Shares in Australian Agricultural Co tumbled their most in nine years after Australia’s top beef producer revealed a fall into the red, squeezed by growing competition from US beef, and rising feed costs.
Shares in the Queensland-based group plunged 13.8% at one point to Aus$1.34 in Sydney, an 18-month low, before clawing back some ground to end at Aus$1.44, a drop of 7.4%.
The tumble followed the release by the group, better known as AACo, of results for the April-to-September period showing a loss of Aus$37.7m, compared with earnings of Aus$47.9m a year before.
The results, which follow the surprise departure in August of Jason Strong as chief executive, reflect “the work still being done” to develop the company from a cattle producer to a supplier of branded beef, said Donald McGauchie, the AACo chairman.
Price, volume declines
The weaker result was down in part a one-time dent from a Aus$52.6m downgrade to the valuation of the group’s herd, to reflect a drop of 22% over the half year in cattle values, as measured by Australia’s benchmark eastern young cattle indicator.
However, even excluding this hit, earnings before interest, tax, depreciation and amortisation (ebitda) rose by a modest 2.2% to Aus$16.1m, against a backdrop of a 7.9% drop in sales to Aus$197.2m in sales.
While sales of cattle soared 50% to Aus$27.3m, amid a rejig of the group’s herd make-up, the impact was more than offset by a 13.3% drop to Aus$169.9m in meat sales, which were undermined by falls in both prices and volumes.
Volumes fell as AACo cut by 29%, in weight terms, its buy-ins of live cattle, in a strategic switch to relying more on its own herd, allowing “greater authenticity of the brands”, and supporting margins too.
‘Increased competition from the US’
The group is moving to boost its reliance on it upmarket brands, such as Wylarah, Westholme and 1824, over its commodity labels, such as Welltree.
And it was the premium and luxury lines which sustained the drop in volumes over the half year, more than offsetting a rise in prices, leaving AACo more exposed to the fortunes of its commodity Livingstone Beef arm, which encountered a “challenging trading environment”.
“Increased competition from US exports,” up 59% year on year in the first half of calendar 2017 to the Asean markets which are big buyers from Australia, fuelled “downward pressure on commodity beef prices”, the group said.
Livingstone’s average beef sales price, at Aus$4.28 per kilogramme, dropped 1.8% year on year, as opposed to gains in values of upmarket beef.
Luxury beef sold for more than three times as much, at Aus$15.58 per kilogramme, up 14.6% year on year.
Meanwhile, the group noted pressure on margins from “higher input prices” too, flagging raised costs of feed, which have been elevated by the dent to Australia’s winter grains production from drought.
Mr McGauchie acknowledged “some external headwinds” to AACo’s performance but said that the company was “pleased with the traction we are achieving”.
The group was “consolidating” its strategy of shifting towards premium beef, sourced from its own operations, and “ensuring excellence in its execution”.
AACo’s priorities included making “key executive appointments”, the company said, while announcing the appointment as non-executive director of Jessica Rudd, founder of online retailer Jessica’s Suitcases.