Australian Agricultural Company Limited

Thank you for standing by. Welcome to the Australian Agricultural Company Limited FY24 full year results release. All participants are in a listen only mode. There will be a presentation followed by a question and answer session. If you wish to ask a question via the phones, you will need to press the star key followed by the number one on your telephone keypad. If you wish to ask a question via the webcast, please enter it into the ask a question box and click submit. I would now like to hand the conference over to Mr David Harris, Managing Director and Chief Executive Officer. Please go ahead.

Good morning and welcome to the Australian Agricultural Company's year-end financial presentation for 2024. I'm Dave Harris, Managing Director and CEO of ADACO and joining me on the call today is Glenn Steadman, our Chief Financial Officer. I begin by acknowledging the traditional custodians of the various lands on which we meet today In Brisbane, that's the Jagera and Turrbal peoples. I also pay my respect to their elders past, present and emerging and extend that respect to any First Nations people joining us for today's presentation. I will start our presentation this morning by running through a few of our key achievements of the company's performance. We will then take a closer look at how we have delivered on our priorities during the year. including our progress in sustainability and how our brands are performing in our key global markets. I will then hand over to Glenn to take us through the financials in more detail, after which I will finish with an update on our current operating environment as we move into financial year 25. And with that, let's begin our presentation on slide 5. We believe this is a strong result for FY24 in the context of difficult global conditions throughout the year, including increased global beef supply and reduced live cattle market prices. While these difficult conditions had some impact on these results, the company's strategy and unique distribution network helped deliver a strong outcome. Our brands are still commanding price premiums in market and considerable work was undertaken to capture more value through our branded beef program. Our ability to increase sales volumes whilst achieving price resilience shows the strength of our supply chain. We look forward to building on this success as we begin our 200th year of operation. The details of our performance can be found on slide tips. AECO posted a $50.5 million operating profit for FY24, built on the quality of the integrated supply chain and the momentum of our commercial brands in market. Although this result is 25% down versus the prior year, it is AECO's second largest operating profit and the second consecutive year that the company has posted a full year operating profit above $50 million. demonstrating the ability of AACO's strategy to combat global market conditions. The operating tax flow was down by a year as we continued to align spending with strategic priorities, including the GNU property expansion, which we will talk to you more about shortly. The expansion was part of a $36.5 million business investment program, which was $16 million more than the prior period, and pleasingly the herd also grew 5% to 455,000 head of cattle. This demonstrates a conscious and intentional effort to invest in our company's future. As we indicated in November's interim results, cattle prices hit four year lows in the period which was the primary influence behind a weaker statutory performance. We are required to report the value of our herd which feeds directly into the statutory the reduced cattle prices are primarily realised through limited live sales. Whilst the significant reduction in cattle prices impacts our balance sheet and statutory performance, it has a more limited impact on our operating performance. The third valuation adjusted down $149.4 million, leading to a statutory net loss after tax of $94.6 million. You can see, whilst cattle prices and the statutory result are down, our operating profit remains positive. Net assets are down marginally on the prior year to $1.52 billion, with a $78 million increase in parcel property improvements being offset by the reduction in herd value. This has led to a 3% reduction in net tangible assets to $2.51 per share. Turning now to slide 7 and delivering against our team issues for FY2014. The strength of the supply chain that I mentioned earlier is further demonstrated by a 10% increase in Wagyu meat sales revenue. Some of that can be attributed to new product trials, including Wagyu bacon, burgers and grass-fed products that we began to sell during the period and were met with positive feedback. AECO also relaunched the brand 1824 after a period of strategic development. 1824 honours the company's history and the year we were formed two centuries ago, so it's fitting to have it relaunched now in our 200th year of operation. The brand will focus on maximising revenue through new distribution channels outside of our brands West Home and Darling Downs. There was also considerable brand development work undertaken with the West Home to position it for further opportunities in FY25. Under our sustainability initiatives, AOK signed up as a Tier 1 partner in the Zero Net Emissions from Agriculture Cooperative Research Centre during the period, Australia's largest ever CRC. The 10-year investment will accelerate our sustainability work and efforts to reduce our emissions. We also participated in another year of the Beef Cattle Herd Management Program. The efforts to make AOK a great place to work were further demonstrated by an 8% uplift in the employee engagement score in FY24. We also executed our employee value proposition, which highlights the extraordinary nature of working at AACO and increased the number of women in leadership by 6%, including reaching equal gender representation amongst our senior leaders. The company's transition to a new processor in FY24 is part of our drive to become a more efficient business. An increase in cost of production per live weight kilo can be largely attributed to the changing herd profile and more wagyu animals that have a longer life cycle with more days on feed. The changing herd profile will help us take maximum advantage of the Gnu property expansion that we reported at the half year as we decide our assets. The expansion increased intensive supply chain capacity by 12% in the period and will boost supply into our global markets. Further improvements totaling more than $36 million were made across the operational side of the business including upgrading buildings and other property infrastructure and our solar board transition is nearly complete. Now to slide 8 and more information about progress in our sustainability program. In addition to our commitment to the Zero Net Emissions Act CRC, AECO has continued to make significant and innovative