DESPITE considerable market impacts since the onset of COVID, the Australian Agricultural Co has lodged a strong operating profit of $23.5 million for the half-year ended September, up from $6.3 million for the same period last year. Even excluding the Jobkeeper stimulus payment AA Co qualified for, the half-year profit was still $16.8m.

Statutory pre-tax earnings were $15m, versus a $3.4m loss for the first-half back in 2019. The net loss after tax was $1.7m, compared with a $14.1m loss for the previous corresponding period a year earlier.

The result comes following a challenging period for the company, including navigating the ongoing uncertainty and global impact of COVID, leading to a greater focus on retail sales over food service.

Average prices per kilo for beef sales improved by 14.5pc, while a ‘disciplined focus’ on cost reduction resulted in a saving of $22m in controllable costs, also supported the positive result.

AA Co managing director Hugh Killen said the full force of COVID hit the restaurant sector right as the company began its new financial year in April, with all 16 international food service markets severely impacted in a matter of weeks.

“To overcome the initial challenges and post a positive half is a notable achievement,” he said.

“However, while this interim result is commendable, we are mindful there are many challenges still to come and a number of complexities to work through over the next six months.”

COVID impact

COVID created an uncertain and unprecedented operating environment during the first half of the new financial year. The company qualified for $6.7m in Jobkeeper payments during the period, with $4m received in cash payments to the end of September.

“This support was important. We were able to avoid significant disruptions by retaining a substantial portion of our workforce and refocusing the business during a period of genuine uncertainty,” Mr Killen said.

Focusing on brands and driving higher margins, while streamlining operations, had made AA Co more robust and resilient, he said.

The company had been able to leverage the partnerships it had built with distributors and other customers, along with an in-market presence and wide distribution footprint, to open up and grow retail channels, as food service markets declined.

“This was evidenced by the continued growth of AA Co’s flagship brand, Westholme. It is now 22pc of all meat sales, up from 7pc in the same period last year,” Mr Killen said.

There was also progress during the period in the push to make AA Co a ‘simpler and more efficient business’, with a reduction in controllable costs of $22 million.

The company was able to generate savings through reductions in external backgrounding and feeding costs, cattle transport and processing, as well as travel expenses as a result of COVID.

Uncertain outlook

Mr Killen said the global outlook for COVID remained volatile.

“Many restaurants remain closed or are having to adapt to reduced volumes and it will likely be some time before we see the food service sector return to normal,” he said.

Supply constraints that exist across the Australian herd as a result of the drought and last year’s northwest Queensland flood, were also being felt by AA Co.

The company’s first half meat production was down 9pc on last year, and lower meat and cattle sales were also expected in the second half.

• AA Co shares were trading yesterday at $1.22, their highest point since February this year, when they spiked briefly to $1.30.