AACo recovers with $30m operating profit in half-year results after drought, floods

AACo is rebuilding its herds and profitability after drought and the Gulf floods eroded its returns. Here’s how.

Still recovering: Australian Agricultural Company chief executive Hugh Killen says drought and the gulf flood slashed 2018-2020 calving, cutting back the volume of meat sold in the six months to September 30 this year by 8 per cent.

Australian Agricultural Company has posted an improved operating profit of $30 million in the six months to September, compared to $23.5m for the same period last year.

AACo’s half-year results show its meat sales remained almost static at $103m from April to September 30, while cattle sales dropped back slightly from $41m to $40.5m

The lift in operating profit appears to be have been driven in part by cuts in cost of production from $2.74/kg live weight down to $2.39/kg.

Managing director and chief executive Hugh Killen said the “result was also supported by higher cattle sales margins on the back of record high market prices”.

“What’s especially pleasing is how we achieved the result, with higher margins in-market and growing brand awareness,” he said.

“Overall, the business delivered a 9 per cent increase in average meat sales pricing compared to the previous period, driven by strategic market allocation and the continued execution of our branded beef strategy.

“The result was also supported by higher cattle sales margins on the back of record high market prices.”

But Mr Killen said lower calving levels during 2018-20, due to prolonged drought and the Gulf flood, continued to impact meat volume sold in the half, with a decrease of 8 per cent versus in the prior period.

“This is consistent with the record low slaughter volumes being seen in the industry,” he said.

However Mr Killen said AACo had continued to adapt to fluctuating market dynamics by driving up branded sales in North America by 55 per cent, compared to the previous corresponding six months.

“There is strong demand for high value loin and rump cuts in North America, supporting an average branded meat sales price per kilo increase in the region of 33 per cent vs pcp,” he said.

“We’ve reallocated some product away from Asia to realise these premiums, though the region still represents more than 50 per cent of total meat sales.

“There have been promising signs of Covid-19 food service restrictions starting to ease in some markets. We will continue to monitor the changes and look forward to the return of diners to restaurants.”