Australian Agricultural Company Limited

Thank you for standing by and welcome to the Australian Agricultural Company Limited FY25 half year results conference call and webcast. All participants are in a lesson 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'll just need to press the star key followed by 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. Dave Harris, Managing Director and CEO. Please go ahead.

Good morning and welcome to the Australian Agricultural Company's interim results presentation for the financial year 2025. I am Dave Harris, Managing Director and CEO of AACO, and joining me on the call today is our Chief Financial Officer, Glenn Steedman. I begin by acknowledging the traditional custodians of the various lands on which we meet today. In Brisbane, that is the Jagera and Turrbal peoples. I also pay my respect to their elders past and present 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 key achievements of our company's performance. We will then take a closer look at how we have delivered on our priorities during the year, including how our brands are performing around the world and our progress in sustainability. I'll then hand over to Glen to take us through the financials in more detail, after which I will finish with an update on our current operating environment. And with that, let's begin our presentation on slide five. FY25 is the 200th year of operation for the Australian Agricultural Company. AACO was established through a British Act of Parliament back in 1824 and was granted land in the Port Stephens area of New South Wales. We had livestock, including sheep, cattle and horses, along with a range of crops, and our business was initially established in the early days to export wool to London. For the two centuries until today, it has remained a largely exporting business. Though, in FY25, this is Wagyu instead of wool, with the majority of our beef supplied to more than 16 major markets around the world. If there is one constant over that time span, it is that nothing stays the same, with ever-changing markets and global dynamics that rarely, if ever, stay still. The ability to pivot and respond to the many challenges we faced along the way has been a consistent key to our success. The same is true of this period as the difficult market conditions and challenges of recent periods have continued into FY25. And as with last year, our strategy and unique distribution network were behind our ability to respond in the best possible fashion to achieve a positive outcome. We can have a look at those results in more detail as we turn to slide six. The operating profit of $20.2 million was down on the prior period, but is still one of our strongest half-year performances of recent times. The result was impacted by global supply and demand dynamics, which have put pressure on global meat prices, while broader macroeconomic conditions such as inflation challenged our cost of production, and the general cost of living concerns impacted some consumer spending habits globally. They are conditions that are being experienced by businesses across the economy. However, we are better positioned to respond now than we have been in previous years. with a disciplined approach and a highly productive and efficient supply chain that has created multiple pathways to positive results. The challenging conditions I mentioned were a significant contributor to a 17% decrease in Wagyu meat sales price per kilogram for the period. The Wagyu price impacts were partially offset by a 37% increase in kilograms sold with the additional capacity of the GNU property realised during the half. Intentionally, increasing this volume to partially offset those price pressures is an example of different ways, pathways, sorry, that we can take to improve our outcomes, depending on the market conditions. The higher volumes were behind a $28.5 million improvement in total sales revenue versus PCP to $195.5 million. as well as the uplift in our operating cash flow compared to the prior period to $4.3 million. We've encouraged you in previous periods to focus on our operating profit and cash flow as the best indicators of our performance. That remains the case today. However, this was further bolstered in this first half with a turnaround in the statutory net profit after tax to a positive $23.6 million. This has largely come as a result of a $34 million unrealised mark to market adjustment of the herd. We are required to report the value of the herd, which feeds directly into these statutory numbers. However, cattle prices have a more limited impact on our operating performance. The growth in the herd values contributed to an increase in net tangible assets to $2.55 per share. Turning now to our commercial performance, Part of our desire to build a better beef program includes a strong focus on developing our brands in market. So as we turn to slide eight, we will first discuss our broader global performance before looking at individual progress of each brand. I referred earlier to our strategic approach to product allocation that has helped us deliver a positive result despite these challenging market conditions. Global supply and demand dynamics take time to shift. And so it was no surprise that the stubborn market factors that we spoke to you about in previous periods have persisted into this year. We responded with a tactical approach to our brands in market, leveraging our global distribution network and diverting supply to specific markets to optimise price and support future growth in key higher paying regions. The result? was an increase of 30% in branded Wagyu meat sales. Overall, Wagyu meat sales value increased 14% on the prior period as a result of those increased volumes. Turning now to slide nine and more detail about how we are achieving these outcomes through our brands. Westhome remains our pinnacle brand, sold at some of the best restaurants in Australia and around the world. It's desired by chefs and consumers alike, prompting exciting collaboration opportunities, which in turn boosted broader engagement and led to increased sales. New brand positioning was launched for West Home in the period, further growing and broadening the brand's appeal. It now better reflects the nature-led focus of our value chain, recognising how environment contributes to flavour. Our remarkable properties and people and our authentic approach to sustainability are central to how West Home is presented. Alongside our size and scale, it's a value proposition that few, if any, can match. The campaign has received a positive reception from target audiences in our key markets, evidenced by 200% growth in new user website visits, The brand now encompasses three programs, Pure, Cross and Forage, targeting different customers globally. The result has been a 29% growth in volume and a 21% increase in total revenue through the first half of the year. Turning now to slide 10 and our Darling Downs brand, which celebrates the region in southern Queensland where our Aranui property is located. It's a key part of the supply chain journey for many of our Wagyu cattle, and we are proud to share it with so many people around the world. Darling Downs enjoyed 41% growth in volume and 25% growth in total revenue for the period. The increase in volume combined with targeted marketing