AACo beefs up the balance sheet

19 Nov, 2014 06:10 AM
AACo managing director Jason Strong.
We have clearly shifted the focus from producing cattle for volatile domestic markets to beef ...
AACo managing director Jason Strong.

BRANDED beef now accounts for 76 per cent of AACo’s total revenue, as the first six months of the 2015 financial year sees the company in “a state of transformation” from production-led pastoral company to vertically integrated beef business.

AACo reported a statutory net loss of $13.6 million for the half year ending September 30, 2014 - an $18m improvement on same period last year. In May, it announced a $39.9m loss after poor seasonal conditions hit the company's pastoral operations hard.

“We have clearly shifted the focus from producing cattle for volatile domestic markets to producing high quality beef being sold into higher value global markets,” managing director Jason Strong said.

Sales of AACo branded beef were up more than 38pc compared to the prior corresponding period, driven by increased volumes at improved prices in Wagyu and Shortfed programs. With meat sales generally transacted in US dollars, the recent depreciation of the $A has also been a positive development for the business.

AACo sold 12m kilograms of branded beef in the six months to September 2014, compared with 9m kg the previous year. Total meat sales were $115.5m (compared to $83.9 year-on-year); cattle sales were $28.2m (compared to $78.5m), and crop sales were $7.3m (compared to $4.2m). Total revenue for the period was $151m, down from $166.6m at this time last year.

After a difficult 2014 which necessitated destocking activity in the northern regions, the start of this financial year saw improved pastoral and market conditions combined with a refreshed strategy and strengthened balance sheet, AACo said in a statement to the ASX. Cattle sales were substantially reduced after a decision to reduce the number of head sold to take advantage of improved pasture conditions and build inventory for Livingstone Beef.

The company's much-anticipated $91m new processing facility outside Darwin will play "a crucial role in transforming the company to a profitable business with less volatility”, Mr Strong said.

“Livingstone Beef will allow AACo to capture more value along its entire supply chain,” he said.

“It also provides another channel to market for northern beef producers who until now have had limited local sale options.”

The facility has the capacity to process 1000 head of cattle a day and will eventually employ about 320 people. AACo will initially provide most of the cattle to the facility, with other northern producers supplying cattle to the facility over time.

The board has not declared a dividend.



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