THE Australian Agricultural Co has reported an operating profit of $15.2 million for its 2019-20 full year ended March 31, following a solid year of international Wagyu beef sales driven by its branded beef strategy as well as a focus on cost reduction.
Up from a $23 million operating loss the previous year, the company achieved its strongest positive operating cashflow in three years despite elevated seasonal related costs of $42 million.
In a briefing with financial analysts this morning, the company frequently reinforced the message that it was moving to become a ‘simpler, more efficient AA Co’, to deliver performance for shareholders.
Managing director Hugh Killen also provided an update on the impacts of COVID-19 on the company’s performance this year, covered in a separate article to be published today. Almost two-thirds of the company’s beef exports to China are produced in beef processing plants which are impacted by the current plant suspensions, for example
For the year ended March 31, AA Co reported a statutory pre-tax profit of $80.1 million, versus a loss of $182.7m in the previous year.
The $263m improvement in Statutory EBITDA was largely attributable to the $254.6m swing in the value of the company’s livestock herd, with live cattle markets recovering in FY20 from the sharp price declines that occurred in early FY19.
The FY19 year also included $45.6m of flood livestock write-offs in Queensland’s Gulf region, and a $65.5m decline in the composite herd relating to wind-downs of the Livingstone abattoir near Darwin and 1824 branded beef supply chains in addition to sales relating to seasonal conditions.
Pastoral property values increased by $63.6m during FY20, underpinned by the strength and quality of AA Co’s land assets.
Mr Killen said as the company managed the ongoing and uncertain impacts of COVID-19, it reflected on a satisfying year for AA Co.
“We made meaningful progress in the execution of our branded beef strategy, with the sales momentum gained during the first half of the year continuing throughout the second half. These results reflect the contribution and effort of the AA Co team as we continue to move towards a simpler and more efficient business,” he said.
“The past year has not been without its challenges. We had to rebuild our Gulf infrastructure after the flood event in February 2019, while at the same time continue to battle crippling drought across many of our properties. We achieved both while protecting our core breeding herd to ensure an uninterrupted supply chain.”
Rise in Wagyu sales
Wagyu meat sales increased 19.7pc compared with the previous year, with prices increasing by 8pc, year-on-year.
AA Co supplies its Wagyu beef into the food service, retail and wholesale sectors globally, with all regions recording strong sales growth during the year, albeit with the last month partially impacted by the effects of COVID-19.
“Our premium brand, Westholme achieved excellent sales growth compared to the previous year, as we strategically launched the brand in key cities throughout the world,” Mr Killen said.
“We also have deep market presence in the retail sector, for example, in South Korea where Darling Downs Wagyu is a household name and there continues to be strong demand for our products in that market,” he told analysts in this morning’s briefing.
“Our focus on controllable costs and drive towards a simpler more efficient AA Co has resulted in a $31M reduction in operating expenditure.”
Livestock and Land Valuations
The carrying value of AA Co’s pastoral properties increased by 9pc at 31 March over balances reported the same time the previous year.
In addition, market values of non-Wagyu and Wagyu cattle increased 12pc over values held at the end of March last year.
This increase in value was offset by herd number reductions from the company’s strategic destocking decision made in response to the adverse seasonal conditions and the loss of cattle in the Gulf flood event in 2019. The majority of the decline in herd numbers occurred in trading animals and the company’s signature breeding herds remained strong, analysts were told.