SWEPT along by a rampant beef cattle and property market, Australian Agricultural Co shares finished at a three-and-a-half year high of $1.405 yesterday, in advance of this morning’s 2021 annual general meeting, held online.

Investors have responded favourably to the broader beef industry’s changing fortunes this year, pushing the share price up 25c over the past three months, to its highest level since 2017. This time last year, the shares were trading around $1.04.

As reported in the release of its annual financials back in May, AA Co logged an operating profit of $24.4

million for its 2020-21 financial year, up from $15.2m a year earlier. The statutory EBITDA result was $99.3m, up from $80m the previous year.

Last year’s result came despite every one of AA Co’s 16 key food service markets being impacted by COVID restrictions, ongoing geopolitical uncertainty impacting key market regions and the flow-on effects of adverse seasonal conditions over recent years.

Through the COVID turmoil, AA Co improved its average meat sales price per kilo by 8 percent in FY21. The results were supported by a stronger balance sheet position, with net assets increasing to more than $1 billion in value in FY21, as a result of higher cattle and grazing property values.

During his presentation at this morning’s virtual AGM, chairman Don McGauchie said the 2020-21 had been exceptionally challenging.

“We have faced the unknowns of the global pandemic, rising geopolitical uncertainty and its impact on important Australian trade relationships and our industry was, and still is, grappling with the flow-on effects of multiple drought and flood years,” he said.

“I am pleased to report that your company has demonstrated great resilience in response to these challenges.”

The strong financial results reported earlier reflected the team’s ability to adapt tactically to changing circumstances, as well as the flexibility of the company’s branded beef strategy.

The clearest challenge faced in FY21 was interruption to AA Co’s restaurant and food service markets.

“Fine dining restaurants are essential to our branded beef strategy,” Mr McGauchie said. “They connect our business to the highest-value consumers around the world. As a result, chefs are one of our most important end-user groups – partnering with great chefs helps realise the full value of our beef. They, and their front of house teams, carry our brand and our story to the consumer.”

However in the year just gone, food service had been severely constrained, impacting AA Co’s sales through existing food service relationships.

“It impacted our ability to grow these relationships and it slowed progress in the roll out of our branded beef strategy,” Mr McGauchie said. In response, AA Co’s team has worked hard to develop parallel retail sales channels.

Importantly, it was able to build off a good foundation. AA Co’s Darling Downs brand had a long history in South Korea and prior to the global pandemic, had started a full brand refresh in the Korean market. The company’s Westholme premium Wagyu brand had also begun to establish an important presence in key export markets, including North America.

“COVID accelerated our efforts to grow Westholme brand equity across retail channels and today we can report stronger brand awareness and sales performance in both regions,” Mr McGauchie told shareholders.

This work was particularly important in the face of constrained meat production volumes in the 2020-21 financial year.

“In recent years, our investment in these brands has driven strong price per kilo growth and we have focused on moving more of our beef through these brands. This has helped offset reduced meat volumes in FY21,” Mr McGauchie said.

AA Co’s global supply networks, and strong distributor partnerships, had supported those efforts.

“In FY 21 our distributor partners helped us identify and capture new retail opportunities and our ability to redirect beef to higher value markets helped meet this demand. This flexibility was important in responding to market constraint in East Asia, as well as food service impacts across all regions.”

Strong global demand

AA Co’s ability to capture these new opportunities was underpinned by several factors, Mr McGauchie said.

“Global demand for healthy, safe and high-quality beef remains strong. The world’s middle class continues to demand our product, including a growing gourmet home cooking market. We expect underlying demand to continue growing,” he said.

The challenges faced in FY21 continued into the current year, Mr McGauchie said.

“Progress against COVID varies around the world. Vaccine rollouts are progressing, but new variants are emerging and many places continue to suffer terribly and recent events at home remind us how rapidly circumstances can change.”

Geopolitical uncertainty also remained a feature of the new financial year.

“Bilateral relationship opportunities have great potential. We welcome the recent Free Trade Agreement between Australia and the UK, but at the same time, trade constraints in East Asia remain serious for many Australian industries, including our own,” he said.

“Through these challenges, AA Co’s branded beef strategy remains the strongest pathway to value for you, my fellow shareholders. We will continue to monitor and navigate uncertainty in the year ahead. We will redouble our efforts to progress our branded beef strategy and remain focused on delivering long term value for shareholders.”

Sustainability focus

AA Co’s board and management emphasised the company’s progress against its sustainability commitment, including its most recent Sustainability Update, during this morning’s AGM.

“In FY21 we pursued our goal of leaving the land in better condition than we found it,” Mr McGauchie said.

Managing director Hugh Killen said the release of AA Co’s Sustainability Benchmarking Report in 2020 reflected the company’s awareness that environmental and social pressures on agricultural and food systems presented a challenge for its own business and the world.

“We are committed to finding unique and high impact solutions across our value chain to help address these challenges,” he said.

“We have now taken the next steps in our journey with the release of our Sustainability Update. In this document we bring an update of the tangible progress we have made and the initiatives we have brought online over the past year, with measurable outcomes.”

AA Co was also well down the path of grounding its robust sustainability strategic framework and governance structure, Mr Killen said.

“In this framework and governance structure we are developing a core set of indicators to report against in coming years. This will allow us to forge a clear pathway into a sustainable future and we will be releasing this later this year.”

Openness and transparency were fundamental to sustainable business practices and alignment to international reporting standards was the best way to achieve this, he said.

“We aim to align our strategic framework and governance structure with the principles of internationally accepted integrated reporting standards by 2022.”

Also during the year, AA Co took its first steps into the carbon abatement space with the registration of the AA Co’s Beef Cattle Herd Carbon Management project – a recognised project under the Australian Clean Energy Regulator’s methodology for reducing carbon emissions intensity in beef production. The project will run for seven years.

“Through this methodology we can objectively measure the impact of our efforts. These include targeted investments in infrastructure and practices with the goal of limiting energy losses over the production cycle, improving animal handling to reduce animal stress and increasing the weight to age ratio of our herd,” Mr Killen said.

In its first year, the project had demonstrated important early progress, increasing stock watering point density, improving fencing infrastructure and demonstrating carbon abatement of more than 97,000 tonnes of CO2-equivalent.

“This work aligns more broadly with our commitment to sustainable animal health and welfare,” Mr Killen said.

In FY21 AA Co also launched its own Animal Health and Welfare Committee. The committee has initially focused on identifying gaps, standards and opportunities for improvement and continues to progress the company’s poll program.

“We are also continuing to reduce our reliance on fossil fuels. In FY21 we achieved 26pc conversion of bores to solar power. We continue to explore new tangible steps to drive sustainability and we are focused on positioning AA Co for our next 200 years,” Mr Killen said.