensland buffel grass growing/finishing property, Rewan Station, near Rolleston.

The 17,500ha property, mostly highly-productive improved brigalow country sown to buffel, will be used for backgrounding and growing AA Co Wagyu cattle before feedlot entry.

Neither AA Co now Rewan’s owner, Rural Funds Group, disclosed the terms of the lease agreement, but RFG said the result was “consistent with other RFF leased properties.”

In a statement, Rural Funds Group said capital expenditure and operational improvements made at Rewan since its purchase had increased both the value and productivity of the property. These gains and the lease transaction with AA Co had brought forward an increase in the income generated by the asset, RFG said.

AA Co said the lease of Rewan further demonstrated its commitment to its branded food strategy.

The property would increase AACo’s ability to maintain quality and control of the value chain from paddock to plate, and produce premium beef for customers to enjoy at some of the best restaurants in Australia and across the world, it said.

The lease agreement is subject to the approval of the Foreign Investment Review Board.

Earlier today AA Co shares were trading at $1.04, down from the recent high-point of $1.18 on May 28.

  • More details from the AA Co AGM, including shareholders’ questions to the board, tomorrow.


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