and incentive programs helped offset some of the price pressures from an oversupply of the local Henwe breed in Korea. Darling Downs remains a household name in the key market, and that provided a good platform to expand distribution both within the country and into new markets. Our commercial team activated campaigns that took the brand to new customers through retail partners in Hong Kong, Thailand and Australia. And more than 5 million consumers were exposed to the brand through expanded digital engagement and a growing online community. Turning to slide 11 and the 1824 brand, which celebrates the year our company was formed and the rich history that followed. As a refreshed brand, we're unable to provide volumes and sales figures compared to the prior period. However, we are pleased to report that in its first complete reporting period, 1824 grew to 12% of total Wagyu meat sales globally. Partnerships with iconic venues and retail butchers helped drive the growth alongside new distribution channels that were opened in Singapore and Australia during the period. The brand focuses on opportunities outside of West Home and Darling Downs. Capturing the additional value that we've demonstrated can follow when beef is sold under brand. 1824 is highly recognised and we were excited to relaunch the brand during this milestone 200th anniversary year. We look forward to pursuing new global opportunities going forward, including the Middle East, where we have seen promising results in the current season so far. Now, turning to slide 12 and progressing on our work in sustainability. It's a key program that underpins all activities across our supply chain and we're pleased with the advances we've made in this period. They include the Rangelands Carbon by Satellite project, which is now in the final development stages following an extensive program of work first launched back in 2021. More than 2,200 soil cores have been collected and are being used to build a tool to estimate soil carbon. There are positive signs in early trials and we look forward to sharing more with you in future periods. We're also close to completing the on-ground condition assessment of our highest value conservation assets, an important step forward in our aims to have a more positive impact on nature. And the company's first soil carbon sequestration project has now been confirmed and is in the process of registration with a clean energy regulator. And this is now underway. All that work is being further informed by precision satellite analysis, guiding on-ground decision-making across our state. Other progress of note through the period includes advancing the first projects at the Zero Net Emissions Ag CRC, as well as our own ongoing trials in methane abatement. Also of note is the further progress made to upgrade our active stock water boards from diesel to solar, which is nearing completion and will stop thousands of tonnes of emissions from entering the atmosphere each year. 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 and take you through our FY25 half-year results. AACO's performance this period is reflective of the current market environment, and I'm pleased with how we have managed the areas of the business that are within our control. We're responding to the uncertainty and adjusting to meet the challenges that came our way. The value of building a resilient supply chain over several years is being demonstrated as we've been able to largely protect our position in key markets, despite the macroeconomic conditions we've faced. Total revenue of $195.5 million is up 17% on the prior period as we intentionally increased volumes, which offset the Wagyu meat sales price per kilo, which was down 17% to $17.46 as a consequence of those in-market pressures. Those challenges contributed to reduced operating profit of $20.2 million. And while this number was down $9.9 million on the prior half, it's still historically strong and would not have been achieved without the focus of our strategy over recent years. That progress was evidenced by a stronger operating cash flow. Whilst a relatively modest total of $4.3 million, it's still up more than 60% on the prior period, driven by higher meat sales volumes and favourable cattle sales performance. Increased cattle sales prices boosted the unrealised mark-to-market value of our herd, with a rise of $34 million, contributing to a statutory net profit after tax of $23.6 million, which was up on the prior comparable period. And that pushed the net tangible assets up 2% to $2.55 per share. Now turning to our profit and loss summary on slide 15. Whilst we've had a healthy increase in our net statutory profit after tax to $23.6 million and a $210 million turnaround in statutory EBITDA, we will continue to draw your attention instead to our operating numbers as the best measure of our performance. The statutory numbers are significantly influenced by the unrealised face value adjustment of our herd, which jumped more than $34 million this period, as we saw Australian cattle prices rebound after reaching four-year lows. though pleasing to see it's a measure that's largely outside of our control. Our operating numbers point to areas of the business that are predominantly inside our control and were achieved this period through improved sales volumes and investment in our brands. Meat sales revenue improvement of $16.1 million came through an intentional focus on increasing volumes and leveraging our well-established distribution networks. Cattle sales revenue performance materially improved with higher volumes and continual development in our herd. Turning to our cash flow slide on page 16. Increasing meat sales volumes and favourable cattle sales performance combined with a disciplined focus on controlling costs enable us to achieve an operating cash flow increase of $1.7 million on the prior period. Investing to build a more resilient and efficient supply chain has allowed us to weather macroeconomic challenges and we saw the benefits this period. There's been increased spending as a result of high commodity prices, the increase in volume coming through our supply chain and inflationary impacts. However, we've mitigated the impacts by maintaining a disciplined approach to cost control. Net investing cash outflows decreased during the period following the completion of the GNU property expansion, the benefits of which we are now seeing through increased supply into our markets. Now to our balance sheet summary on slide 17. The livestock fair value adjustment of $34.6 million was a key factor behind an increase in our NTA to $2.55 per share. Our gearing ratio of 23.7% was maintained and is at the low end of our target range of 20 to 35%. We have significant headroom under existing covenants with 600 million in committed borrowing capacity and 179 million unutilised. Australian Agricultural Company continues to maintain a strong financial position. We are building on solid fundamentals with increasing sophistication across our value chain And I'm proud of our teams around the world who are delivering high quality product every day. We are achieving results in challenging conditions while maintaining an eye on the future in our business and in our markets. I'll now hand back to Dave to take you through our operating environment and closing remarks.