Tough first half, but better prospects ahead for NAPCo

Jon Condon, 24/09/2012


North Australian Pastoral Co has had a tough first six months, but looks like turning things around in the current half-year trading period, judging by financial signals emerging from one of its largest shareholders.

Being a privately-held Australian company, NAPCo itself is not obliged to report its financials to the market, however UK-listed MP Evans Group PLC, does. MP Evans holds a 34.4pc interest in NAPCo.

In addition to its stake in NAPCo and outright ownership of Woodlands, a 31,000ha backgrounding property in western Queensland, MP Evans has a heavy exposure to the Southeast Asian palm oil industry, with extensive plantations and processing facilities in Malaysia and Indonesia.

In its recent 2012 interim report to the market, MP Evans says the results of the group’s Australian cattle operations (both majority-owned and associated) suffered from a marked downturn in cattle prices at the half year, resulting in non-cash losses being recognised in the group’s income statement.

As a result of the above and also of adverse exchange rate differences and higher administrative expenses, the MP Evans overall profit after tax (including all ag investments) for the first half of 2012 was A$14.87m, 31pc lower than the A$21.68m achieved for the same period in 2011.

The financial report said Evans Group had acquired no further shares in NAPCo during the first half of 2012, however the board would “continue to review any opportunities that arise in respect of the Group’s shareholding.”

Outlining development within the NAPCo operations, it said that water-development program on Alexandria Station – the company’s largest breeding property on the Barkly – had been substantially completed. That had enabled the number of calves branded annually on Alex be increased from around 32,000 to 40,000 in the last decade.

The provision of more stock watering points would also allow more paddock spelling, so the property as a whole could more readily carry a greater number of cattle on a continuous basis.

The MP Evans report also highlighted progress in the expansion of NAPCo’s Wainui feedlot near Bowenville, on the Darling Downs, completed in the latter part of 2011.

“The expansion had enabled greater economies of scale and flexibility of timing with regard to bringing cattle into the feedlot when seasonal conditions warranted it. It will also enable cattle to be acquired from outside the company to be brought-in for grain finishing, although this is currently not economically viable in view of the recent rise in the price of grain,” it said.

MP Evans has also largely completed a pasture-development program on its own property, Woodlands, meaning that in other than unusually dry conditions, it should be able to run at least 10,000 head.

The high cattle prices recorded in the latter part of 2011 for both the grassfed, lighter-weight, cattle produced at Woodlands and the heavier, grain-finished cattle produced by NAPCo were not sustained and gradually fell back during the first half of 2012, albeit to levels which were still relatively high by historical standards, the report said.

One of the reasons for this was the more sluggish demand for beef from two of Australia’s traditional export markets, Japan and Korea. This was, in turn, influenced by the continuing strength of the A$.

Additionally, the increase in the price of grain, which had a particularly negative impact on the US grainfed market, affected the Australian and other world markets.

“However, by May, prices had started to recover, and some of these gains were carried through to the end of June and beyond. Since the period end, there has been a slight decline in the grassfed market, following the onset of dry weather in many parts of Australia,” the report said.

The abundant rains at the end of 2011 resulted in good pasture growth during the first half of 2012. This enabled the company’s Woodlands herd to be maintained at more than 10,000 head during the first half, but had since declined to 8000 head following the onset of drier weather. Earlier rain also resulted in markedly improved weightgains during the first half of the year, across Woodlands and the NAPCo properties.

As a consequence of the price trends outlined above, the Evans Group’s gross loss in its Australian operations for the first half of 2012 amounted to A$552,000 compared with A$446,000 for the same period in 2011.

For its 34.4pc share in NAPCo, the six months ended June 30 produced a loss of about A$1.204m, compared with a profit of about A$2.79m for the same period a year earlier. The full year ended December 31 last year produced a profit of A$4.104m, Evans Group financials show.

NAPCo’s fourteen properties generally enjoyed a good season, with most having plentiful feed, following the good rainfall in the latter part of 2011 and in early 2012. This enabled the cattle to go through the period under review in good condition, while gaining weight.

The report said prospects for Australian beef continued to be favourable as it remained well-placed to serve a growing demand for red meat consumption in Asia where tastes continue to incline towards the higher-quality end of the market.


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