Beef producer AACo’s profit up 200pc, 14-year dividend drought remains

AACo investors will be updated at the beef producer’s annual meeting about when it is likely they will be paid a dividend again after a 14-year payout drought.

AACO boss Hugh Killen says chairman Donald McGauchie is looking forward to giving shareholders an update on potential dividends at its AGM at the end of July. Picture: Naomi Jellicoe

Australia’s biggest beef producer AACo has more than tripled its profit as red meat prices soar and restaurant trade fires up again – but the group’s lengthy dividend suspension remains.

AACo – which counts Twiggy Forrest and the Holmes a Court family company Heytesbury Holdings as significant investors – has not made any dividend payouts since 2008, raising the ire of some shareholders at last year’s annual meeting.

The group owns about 1 per cent of Australia’s land mass and Donald McGauchie has chaired for all but two years of the dividend drought.

AACo shares fell 5.1 per cent to $1.78 in early afternoon trade on Thursday, compared with a 1.6 per cent drop across the broader sharemarket. This despite its net profit soaring 201 per cent to $136.9m in the year to March 31.

Chief executive Hugh Killen deferred to Mr McGauchie when asked when AACo would start paying dividends again, saying the chairman would update shareholders at the company’s annual meeting, which is usually held at the end of July.

“We want to continue to invest back into the business,” Mr Killen said.

“It is a really good time to be in agriculture at the moment and I believe the work that we’ve done at AACo to make the company significantly more efficient and simpler and have the right tools at our disposal to make make the right decisions when seasonal conditions change in the future, and absolutely that is going to happen at some point.

“The dividend question, ultimately that’s one for the board and I know the chairman will look forward to updating everyone on that at the AGM.”

Private investor Charlie Kingston asked Mr Killen if the company had an earning target that would deliver a dividend again or would it consider a share buyback to close the current discount that its shares are trading at compared with net tangible assets.”

“My focus at the moment is on the operation side of the business and making sure we’ve got the right capital to invest back into it. That’s showing good results over time. The share price obviously, over the last two years, have performed very strongly in that regard.

“We’ve got more work to do. The company has got more work to invest in and we want to continue to improve. Ultimately, share buybacks, those type of thing referred to in your questions, are one for the board to talk to. It’s probably a great question for the AGM.”

The company recorded a 21 per cent jump in average meat sales per kilogram, which offset a 14 per cent decline in volume sold as it continues to rebuild its herd following floods and drought in past years.

Overall, meat sales rose 4 per cent to $208.5m, with cattle sales up 3 per cent to $67.5m.

Mr Killen said the company was recording growth across all its key markets, citing its “commitment to investing in our brands” – Westholme and Darling Downs brands now represent 83 per cent of meat sales – and restaurant trade resuming.

“The recovery of food service was a catalyst for growth in Europe and Middle East. Volume in this region grew 18 per cent and meat sales per kilo increased 23 per cent as customers began to dine out again,” Mr Killen said.

“While the recovery of food service as Covid-19 restriction ease has been an important enabler to our results, it has allowed us to realise the hard work implemented during the peak of the pandemic in improving our brand awareness and in market allocation.”

Pastoral property and improvement valuations surged 28 per cent to $254.5m, while the value of its herd rose to $198.8m. Overall, AACo’s net assets increased from $1.04bn to $1.36bn, with net tangible assets per share rising 30 per cent to $2.27.

Its gearing ratio remained well under its 35 per cent target limit at 22.5 per cent. This compared with 25.7 per cent last year.

The result delivered a bounce in executive and director pay. Mr Killen’s remuneration jumped nearly 14 per cent to around $1.08m. Meanwhile, Mr McGauchie’s fees, including superannuation, firmed 5.7 per cent to $274,688.

But Mr Killen said “increased geopolitical risk” and “inflationary pressures” will put pressure on costs across the beef supply chain.

It came after agribusiness bank Rabobank said this week Australia’s livestock and dairy sectors have been indirectly impacted by the Russia-Ukraine war through higher input costs from feed, fertiliser and energy.

“AACo’s disciplined focus on costs as well as strategic customer management, product allocation and growing brand awareness will help manage through this uncertainty,” Mr Killen said.