Equity partners in the hunt for Darwin abattoir project, says AA Co

Jon Condon, 31/01/2013


Discussions are at an advanced stage with potential equity partners looking to invest in the Australian Agricultural Co’s proposed Darwin abattoir, the company told the market during its 2012 financial results briefing held this morning.

Managing director David Farley said the development of a greenfield abattoir site south of Darwin was on track, with major elements of the project now in the process of going out to tender.

Schematic drawing of AA Co's proposed abattoir to be built south of DarwinAn external project manager had been appointed and preparatory ground works were now underway.

“Throughout February, when the tenders come in, we will be able to analyse those, and if we can keep the capital costs to a point where we can make a return on it, we will progress with the project,” Mr Farley said.

The commissioning of the plant would go some way towards insulating AA Co from movements in domestic and live export pricing, as well as opening up another marketing channel to reduce market risk.

“The $85 million Darwin abattoir will be the first major beef processing facility in northern Australia and will allow cattle to be processed locally, reducing transport and freight costs for northern producers who currently truck live cattle across large distances to southern processing plants,” he said.

AA Co cattle were being aligned to ensure sufficient supply for the plant once it became operational, and discussions had begun with other cattle producers in the plant’s catchment area regarding supply. Discussions are also underway with several potential ‘off-take’ customers for the plant’s output of frozen, hot-boned manufacturing beef.

“AA Co’s plan to vertically integrate and capture more value from the herd is well advanced with the Darwin abattoir project,” Mr Farley said.

The company’s strategic plan for its next stage of growth would see AA Co leverage its logistical advantage to increase exposure to, and integration with, high-growth economies in South East Asia.

“We will continue to integrate and develop a Northern Australia-based supply chain to ensure we’re optimising the value for every animal, and focussing on cost reduction,” Mr Farley said.

“The company has developed a significant amount of corporate intelligence, powerful management systems such as Individual Animal Recording (IAR) and genetic capability and will leverage these to maximise returns on our assets.”

Mr Farley made several references during this morning’s briefing to Australia having one of the world’s most expensive supply chains, post farm-gate, in the world.

“This, together with the high dollar, and the impact of things like the Federal Government’s carbon tax means it is not an attractive environment in which to operate,” he said.

In a possible pointer to future investment in vertical integration, Mr Farley said the company’s wholesale meat business, other than the well-performed Wagyu component, “may not be competitive until AA Co can control abattoir production.”

The company’s wholesale beef group last year sold 16,900 tonnes of boxed beef during the year, down slightly from 17,000t in 2011.

Wholesale beef continued to face pressure from the high A$, while Wagyu products had faced competition from domestic Korean Hanwoo and US imports into Korea.

“Wagyu gross margins last year were similar to 2011, while non-Wagyu margins were poor,” Mr Farley said.

There had also been some increased cost of operations during 2012 as a result of the decision to consolidate AA Co’s cold store activity, following the sale earlier of the Chef’s Partner business.


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