Rare loss for S. Kidman as drought impact bites

Jon Condon, 23/10/2013

Weaners on BrunchillyOne of the nation’s largest cattle producers has registered a rare loss for the financial year ended June 30.

S. Kidman & Co has logged an after-tax loss of $3.3 million for 2012-13 year – a big contrast from net profits of $9.7 million in 2011-12, and $20.5 million the year before that.

The last time the company recorded a loss was back in the 2008-09 drought year.

Kidman is one of Australia’s largest landholders, operating pastoral leases covering 110,000sq km in three states and the Northern Territory. It is the company’s finishing operations centred on the Channel Country which have been worst-hit by this year’s drought event across Eastern Australia.

Like many other large scale northern cattle producers, Adelaide-based S. Kidman & Co has faced a dramatic turnaround in seasonal conditions from the 2011 and 2012 years.

The latest loss was principally caused by the market value of the herd decreasing by $20.7 million, down $68 per head on the previous year.

In contrast to the early run of good-to-exceptional years, the poor season in 2013 caused the herd to lose weight, and cattle prices at the June valuation date were among the lowest for many years.

Assisted by increased cattle sales, Kidman’s net operating cash flow was a solid $19.1 million.

Company chairman, John Crosby, described the overall result as satisfactory, in what had been a difficult year for the Australian cattle industry.

“The drought in Queensland, the continuing high exchange rates and the ongoing downturn in live exports all made for tough trading conditions,” he said.

Kidman’s closing herd of 214,000 branded cattle at June 30 remained significantly above average carrying levels, but the herd was being progressively reduced by extra sales forced by the dry conditions this year.

Under Accounting Standard AASB 141, any changes in the value of Kidman’s herd on hand are marked as profit or loss.

The lower prices for cattle across much of Australia have significantly reduced Kidman’s herd carrying values this year and have been booked as a loss. As a guide to where cattle prices went, the Eastern Young Cattle Indicator was back 18pc over the reporting period. The effect was cumulative, with average carcase weights on meatworks cattle back about 13kg on the year previous.

Another indicator of the big seasonal shift was the percentage of turnoff going to slaughter – back from +90pc in a more normal year to 78pc this year, as more cattle were sold as stores.

Kidman’s net operating cash result last year, on the other hand, was solidly in the black indicating the sound fundamentals in the business.  There were no impairments to valuations on land and improvements, which continue to be conservatively valued.

Managing director Greg Campbell said while annual turnoff numbers each year were variable, the company had been forced to sell about an additional 15,000 head last year, due to drought, and lack of finishing capacity in the Channel Country.

Those cattle included both breeders, and weaners in the May-June weaning round, that would have normally gone onto the channels for finishing.

Those forced sales will inevitably have an impact, also, on the current year’s financials, with fewer cattle going through the normal grass-finishing cycle as a result.

“A drought like this can have a two-year lag effect,” Mr Campbell told Beef Central yesterday.

Fortunately, all the weaners on the company’s northern breeding properties of Ruby Plains and Helen Springs have been retained, and will be directed onto the Channel country finishing properties next year, subject to a decent summer season.

Normally, those weaners would already have been relocated onto the channels by now.

While Kidman has very little direct exposure to the northern live export market, directing the overwhelming majority of its turnoff into normal domestic slaughter channels, the company was inevitably indirectly exposed via the price impact seen from the big flow of northern cattle back into southern markets this year.

Since June 30, Kidman has taken the somewhat atypical step of pushing a lot more younger cattle into feedlots – both the company’s own site in South Australia, and custom-feedlots in southern Queensland and northern NSW – due to the lack of paddock feed. The last ‘heavy use’ of feedlots by the company was in 2003, another drought year.

As an unlisted public company, Kidman is under no obligation to publicly disclose its financials, but it has full audited accounts reporting responsibilities with ASIC, meaning anybody can access the information via a search. At times, individuals with a non-accounting background access the figures and can wrongly interpret some of the data, prompting the company to voluntarily issue a short statement each year.



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