Australian Agricultural Company (AACo) has posted a $2 million drop in half-year net profit to $47.9m after spending extra cash building its cattle numbers on feed prior to processing them at its new Livingstone meatworks near Darwin.
The big beef company’s drive to have consistent throughput from its abattoir to meet forward orders during the Top End wet season will delay some revenue until later in 2016-17 or early next trading year.
It spent $41.5m building its live cattle inventory - a $36m increase on the same period last year.
At the same AACo has held back the sale of some of its Wagyu cattle for sale to meet new luxury-end market expectations in the coming nine months, having recently launching the first of its new flagship Westholme and Wylarah brands in Singapore.
AACo, which boasts the world’s biggest Wagyu beef herd, will roll out more of its Wagyu brand launches overseas in 2017, using the Singapore experience to fine tune its supplies to market expectations.
Branded beef now accounts for 92 per cent of AACo’s beef sales, up from 86pc a year ago.
AACo’s Wagyu branded sales for the first half of the financial year increased their value by six per cent to $13.59 a kilogram.
Managing director, Jason Strong, said that value figure was expected to lift noticeably once the new brand launches from Singapore and elsewhere were included in the next half-year results.
“Singapore represents our initial drive towards changing the global luxury beef segment,” he said.
“As our vertical integration strategy takes shape, we are fundamentally changing the way we sell and deliver our products to consumers.
“This strategy will lead to increased sales prices.”
AACo reported a $2.4m rise in overall earnings before interest, tax, depreciation and amortisation (EBITDA) to $13.9m on the previous corresponding period.
It slashed production costs 25pc, taking advantage of strong seasonal conditions, as well as reducing operational costs by making a strategic decision to own cattle right through the supply chain.
Mr Strong said while adding extra cattle to its pre-slaughter inventory in the Northern Territory had impacted cash flow in the short term, it would “ultimately result in improved returns from beef sales in the coming periods”.
However, AACo has again held back from announcing a dividend to shareholders.
Meanwhile, it has also co‐founded and invested in a San Diego based biopharmaceutical reagent company, Nucleus Biologics, which supplies pharmaceutical companies with products based on by-product materials sourced from the NT abattoir.
AACo has also formed a scientific advisory board headed by former CSIRO chief executive officer, Dr Megan Clark, to review and guide future innovation and technology programs.
“We’re excited about how things are going and we look forward to getting back into it for the rest of the year,” Mr Strong said.
Latest results demonstrated good progress – increased earnings, increased average sales price for Wagyu products, reduced operational expenses, and reduced production costs.
“We are pleased with our progress, but we are far from finished.”
In a special note to shareholders Mr Strong said a lot of change had occurred in five years, even though AACo still was Australia’s leading beef producer, raising cattle in wide open spaces in Queensland and NT.
“We understood the best path forward was to become a price maker rather than price taker, which mandated creating and promoting our branded products,” he said.
“We demanded a focus on managing our cost structure.
“The path forward required us to invest in the business, change our business practices, and even modify our culture.
“Change can be hard and time consuming, but when the rewards are as great as we envisioned, we had no choice but to move forward.
“In FY16, we started to see some returns on our investments, but the returns were just the beginning.
“For FY17 and beyond, we will continue to make investments and changes, and we expect to continue to see rewards.”