The Australian Agricultural Co expects an operating cash flow surplus for its 2012 financial year, but warned the market yesterday that its final profit result would be driven by non-cash, market dependent valuations of its herd.
In an update to the Australian Securities Exchange, AA Co said its key physical performance metrics continued to track well, with the season and pasture conditions continuing to support good weightgain and branding outcomes.
The company had scheduled most of its 2012 cattle turnoff for the second half of the year in anticipation of an increase in cattle and global meat prices, however these had failed to eventuate.
For the year to date, including November, AA Co has turned off 223,678 head of cattle, about 23,000 head less than expected. This compared with 239,700 head for the 2011 year, and 165,000 in 2010 (see table here, or click on version at bottom of page for a larger view).
The ASX statement warned, however that its yearly financial result could be impacted by market-driven valuations in its trading herd, currently numbering about 183,000 head, which was exposed to “potentially volatile non-cash market-to-market movements.”
“These herd valuations are largely driven by indicators such as the Roma saleyards and grainfed feedlot cattle prices, and Darwin live export prices,” the statement said.
Since AA Co last updated the market in August, Roma, which makes up 15pc of the Eastern Young Cattle Indicator, had fallen by 46c/kg carcase weight, and the EYCI as a whole by 55c/kg carcase weight. Over the same period live export prices had fallen by 23c/kg liveweight.
The company’s breeding herd which has grown to 330,000 head given recent better seasons, was the key to producing an asset base capable of producing sustainable cash generation, the statement said.
The current branding and weightgain metrics reflected the improvements to the herd profile. Based on the current branding program and livestock sales and purchase program, the branded herd at the close of the year was likely to be similar to the start of the year.
AA Co said export prices for grinding beef continued to ‘outperform’ other markets, and the construction of the company’s own processing facility near Darwin, together with any fall in the A$ value would assist AA Co to ‘gain exposure to this overseas market price thematic.’
The company again noted the recent start to construction for its northern beef processing facility near Darwin. “The decision is a significant milestone for the company and a natural next step towards vertical integration, particularly given our proximity to growing Asian markets,” AA Co said.
“The board determined that the project fundamentals around a processing plant in the NT are compelling, and believes it will secure the long-term future of Australia’s northern cattle industry.”
Long-standing and well-established beef processors continue to question the viability of such a venture in the north, however.
Initial earthworks are expected to take 12 weeks to complete, with facility construction and equipment installation expected to be completed in the third quarter next year. Commissioning would begin ‘immediately thereafter,’ the ASX advice said.