Australian Agricultural Company Limited

Thank you for standing by and welcome to the Australian Agricultural Company Limited FY26 Half 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 1 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, MD and CEO. Please go ahead.

Thank you. Good morning and welcome to the Australian Agricultural Company's half-year presentation for the financial year 2026. I'm Dave Harris, Managing Director and CEO of AACO, and joining me on the call today is our Chief Financial Officer, Glen Stedman. Before we begin, AACO properties are the traditional homes of many First Nations peoples, and we acknowledge them and offer our respects to the Elders past and present. We recognise their culture and honour their deep connection to the land, waters, animals and skies, especially across the places where we have lived and worked for our two centuries of operation. As a food and agricultural company, there is much to learn from their approach to community and their knowledge and care for country. Our presentation today will follow the regular format. I'll start our presentation and then hand over to Glen to run through the financial performance in more detail before I close with some information about the current market conditions. And with that, let's begin our presentation on slide five. Australian Agricultural Company's history and its operations are well documented. We have been many things to many people over two centuries of operation. To some, we are an iconic pastoral company. To others, we represent innovation in cattle and genetics. And our connection to others is through feedlots, farming or processing. To many, we are sustainability and nature. And to our customers and chefs here in Globally, we are world-class Wagyu. Through our integrated supply chain, we are all of those things and more. We manage our properties and value chain with a workforce of more than 450 people on our stations, in our head office and in our key global markets. And we take a nature-led approach, implementing farming practices that aim to balance human needs, the needs of our cattle and the needs of our ecosystems in our care. We are proud of our legacy and the opportunity we had to recognise that with you last year. We are equally proud of who we are today and the direction we are heading in through our next period of growth. This is AACO and we are reimagining Australian agriculture to share with the world. That is our purpose. We first shared that purpose with you six months ago, alongside our vision, our values and our new strategic focus areas, all of which you will find as we turn to slide six. Our vision complements our purpose. We aspire to be the leading food and agricultural company delivering nature-led solutions at scale. That is one of the ways we can reimagine Australian agriculture. We see sustainable beef production as one of the solutions to climate change and we are actively pursuing the ability to demonstrate that through a holistic nature-based approach to sustainability. As we chase this endeavour, we are discovering, creating and building scalable innovations and beginning to share them with our industry and others here in Australia and globally. Our values, be curious, be generous and to own your impact, are helping drive the culture within our company. In isolation, each value can help bring out the best in individual employees and in combination, they become a powerful tool that will bring out the best in our business. Striving for Excellence will help AAK deliver on its new strategic focus areas. We unveiled these to you during our full year results in May. Better beef, as we constantly seek to improve our genetics and accelerate our ability to grow revenue, margin and brand equity. Unlocking the value of the land, where we aim to leverage our world-class pastoral properties and assets to pursue new opportunities and revenue streams. and partner and invest, which will drive our approach to innovation, building relationships with partners to solve problems and embed future value, building on our market-leading position. I'm pleased to say that we made progress on each of these focus areas, which I'll share with you shortly. Before that, though, as we turn to slide seven, I wanted to acknowledge all of our shareholders and express the pride that I take in leading the Australian Agricultural Company. The board and the management team are energised by the work we do each day and the vision and purpose that we are working towards. No year is without its challenges, but we face them together using the experiences of the recent and the not so recent past to help us achieve the best possible outcomes in each circumstance. The values that we have and the culture we are continuing to grow are supported through what we call the 1AA approach, one team working towards the same common goal. With that approach, and with a genuine understanding and appreciation across the supply chain, we are moving forward, progressing our strategy, and we are delivering outcomes for the business. In fact, as you'll see shortly, the operating profit in the first half of FY26 is our best yet. It's an outcome that we are proud of, though as always we celebrate with a degree of caution. Perhaps the two constants over our more than 200 years of history are that nothing stays the same and that progress is always hard earned. Still, our teams here in Australia and around the world should be commended for how they have delivered in this period. And on that note, let's take a closer look at some of the financial and strategy highlights on slide 8. Total revenue for the first half of FY26 is $232.9 million, an increase of close to 20% versus the prior period. The growth was influenced by an increase in average beef prices that I'll talk more about shortly, along with an intentional and tactical program of earlier live cattle sales. AECO's live sales took place in the second half last year, but we strategically undertook a large portion of them in the first half of FY26 to capitalise on a trio of ideal conditions. Good cattle productivity, increased demand and strong cattle prices. While some of those settings are dictated by the market, AACO controls the biggest factor in achieving good live sales results, and that is the condition of our cattle. Pleasingly, AACO has achieved excellent productivity outcomes in recent periods through a combination of station-based cattle management activities and the company's nature-led sustainability program, which is improving land condition across many of our properties. With resilient paddocks that are producing quality feed, we've put ourselves in the best position to breed and grow the best quality cattle. And we have been building that resilience over several years through our nature-led program. It's given us better control and the ability to make decisions like choosing the time of those live sales, demonstrating the different avenues we can take to achieve consistent positive outcomes and create long-term value. The cattle SARS also helps drive AACO's operating profit of $39.8 million for the period. As I mentioned, that is AACO's best half-year operating profit result and is almost double the prior period. While used in slightly different forms elsewhere, AACO first introduced the operating profit metric into our business in 2019. The aim was to more clearly identify outcomes and progress from the day-to-day operational decisions that are being made across the business. It does this by removing the areas where we have limited or no control, such as herd valuations. 