Australian Agricultural : AACo 2017 Annual Report

Australian Agricultural Company Limited

ABN 15 010 892 270

AACo 2017 Annual Report

ASX Announcement No. 12/2017 21 July 2017

Manager

ASX Market Announcements Australian Securities Exchange

Attached is the Company's Annual Report for the 12 month period ended 31 March 2017 in the form in which it will be distributed to shareholders of the Company.

This version will be mailed to those shareholders who have elected to receive a printed copy Annual Report as at Friday, 21 July 2017.

Shareholders who have elected to receive the Annual Report electronically will receive an email on or about Friday, 21 July 2017 providing a link to the report on the Company's website.

Issued by: Bruce Bennett

Company Secretary and General Counsel

Page 1

Australian Agricultural Company Limited

ABN 15 010 892 270

ANNUAL REPORT 2017

CONTENTS

Chairman's and Managing Director's Report � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 2

Directors' Report� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 3

Corporate Governance Statement � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 34

Consolidated Financial Statements� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 47

Annual General Meeting

The Annual General Meeting of Shareholders of the Australian Agricultural Company Limited ("AACo") will be held on Wednesday 23 August 2017 at 10:00am (Darwin time) at Waterfront Rooms 1 & 2 on Level 2 of the Darwin Convention Centre, 10 Stokes Hill Road, Darwin, Northern Territory 0801�

1. AUSTRALIAN AGRICULTURAL COMPANY LIMITED |ANNUAL REPORT 2017

   Chairman's and

   managing direCtor's rePort

   The transformation of AACo is progressing.

   At the start of the 2014 financial year, we were an Australian pastoral company with a long and proud domestic history. By the end of the 2017 financial year, we had become a luxury branded beef business with an exciting international future.

   The Singapore launch in October 2016 of our Westholme and Wylarah brands was a landmark event. We had spent years building an authentic beef brand our customers could trust - taking greater control of our supply chain, investing in innovation and technology, and building our brands to enable us to target global markets. With our Singapore launch, we signalled our strategy had placed us in a position to take the next steps to sell our brand to the world.

   The October launch coincided with a significant boost in the Singapore business. Between September 2016 and March 2017, volume increased 11 per cent and overall average sale prices increased by 28 per cent compared to the same period in the 2016 financial year.

   Financials

   The overall numbers for the business in the 2017 financial year were

   also encouraging.

   Compared to the 2016 financial year: our operating earnings before

   interest, taxes, depreciation and amortisation (EBITDA) increased by

   $30.1 million to $45 million, with operating EBITDA margin improving

   from 3 per cent to 10 per cent; we had net operating cash flow of

   $29.3 million, up by $7.5 million; and our net tangible assets grew 10 per cent, up from $1.66 per share to $1.82 per share. Statutory net profit after tax also increased by $3.8 million, to $71.6 million.

   The $7.5 million improvement in net operating cash flow is particularly notable because it came at a time when the company invested in cattle inventory (increasing the proportion of Wagyu in the herd from 15.6 per cent to 18.5 per cent) and purchased an additional 70,000 megalitres of water rights.

   In short, the company remains on a solid growth path.

   operations

   For AACo, the path to growth has been founded on operational excellence.

   > Our relentless focus on supply chain optimisation and debtor controls saw $15.1 million of cash released from working capital.

   > The costs for every liveweight kilogram we produced decreased

   27 per cent, while the average selling price for Wagyu and Shortfed beef increased 12 per cent per kilogram - significantly improving margins.

   > Our Livingstone facility continued to become more efficient - with

   a 26 per cent increase in the number of head processed, a 30 per cent increase in the kilograms of beef processed and a 30 per cent decrease in conversion costs.

   Conclusion

   In the 2018 financial year, AACo is in a good position to keep building

   on the gains of the past four years.

   The fundamentals are all in place. We are in a strong financial position; we have greater control of our supply chain right through to the restaurant; we have the ability, through technology and

   innovation, to consistently deliver a world-class product; and we have authentic luxury brands.

   Since the end of the 2017 financial year, we have already taken the

   next step -launching our luxury brands in Taiwan.

   The challenge ahead of us is to back up 2017 and earn the right to

   grow by continuing to improve our efficiency and quality.

   The point we are making is, although we are pleased with the achievements of 2017, we are far from satisfied. To realise AACo's exciting future and become a global brand, the company must finish the transformation.

   There is more work to be done.

   Donald McGauchie Chairman

   Jason Strong Managing Director

2. AustrAliAn AgriculturAl compAny limited |ANNUAL REPORT 2017