advances in a range of areas. One of those is a unique analysis of the way that carbon moves through our supply chain, which will help us identify the best opportunities for action to reduce emissions. That program of work has also helped inform our emissions accounting and will allow us to become even more sophisticated in our understanding of our Scope 1, 2 and 3 emissions. This will be necessary as we prepare for the introduction of the government's mandatory emissions reporting requirements, which will come into effect in FY25 and eventually require us to report all emissions. We have delivered the first phase of the Rainslands Carbon by Satellite project. This will facilitate testing of a product that we anticipate will eventually allow us to measure landscape carbon at scale. We are continuing the development of our Accounting for Nature framework that will allow us to measure our natural capital, and we have progressed further work into methane-reducing feed additives, including looking at how we deliver them into our vast range lands and completing our well-deserved asparagopsis trial in long-feet paddles. I'll now take you through some of our commercial performance by region as we turn to slide 10. The distribution of our branded weight used shifted in FY24. This slide shows how we used the strategic allocation of product to respond to evolving market conditions. By using our strong distribution network and the mature relationships with our partners and customers, we are able to place the right tasks in the right markets at the right time. Managing supply, whilst also considering broader market conditions, allows us to create price tension, with the aim of achieving the best possible price across all markets. We consider markets individually as well as part of an interconnected network, with each market playing a role to realise short-term outcomes, while also staying well-placed to deliver the full potential from our brands in the future. You can see how this has broken down as we look at the performance across each of our key markets starting on slide 11. IACA was able to achieve coveted menu placements in North America and price growth across ultra-premium product offerings, demonstrating continued progress in the region despite the challenging market dynamics. The ongoing herd liquidation, which has increased overall beef supply, along with inflationary pressures and growing competition from Wagyu producers, impacted overall performance. Highly marbled Wagyu, such as cuts from our brand Westhome, remain a premium choice for diners and sit above local offerings in terms of quality. Westhome is in demand as a consequence and chefs use it to create remarkable dining experiences. Because of the added competition and other market dynamics during the period, it was necessary to manage supply for the region. The strength of our distribution relationships and global network enable us to provide the best response to market challenges. Our commercial team in North America continues to create unique experiences with activities growing left-hand brand awareness and supporting established and near relationships. This continues to resonate in this market and positions us well for the future as we grow a geographical diversity of distribution in the region. Moving to Asia on slide 12. Pleasingly, we achieved strong price growth whilst also increasing the volume of branded beef. This led to an increase in overall sales value in the region. Launching a premium tier, with our brand Darling Downs in Korea, helped recapture market share despite the increased supply of local beef. We expanded our food service presence and increased West Home branded sales, supported by additional investment in marketing activities, product activations and digital engagement. Expanding our presence through new partnerships in Indonesia and Thailand also helped drive growth in this region. Asia remains our biggest region by volume and revenue. It's also an important region for helping maintain overall global price tension. Moving now to Australia on slide 13. As well as continued investment in West Home, I also reintroduced the 1824 brand and expanded Darling Downs in Australia this period through establishing new distribution partnerships. That contributed to a boost in volume which when combined with broader increased supply impacted prices in this region. As our spiritual home, Australia remains an important buffer to help manage global prices and broader market dynamics. It has a key role in our strategic approach to market allocation as we are able to increase supply of specific products to our customers here in order to optimize price and support growth in other key regions. The 1824 grant will allow us to extract more value as we continue doing this going forward. Noting Australia makes up just 10% of our global meat sales, small variations in volume and price can appear bigger when looking at them in percentage terms. With this in mind, it was pleasing to see the limited impact on price despite the volume increases, which is testament to the hard work and strong partnerships developed by our commercial teams. Turning now to slide 14. ASA took an intentional strategic approach to Europe and the Middle East during this period. As a high-paying market, it remains highly competitive, and so we were selective in our distribution and managed volumes to maintain price. We've spoken to you previously about our desire for strategic expense in this region, but we will get the best long-term outcomes by managing the pace of our growth. We also used the period to strengthen partnerships and test key product innovations, particularly in the Middle East, including the weight deviation and burgers. We were encouraged by the results of these trials and by our overall performance as our teams navigated the global operating environment and market dynamics. Turning now to slide 15. As a vertically integrated business, our beef strategy includes both premium products sold under our brand, as well as other beef products across the rest of the carcass. This other beef is mostly sold without a brand and includes things like trim, secondary stuffs and more commoditised items. As such, these unbranded meat sales are more heavily impacted by the global supply and demand dynamics, such as the USA herd liquidation. Other meat sales contribute up to 50% of our total sales value. With our current programs, including West Home and Darling Downs, performing well and demonstrating the effectiveness of selling under brand, AECO sees an opportunity to extract further value from products across the whole of the campus by selling more of them in this way. The introduction of 1824, as well as new product lines, will enable us to realise some of these opportunities. New offerings from this category were sold late in FY24. I'll now hand over to Glenn who will take you through our financial performance in more detail.