2019 was also around the time we further increased our emphasis on branded Wagyu. In the years that followed, we completed the move from being primarily a cattle company that also has some Wagyu brands to being a branded beef company that produces high quality beef and cattle along a sophisticated integrated supply chain. Our better beef strategic focus area is the next stage of this evolution. IACO made targeted investments under this pillar in the first half of the year that you can see near the top right hand side under the heading progress against strategic focus areas. One of the aims of the Better Beef program of work is to further improve our overall genetic profile of AACO's herd by increasing the proportion of Wagyu animals. Doing so is expected to result in both immediate gains and long-term value creation through improvements in production efficiency and overall quality. It will also increase the number of animals that are better suited to AACO's premium brands and high-paying markets. We also made another investment in the Gnu property near Emerald in central Queensland, boosting its production capacity by an additional 10%. The work will further enable the consistent year-round supply and the high quality which underpins AACO's Wagyu branded beef sales. AACO progressed the delivery of its landscape carbon project at Quintana Station in central Queensland. with the installation of the infrastructure that will help facilitate the generation of future Australian Carbon Credit Units or ACCUs. The company has received its first set of ecological condition scores for its highest value ecosystems after being granted registration with the organisation known as Accounting for Nature. We first announced this project alongside the release of our sustainability framework in 2021 and have updated you on the extensive baselining work in the sustainability and annual reports since then. This brings to a close the first stage of that multi-year program. The scores and the framework will now be used internally to measure and inform AECO's science-based nature-led approach and track improvements in the ecosystem condition of our properties. Both projects are being delivered under the Unlocking the Value of the Land program and are also examples of Aoco's holistic nature-based approach to sustainability. As part of our Partner and Invest program, Aoco is happy to announce investments in Athion, a carbon insetting company that operates the world's first carbon marketplace for livestock. Under this pillar, IACO is seeking opportunities with companies and initiatives that involve new technologies or measures that will help solve problems for the company and industry, as well as create value over the long term. As you can see, we have made good progress against our strategic focus areas in the six months since we first shared them with you. Whilst we are only at the beginning of this next period in the company's already substantial history, I'm proud of what we have achieved against our priorities. The financial contributions we made to begin delivering in those areas are in line with the company's long-term approach of reinvesting back into the business. Pleasingly, core free cash flow improved $19.5 million versus the prior period to $7.7 million. Shareholders would recall that we've previously reported operating cash flow as one of our key performance indicators. That was appropriate through the previous period when the company's focus was almost exclusively on branded beef. However, we're of the view that core free cash flow is better suited to AACO's new strategic direction where investments into the business are made across multiple priorities in addition to normal business as usual activities. This metric will better highlight the combined outcome of our operating performance and strategic investments. In the first half, the core free cash flow result was driven by our overall performance, less those investments I've just taken you through. The long-term outcomes of the better beef focus area will be seen through our commercial activities and the progress we are making in our global markets. I'll share more about that with you now as we turn to slide 10. AOK was able to navigate fluctuating market conditions to achieve positive beef sales results. Whilst consumer sentiment was challenged by cost of living concerns, overall global beef supply and demand market factors were favourable. Premium beef prices improved in AOK's key markets compared to the prior period, and trim and commodity pricing was also strong, particularly in the US and general retail. Overall, the average beef sales price per kilogram increased 7% on the prior period to $18.62. This was a major contributor to a 3% overall increase in average sales value across Aocoast brands despite 4% lower volumes through the period. The results once again demonstrate the strength of our distribution network and partnerships. and the strategic approach that we take to allocating products across our global markets to maximise value. Targeted marketing and other commercial activities supported the brands this period, from launching a global chef advocate program aimed at enhancing the knowledge of our Wagyu beef, to dynamic pop-up experiences that take consumers on a sensory journey. We'll take a closer look at how each brand contributed to our success as we turn to slide 11. As our most exclusive Wagyu brand, West Home continues to be served in some of the world's best restaurants. Despite sitting at the top end of the market globally, high-end food service isn't immune from the challenges, and the cost of living pressures that I just mentioned impacted conditions in some markets this period. AECO's approach to product allocation and strong distribution relationships are important in these conditions, and we were able to use these tactical responses in the first half. Launching in Mexico and expanding into the Middle East opened the brand to new customers and new opportunities, and the launch of a new product here in Europe that we call Pure supported the brand's overall performance. Highly evolved global media and marketing strategies were deployed to continue exposing the brand to new customers, including chefs. And we were able to achieve increased menu presence and market penetration through scaling up value-added products like burgers in the US. On slide 12, the Darling Downs brand benefited from improving market conditions, particularly in Korea. The brand is already an Australian brand success story with more than 20 years history in Korea and thriving as a household name in that market. Far from being content or complacent though, we continue to pursue growth in this region and elsewhere. A Beyond Taste campaign that included the sensory maze experience I mentioned earlier is an example of how we're increasing brand awareness in Korea. The oversupply of local Hanwoo beef that we spoke to you about in FY25 began to ease in this period, helping reduce the price pressures we were experiencing. The Darling Downs brand grew beyond Korea as well, securing placements with five new retail groups across key Asian markets. Through these and other activities, the brand improved its performance in the second quarter, and we hope to continue that momentum into the second half of the year. Moving on to slide 13 and 1824. The brand that we relaunched in January last year, recognising and celebrating our 200 years of history. 