The Australian Agricultural Company’s spanking new beef processing plant near Darwin is to shut down.
The three-year-old $100 million plant, which recorded a $22.4 million loss in earnings before interest, tax, depreciation and amortisation (EBITDA) in 2017-18, will be mothballed “as soon as practical”, the company has announced.
“The Livingstone Beef facility continues to operate at a loss,” AACo said in a statement accompanying the release of its full year’s trading losses.
AACo has reported a statutory EBITDA loss of $35.3m, compared to a 133.2m profit for the 2016-17 trading year.
AACo posted a net loss of $102.6m for the year to March 31 from the previous year’s $71.6m net profit.
The Livingstone meatworks operating results and high cattle supply chain costs were largely responsible for the company’s balance sheet woes, but seasonal conditions are not helping.
Despite a strong market performance by the company’s luxury brand products in the Westholme and Wylarah ranges, the company has flagged a “challenging start” to the first half of the current trading year, with poor seasonal conditions and softer sale prices a contributing factor.
Significant change is required to improve profitability and cash flow generation across the supply chain, and we have taken decisive action
Chief executive officer, Hugh Killen said the year’s results were a “tough set of numbers ... and tough decisions have to be taken now”.
In a bid to stop ongoing operational losses, AACo was suspending processing operations at Livingstone Beef as soon as practical, having regard to existing employees, customers and other operational commitments.
The plan is to have the abattoir in a maintenance-only phase by September.
This move would put a stop to the current operational losses being incurred at Livingstone Beef, and further simplify AACo’s business model to focus on profitable growth.
Although it has not mentioned selling the meatworks, which began processing in late 2014, the company said it would appropriately consider “other credible alternatives that may support shareholder value realisation from the asset in a measured manner”.
“To this end, the 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,” the statement said.
AACo believed there was substantial “optionality value in Livingstone Beef” and with the right market environment and operating model the processing plant could be a profitable operation with significant strategic value.
Change is required
“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,” Mr Killen said.
AACo has also made a one-off write-down of $74.9m, including a one-off non-cash impairment of $69.5m relating to Livingstone’s buildings, improvements, plant and equipment.
An additional $5.4m provision was recorded for an “onerous contract in relation to Livingstone Beef”.
The closure decision follows a strategic review announced last month to assess all options and determine the “optimal path to deliver shareholder value” from Livingstone Beef.
The review included a thorough analysis of the existing Livingstone operations, market environment and outlook, and considered a broad range of potential alternatives.
Mr Killen said fundamentally, AACo was a strong, branded business.
It had an established presence in high-potential, high-value markets, supported by a portfolio of world-class assets.
“However, recent financial performance has been weak due to a range of factors,” he said.
“We need to create a simpler, more productive and more profit focused AACo to deliver on the company’s potential.
Strong brand performance
“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.
“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.”
Mr Killen said macro conditions in the first half of the 2019 financial year continued to be challenging.
Management remained focused on financial discipline and driving internal cost efficiencies through efficient feed use and cattle movements.
“We have taken decisive action to stem the losses confronting the business and are focusing on ensuring the company is on an even-footing from which to realise its strong potential for growth,” he said.
“We plan on continuing to advance plans to extend our brand reach in existing markets, as well as new launches in key high-value markets where that makes commercial sense.
“Work is already well progressed on building the market data and insights needed to support strong, successful expansion of our brand footprint.”
- Does this article interest you? Scroll down to the comments section and start the conversation. You only need to sign up once and create a profile in the Disqus comment management system for permanent access to all discussions.