Thank you Dave and good morning everyone. It's a pleasure to be with you today to take you through our FY24 year end results. AACO has continued our focus on branded beef and delivered a strong performance for FY24. Total revenue of $336.1 million is up 7%, making this the third consecutive comparable period of revenue growth. We've achieved an operating profit of $50.5 million, and whilst operating profit is down on the prior period, this is AACO's second largest operating profit, delivering challenging market conditions experienced throughout the year. Operating cash flow of $9.3 million. is down $6.7 million on the prior year, with the increased cost of debt impacting performance due to interest rate rises and drawdowns to fund investment initiatives including the GNU expansion. Average Wagyu meat sales price performance was impacted by market dynamics for global meat. However, our branded meat sales were able to materially hold price during the period, with other meat sales being impacted by challenging dynamics and macroeconomic headwinds. Net changeable assets of $2.51 per share reflects our strong asset base despite the reduction in cattle values over the period, which also impacted our statutory profit performance. Turning to revenue on slide 18. Our revenue performance in FY24 is a key achievement for the year. We were able to leverage our existing supply chain, responding in an agile manner to the challenging price dynamics to increase supply and combat these negative price impacts. As Dave mentioned earlier, the resilience of our branded beef products limits the impact on price pressure, with volumes up 24% and the average price down 11%. Cattle sales are subject to live cattle markets, which reached four-year lows during the period and had a direct impact on cattle sales margins. Again, we were able to increase volumes by 49% to combat these market conditions. Turning now to slide 19, profit and loss summary. The significant decline in the cattle market prices impacted our statutory results. The reduction in statutory EBITDA of $137 million was driven by unrealised market-to-market loss on the herd, as well as a lower fair value on animals which were sold or processed. This was in line with broader market conditions. and resulted in a net loss after tax of $94.6 million. As Dave indicated earlier, our strategy of selling premium beef into global markets helped us limit the impact on our results from reductions in live cattle prices. This is why we focus primarily on operating performance. Resilience and sales performance helped produce a pleasing operating profit of $50.5 million. This was driven by improved meat sales revenue with 24% higher sales volume. Cattle sales revenues are materially in line with the prior years, with the reduction in market prices offset by higher volumes. We continue to have a disciplined focus on controlling costs, and whilst cost of goods sold were higher in the prior period, this was driven by the increased meat and cattle sales volumes, with the average cost per kilogram down versus the prior period. Now turning to our cash flows on slide 20. Being able to increase volumes while controlling costs enables us to achieve a positive operating cash flow. Our overall operating cash inflows is down on the comparable period in line with the increased financing costs. The business invested in initiatives outside of normal business activity on projects we expect to realise future benefits. This included the GNUDE property expansion, which as Dave said earlier, has increased capacity by 12%. The $36.5 million investment on our assets in the business during the period has benefits now and into the future, including saving costs, improving safety, quality and efficiency, overall generating a better experience for all of our employees. Turning to slide 21, our balance sheet summary. Notwithstanding the unrealised reduction in herd value, our asset base remains strong, with total assets only marginally down on the prior year. Our livestock herd numbers have grown 5% from FY23, with continual optimisation of our herds to meet future strategic growth. The livestock fair value adjustment is the main cause of the decrease in NTA, down 3% to $2.51 per share. The impact of our cattle share value adjustments was partially offset by growth in our past property values, with a $78.1 million increase driven by investment and market value increases. Our pastoral assets are recognised as being amongst the best in the world. Our gearing ratio of 23.7% is at the lower end of our target range of 20-35%. We have $600 million in total committed borrowing capacity, with $186 million unutilised and significant headroom under our existing covenant. Our results demonstrate the strength and resilience of our business, with our brand of deed strategy guiding positive outcomes despite upper market conditions. Our assets are of a quality and scale to enable us to adapt, and we intend to develop these as we continue to unlock further value. I'm proud of our dedicated teams across the globe who work hard together to achieve our goals and I'll now hand back to Dave to take us through our operating environment and closing remarks.

