AACo shelves $100m Darwin abattoir as it swings to heavy full-year loss

AACo will mothball and book a writedown against its $100m abattoir near Darwin, as it swings to heavy full-year loss.

Picture: AACo

Australia’s biggest land and cattle company, the listed Australian Agricultural Company, will mothball its floundering $100 million abattoir near Darwin after it has failed to ever turn a profit since opening in late 2014.

AACo (AAC) chief executive Hugh Killen said the giant Livingstone Beef meatworks, which has a capacity to process 220,000 cattle a year, would shut down in August, with the loss of 200 local jobs.

The abattoir is not officially for sale — although Mr Killen said any legitimate offers would be considered — with AACo hopeful there may be a future time when the processing plant could be viable and suit the company’s current single-minded focus on producing luxury high value beef brands.

Mr Killen said Livingstone meatworks dream had been turned into a financial nightmare — AACo yesterday announced an immediate write-off of the asset value of the plant by $74.9m — because of a lack of aged cows to supply the meatworks, high cattle prices and unviable and high labour costs competing with local gas and mining projects.

There was also a clear mismatch in the objectives of the Northern Territory abattoir — to supply bulk low value hamburger mince to US commodity markets — and the push by AACo’s largest shareholder, Bahamas-based UK millionaire Joe Lewis — for AACo to become a luxury beef producer

AACo’s statement to the ASX, as it reported broader disappointing 2018 full-year results, said the tough decision to immediately mothball its sole abattoir had been taken to put a stop to its mounting operational losses, and to simplify AACo’s business model to focus on profitable growth elsewhere.

“Livingstone Beef facility will be maintained at a level that enables an efficient plant restart should prevailing macro conditions be sufficiently supportive, while minimising costs in the meantime,” AACo said.

“AACo believes there is substantial optionality value in Livingstone Beef; in the right market environment, and with the right operating model, Livingstone Beef can be a profitable operation with significant strategic value.”

Mr Killen and some of the AACo board flew to Darwin overnight to tell the meatworks’ staff personally that the plant would be closed and their jobs lost.

All employees — a blend of local workers and overseas 457 visa holders — will be offered redundancies, Mr Killen said.

Unveiling a statutory net loss after tax of $102.6m for the 12 months to March 31, compared to a net profit after tax of $71.6m last fiscal year, the company said it suffered increased competition, reduced volumes and increasing costs due to dry weather conditions.

The result included a one-off non-cash impairment of $69.5m and a provision for an onerous contract of $5.4m, following a review of the carrying value of its Livingstone Beef processing facility near Darwin.

The company did not declare a final dividend, in line with last year.

Earnings before interest, tax, depreciation and amortisation fell 127 per cent to a loss of $35.3m, due to investment in “building the herd”, which lead to a $67m decline in revenue for the 2018 financial year, combined with a higher Australian dollar and increased input costs due to dry weather conditions, the company said.

It comes after Australian Agricultural Company issued a profit warning in April, flagging an EBITDA loss within the range of $30m and $40m.

Despite the challenging seasonal conditions, the company said its operating expenses held steady, with further potential upside to be driven by higher efficiencies.

Chief executive Hugh Killen said that the company remains strong and that’s its balance sheet has been strengthened by an improvement of 4.5 per cent in the carrying value of AACo’s property portfolio.

“Continuing to maximise the value of our land, water and herd resources through the disciplined allocation of capital will remain a strong focus in the coming year,” the company said.

Mr Killen put the weak financial performance down to a range of factors, saying the company needs to simplify, improve productivity and become more profit focused in order to deliver on its potential.

“We are seeing strong performance from our brands in key markets, and our control over our supply chain as an integrated beef producer offers significant potential that is yet to be unlocked,” he said.

“Realising this value will come from aligning and activating our assets to work together efficiently, to produce and deliver our brands at scale. Management is keenly focused on maximising the efficiency and productivity of each asset through robust financial and capital management.

“Significant change is required to improve profitability and cash flow generation across the supply chain, and we have taken decisive action to deliver sustainable, long-term shareholder returns.”

Its debt refinancing completed in September last year achieved a reduction in the cost of funds and more flexible facility terms, the company said.