1824 captures demand in markets and from consumers outside of West Home and Darling Downs. It plays a key role in our brand portfolio, enjoying pride of place in more mainstream food service and butcher channels. It also has a more focused, tighter set of markets, which enable it to play that complementary role without impacting price opportunities. The brand continues its positive growth. In just a short time, 1824 has already regained a loyal following, establishing itself with consistent supply and quality that is being sought after by distributors. There is strong demand within Australian market and opportunities to expand into the UK and to the Middle East. And with that, I'll now hand over to Glen, 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 to share our financial performance for the first half of 2026. As shown by the performance highlights on slide 15, we have delivered an excellent set of results this period whilst making progress against our strategy. Metrics along the top of this slide, operating profit, beef sales price and core free cash flow are some of our primary financial metrics we use to monitor our performance. Statutory profit and net tangible assets are secondary, given they incorporate an unrealised fair value movement on the market value of our herd. Our first half operating profit of $39.8 million is the highest result achieved for a half since this measure was introduced, which has nearly doubled on the prior period. This was driven by our strong beef and cattle sales performance. Average sales prices were high for both beef and cattle sales, with higher half-pond volumes for cattle sales underpinning this growth. Average sales prices for Wagyu beef were up 7%, driven by global market allocation, capitalising on opportunities across our brand portfolio. Our BetterBeat program is targeted at growing revenue, margin and brand equity, and we have proven our ability to grow through uncertain market conditions, including the changes in tariffs, global trade policies and impacted markets during this period. Call-free cash flow is a primary metric we use to determine how we are performing as a business. This represents free cash flow, less in-year strategic investments made as we reinvest to deliver on priority areas. We believe this is an important measure as it highlights the underlying cash performance of the business and provides transparency on strategic investments we're making. As I'll touch on in the cash flow slide, we achieved a core free cash flow of $7.7 million, which was up $19.5 million on the prior period. Our statutory profit and net tangible assets improved primarily due to higher market prices of our cattle, with the $82.2 million statutory net profit after tax up $58.6 million versus the prior period, and net tangible assets up 6%. Whilst the fluctuations in the mark-to-market value of the herd are largely unrealised and outside of our control, we were able to capitalise on market opportunities for our live cattle sales during this half, and the higher sales revenue also contributed to favourable statutory performance. Cost control and supply chain efficiencies resulted in the stable cost of production, which is particularly notable given the higher inflationary environment. I'll now take you through the drivers of performance in some detail as we walk through our profit and loss balance sheet and cash flow. Moving to slide 16. As Dave mentioned earlier, we are pleased to have delivered a total sales revenue of $232.9 million, representing a 19% increase on the prior period. This growth was achieved through strong sales execution across both beef and cattle and strategically higher volumes of cattle sold. Our weighted beef sales revenue was up 3%, with 7% higher average sales prices on 4% lower volumes. There's significant value in the partnerships we've continued to nurture and grow in key markets across the world, enabling our teams to allocate profit to maximise price and ultimately grow margins, which underpins our favourable performance. We look forward to further development under our Better Beef Strategy as we continue to invest in ways that can provide sustainable growth. During this first half, we further displayed the strength of our integrated supply chain and decision making by executing on cattle sales. In doing so, we've been able to capitalise on increased demand and higher prices for live cattle, growing total cattle sales revenue by 71% from the prior period. This result was made possible through good productivity outcomes driven by improved land condition and station-based management activities, achieving 20% higher prices compared to the prior period. Importantly, the overall herd size remains in line with the 2025 year end position, with our herd well positioned to generate future value. Our beef and cattle sales results delivered a gross margin of $76.4 million, up 55% on the prior period. We have continued to invest in our brand and capabilities during this period, which supported our overall performance. The delivery of our $39.8 million operating profit is one we can all be proud of as we look to the future of continued momentum and strategic focus for success. Now turning to slide 17. Our cash flow for the first half further tells the story of our strong sales results, with reinvestment back into the business to progress our strategy. As mentioned earlier, core free cash flow is an important measure of our business performance, highlighting the underlying cash performance of the business. The difference between free cash flow and core free cash flow is the strategic investments we have made in year. We were pleased to achieve a core free cash inflow of $7.7 million, up $19.5 million on the prior period. Key cash outflows during the period were made in service of our strategy and included enhancing the genetics of our herd, improved 10% production capacity at our GNU property, infrastructure to enable the generation of future accues from the Glen Tata Soil and Carbon Project, and building alternative revenue streams through our golf cropping. These investments have been supported by access to capital under our refinance debt facilities, as well as higher receipts from sales revenue. Through our enhancements and investments in new infrastructure, we are making tangible progress against our strategic priorities. It's pleasing that whilst our strategy refresh is relatively new, we've been able to execute on meaningful components of this already. Moving to slide 18. Our balance sheet strength continues to grow, underpinned by our world-class assets. The key movements on our balance sheet from year end were predominantly livestock, which improved in value by $123.3 million. This was largely due to a $94.7 million unrealised fair value gain on the herd, driven by high market prices. The herd size remains maturely unchanged, with continued improvement in overall condition and quality, which is the focus of our strategy. As announced to the ASX in August, we were pleased to share that we successfully refinanced our club debt facility with our banking partners, securing an additional $80 million in borrowing capacity on more favourable terms. Securing additional capacity allows us to continue to actively pursue opportunities under our strategic focus areas and add further value into our business. I'll now hand back to Dave to take you through the outlook for our operating environment and provide closing remarks.