Thanks, Glenn. Now let's move to slide 23 and our operating environment. We've talked at different points through this presentation about the varying market dynamics, most of which remain outside of our control. Global meat size conditions remain uncertain for FY25. However, a key feature of this period has been how we have purposely positioned ourselves to both manage the current conditions as well as prepare for the opportunities that we anticipate will come, while still achieving a positive financial performance. Managing the things that are within our control will keep us in a strong and agile position, able to respond in the best fashion as required. Consecutive, favourable seasons across AOK properties are contributing to strong past year growth and increased productivity. Combined with a full year of benefits being realised from the Ganoe property expansion, we anticipate healthier cattle and increased supply of our premium wages. We will continue to drive efficiencies throughout the year without compromising on quality and should benefit from reducing inflation, albeit with higher baseline input costs than the same time last year. Analysts predict global oversupply of beef will ease in late FY25, which if realised should alleviate stocking pressures across our Wagyu, boxed beef and live cattle sales. Finally, I also commenced a review of its strategic direction in FY24 and we look forward to sharing more with you in due course. Whilst we remain focused on improving earnings from the sale of premium branded beef and live cattle The strategy development is considering alternative areas for value generation, which includes utilising our vast land holdings to unlock more value and further sustainability initiatives. We appreciate you joining us for today's presentation and trust that you recognise the progress we have made this year. Thank you for your support. And thank you to the entire ASO team here in Australia and around the world for helping deliver this performance in FY24. We will continue working together to honour our past, respect our present and innovate for our future. That is the end of the presentation. We're now happy to take questions.

Thank you. If you wish to ask a question via the phone, you will need to press the fire key followed by the number 1 on your telephone keypad. If you wish to ask a question via the webcast, please type your question into the Ask a Question box. Your first webcast question comes from Eric Lowe with Elo and Associates. What is AAC's forecast of Wagyu price in USA if they are in the rebuilding of stock after destocking induced by a prolonged drought?

Yeah, thanks for the question. Like I said there in the latter part of the presentation, most analysts, predicting that those general beef prices will certainly improve in the back half of 2025. I think we are seeing that probably start a little bit more in the kind of commoditised lean area of production. And so at this point in time, we probably feel that the weight use and that really premium parts of beef will be a little bit of a lag on what the analysts think. But largely, we obviously see it as a lot of opportunity, but probably back end of next financial year for us.

Thank you. Once again, if you wish to ask a question via the webcast, please type it into your Ask a Question box and click Submit. We will just pause momentarily for any further questions to filter through. There are no further questions at this time. It does conclude our conference for today. Thank you for participating. You may now disconnect.