The Australian Agricultural Co appears to be weathering the current challenging meat and livestock market conditions better than might be expected. The company presented first half 2023-24 (ended 30 September) financials to the market this morning, delivering an operating profit of $30.1 million, down from $38.3m a year earlier.

This was supported by an increase in volume of meat sales, while more or less maintaining average Wagyu meat sales price ($20.96/kg, up 5pc on last year).

Total revenue for the half year was of $167.1m was up 2pc compared with the same period 12 months earlier.

AA Co revenue has now increased in each of the last three comparative half-years, demonstrating the effectiveness of the company’s strategy of “selling beef under premium brands that maintain a consistently high quality, with relationships leveraged across our global commercial network to deliver positive outcomes.”

Reflecting this year’s collapse in the cattle market, the company reported an unrealised (mark-to-market) herd value decline of $175.5m compared with the same period last year. While important as part of the company’s statutory reporting responsibilities, that ‘loss’ of value is only realised should the herd be sold.

Nevertheless the statutory decline in the herd value is the largest reported since AA Co was publicly listed back in 2003.

The statutory herd devaluation led to a statutory net loss after tax for the first half of $105.5m.

“While the reduction in cattle prices has an impact on our balance sheet and statutory performance, it is reflective of the herd value at one point in time, and has a limited impact on our operating income and cash flow,” managing director Dave Harris told analysts this morning.

“This is illustrated by comparing recent periods, where our operating profit has remained above $30 million, even with significant fluctuations in cattle prices,” he said.

AA Co’s cost of production for its first half declined by 5pc compared with the first half last year – a positive result in a high inflationary market. The decline was due principally to better utilisation of pasture resources leading to greater productivity, rather than lower input costs, analysts heard.

“These are pleasing results considering the headwinds faced this period. They were achieved through a disciplined focus and determination to drive excellence across the value chain,” Mr Harris said.

“It’s an outcome we can be proud of and positions the company well heading into the second half.”

In a trading period where the broader Wagyu sector has been heavily buffeted by global lack of consumer confidence and cautionary spending in the face of rising costs of living, AA Co’s Wagyu sales performance has performed better than expected.

The success of the company’s Westholme, Wylarah and Darling Downs Wagyu brands and the strength of distributor partnerships had driven improved meat sales performance, Mr Harris said.

First half results in North America demonstrate the success of the strategy, with price and volume maintained during the US herd liquidation and challenging macroeconomic conditions.

Sustainability

AA Co’s sustainability program continued to make progress in the first half of FY24, with significant progress made in developing a long-term nature positive strategy, Mr Harris said.

“We are advancing our initial land-based carbon sequestration projects and have reached the half-way milestone in our pioneering Rangelands Carbon by Satellite project, which was announced alongside the launch of our sustainability framework in November 2021,” he said.

“The company is continuing to develop its natural resources and assets. We have conducted successful dryland cropping trials with a combined footprint of 6000ha hectares across two of our North Queensland stations. The initial results are positive, and the program will aim to continue unlocking further farming potential within the region.

Revenue from a large trial chickpea crop came too late for inclusion in half-year results, but will be included in the next full year reporting.

The Goonoo feedlot expansion in Central Queensland, now nearing completion, will see annual capacity increase up to 12pc.

Operating outlook

AACo has also invested heavily in infrastructure in recent periods, combining an ongoing program of water infrastructure upgrades with solar bore conversion.

Along with the Goonoo expansion, it put AA Co in a better position than previously to manage seasonal variability, Mr Harris said.

“Overseas, herd liquidations in the US and Korea are continuing, increasing supply in those markets. However, we anticipate opportunities for Westholme and Darling Downs branded product as local supply becomes constrained and herd rebuilds commence,” he said.

• AA Co shares were trading at $1.35 after this morning’s financial reporting, having risen from $1.20 back in late October, reaching their highest point since September.