Thanks Glen. Now let's move to slide 19. AECO's operating environment remains active heading into the second half, both within its supply chain and globally. Cost of living concerns and a downturn in high-end food service are being experienced in some key regions. However, market reports suggest a continued tightening of global beef supply will balance out these price pressures and IACO will continue to manage evolving circumstances through its global distribution network. Lower live cattle trading volumes are expected in the second half after sales were initiated in the first period as we shared with you earlier. Our properties are well positioned as we enter the traditional wet season. They are increasingly resilient following several years of work to establish and embed our sustainable stocking and land management strategies. Through our sustainability program, we have intentionally moved away from more volatile seasonal business models. We anticipate having more control over how we manage our supply chain, which allows better long-term planning and produces better outcomes for our properties and our cattle. It also allows us to respond more appropriately when market challenges arise or when there is instability, which appears to be increasingly the case in recent years. On that note, we welcome the announcement this week of the tariffs being removed from Australian beef entering the US. It's an important market for ACO and Australian beef more generally, and we support the removal of barriers that could improve opportunities for us in any region. Our focus for a number of years has been on creating desirable premium brands as well as distribution network and routes to market that can help us withstand individual market pressures. Our brands have a growing presence in North America when combined with factors such as the prolonged herd liquidation there, we remain positive about that market and we look forward to continuing to build our presence there. I would like to thank you for joining us on the call today and thank the board and the management team here at AAK. Strong results like we saw in this period can only be achieved through hard work and dedication. A record half-year operating profit is testament to the important role each person across the business plays in the success of our operations and to the course we have set ourselves on through our new business focus areas. We've made pleasing progress against our strategy, setting the company up for sustainable growth. We look forward to the future with optimism, with purpose and a drive to succeed. That's the end of today's presentation and we're now happy to take questions. Thank you.

Thank you. 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 type your question into the ask a question box. Your first question today is from Eric Lowe, and there's a webcast question. This reads, Hello, David. Your predecessor marked that with adequate rain, AAC has the best grass factory. Can you comment on the recent rainfall on the AAC land masses and how it has benefited the cost of operations? Thank you.

Thanks for the question there, Eric. Yes, there is certainly been a bit of a start to the early wet season in the north. The majority of our central Queensland properties have also had really good rain, which has been helpful. I think that's a soft start for us which is great. Obviously we need that rain to continue. The last couple of years we've had little starts like this which then dried up and last year's rainfall was actually considerably later than normal with the majority of rainfall received in March last wet season. In relation to cost of production, I've been really happy with how we've been able to manage cost of production over the last two or three years now where we're largely flat. Over this first half period, you'll note it's actually down 1% on the prior comparative. But if we look at full year periods over the last two or three years, we've remained relatively flat from a cost of production perspective. I think something to take into account when I talk about building a resilient business model and that sustainable long-term stocking rate that we talk to is a lot of that work and that theory is put into place actually in the difficult years, not the good years. And so what we're trying to do there by building this resilient business model is so that in the droughts and the tough years, which I'm sure won't be too far around the corner now that we've had a couple of good ones, that that's actually when these programs come into play and we're not forced sellers and we're not forced into moving cattle around or spending a lot of money on excessive lick and supplement feeding programs. And so whilst I'm extremely happy with us being able to hold cost of production flat, whilst we're also evolving the herd to be slightly more wagyu and slightly more from an intensive feeding program that have higher cost of productions, but that's also more higher value product. So to hold it flat, I think, is an excellent outcome. And where I really look for this resilient business model to play out will be actually in the more difficult years than these good years. So I hope that helps and answers that question for you.

Thank you. Your next question is from John Dix. This reads, the first half result appears to be significantly enhanced by the mark to market and the value of livestock. This is, of course, not a recurrent item and follows a particularly favorable period of broad beef price increases. In the absence of this, the company would have made a loss. It appears difficult to see how the company can achieve a return commensurate with assets employed given the long-term strategies have not really achieved significant results. Is this perspective wrong?

Thanks for the question, I'll take that one Dave. So we do use operating profit as our key measure of determining our profitability because the unrealised gains or losses on our cattle do distort our results from year to year. So some years like this one there can be large profits and other years there can be significant losses caused by that market to market movement. So what operating profit basically does is it allocates the costs to the cattle as they move through the supply chain. So when you get to the end of the supply chain, the cost that they've absorbed is offset against the revenue to get a true feel for the profitability of those animals that go through. We don't sell the majority of our cattle through the typical market process, so those market values that are assigned at different periods in time don't really represent the true value of that livestock to our organisation. So for us, the operating profit is the best metric. the market just so they can see what we're investing into the future and also how the business actually performs on an underlying basis without those investments occurring. So we hope that provides greater transparency and that's a key measure that we're going to continue to monitor ourselves against.

Thank you. You have another question from John Dix. This reads, how do you see the removal of US tariffs on beef impacting AAC?

Yeah, thanks for the question. Look, I think as I mentioned in the presentation today, North America is a really important market for us as a business. I think it'll obviously help all beef export businesses in Australia into the US and help with pricing there. I think it's probably fair to say that we need to have a global outlook on this piece as well. And so whilst Australia's exports to the US have reduced by 10%, there was a point in time where it was advantage against some of other exporting nations. And so in this situation where we may have lost 10, other nations have actually had more significant reductions. So for example, I believe Brazil is still at sort of 40%, but they were up in the 70s. Other nations have had significant reductions as well. Largely, I think it's positive, but we have probably lost some competitiveness against other exporting nations into the US. But the North American market is a really strong one for us. And like I said in the... In the presentation, we focus on the things in our control. So we focus on our brands and we focus on being desired by the chefs and the consumers in North America and so that we can get to the top of the list and be a really desired product there. We've put a lot of effort in in North America from a commercial brand marketing side of the business and I think... What stands us in good stead over there is our sophisticated distribution network that lets us get all the way around that country to some really amazing consumers and distributors. And so I think it'll continue to be a very significant market for AACA.

Thank you. Once again, if you wish to ask a question, please press star 1 on your telephone or type your question into the ask a question box. Your next question comes from Lindsay Stubbs. This reads, why doesn't the company pay a dividend to its shareholders? Does the company have any franking credits? Is it likely the company will ever pay a dividend?

Thanks for the question, Lindsay. That's a question for the board, but I can confirm that last year there were no div-ends declared or paid in that half-year 26, and there are no franking credits. What I'm focused on from a management perspective is how we reinvest back in the business and how we build the business to be a more profitable business for the future. And so at the moment, what we're trying to do is illustrate to shareholders the value that we think we can deliver for the business by reinvesting back into it. We've just delivered the greatest or the largest half-year result in recent history for the business. And so I'd like to think that that's starting to build trust with shareholders about our capacity to reinvest back in the business and build returns.

Thank you. There are no further questions on the webcast or on the phone line at this time. That does conclude our conference for today. Thank you for participating. You may now disconnect.