Australian Agricultural : FY22 Half Year Financial Report

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Australian Agricultural Company Limited

ABN 15 010 892 270

FINANCIAL REPORT

For the half-year ended

30 September 2021

CONTENTS

For personal use only

Directors' Report. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	3
Auditor's Independence Declaration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	8
Consolidated Income Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9
Consolidated Statement of Comprehensive Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	10
Consolidated Statement of Financial Position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	11
Consolidated Statement of Changes in Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	12
Consolidated Statement of Cash Flows. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	13
Notes to the Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	14
Directors' Declaration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	21
Independent Auditor's Review Report to the Members . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	22
Company Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	24

This interim financial report does not include all the notes of the type normally included in an annual financial report. Accordingly, this report is to be read in conjunction with the financial report for the year ended 31 March 2021 and any public announcements made by Australian Agricultural Company Limited during the interim reporting period in accordance with the continuous disclosure requirements of the Corporations Act 2001.

2 AUSTRALIAN AGRICULTURAL COMPANY LIMITED | HALF YEAR REPORT 2022

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DIRECTORS' REPORT

Your Directors present their report on the Group consisting of Australian Agricultural Company Limited and the entities it controlled (AACo) for the half-year ended 30 September 2021.

DIRECTORS

The following persons were Directors of Australian Agricultural Company Limited during the half-year and up to the date of this report. Directors were in office for this entire period unless otherwise stated.

Donald McGauchie AO (Non-executive Chairman)

Hugh Killen (Managing Director)

Stuart Black AM (Non-executive Director)

Tom Keene (Non-executive Director)

Dr Shehan Dissanayake (Non-executive Director)

Anthony Abraham (Non-executive Director)

Neil Reisman (Non-executive Director)

Jessica Rudd (Non-executive Director)

Marc Blazer (Non-executive Director)

OPERATING AND FINANCIAL REVIEW

About AACo

Australian Agricultural Company Limited (AACo) is an Australian beef company with a heritage dating back to 1824. AACo is one of Australia's largest integrated cattle and beef producers, and is the oldest continuously operating company in Australia. AACo distributes branded beef to a range of customers across the world, tailoring its route-to-market model by country to capitalise on regional opportunities. The Company is large enough to obtain scale efficiencies but small enough to ensure the highest of production standards and produce the finest quality beef in the world.

Key Financial Indicators Used by Management

The following table summarises financial indicators used by management to monitor and manage the Company. Operating Profit is one of the key performance metrics of the Company, as Management believe it is a better reflection of actual financial performance under the control of management. It assumes all livestock inventory is valued on a $/kg live-weight (LW) basis and is derived by adjusting statutory EBITDA to substitute the movement in livestock at market value with the movement at cost of production. Management therefore believe that external stakeholders benefit from this metric being reported.

Operating Profit, Statutory EBIT and Statutory EBITDA are unaudited, non-IFRS financial information. Discussion on drivers of movements in key financial indicators are included in the Sales & Marketing, Production and Statutory Financial Results sections below.

	6 MONTHS TO	6 MONTHS TO
	30 SEP 2021	30 SEP 2020
	$'000	$'000
Meat sales	102,934	102,850
Cattle sales	40,533	41,051
Administration and selling costs	(15,064)	(13,713)
Operating Profit	29,979	23,494
Statutory EBITDA	136,991	15,020
Statutory EBIT	127,286	5,106
Net profit/(loss) after tax	83,218	(1,673)
Net cash inflow from operating activities	17,340	22,322

AUSTRALIAN AGRICULTURAL COMPANY LIMITED | HALF YEAR REPORT 2022

DIRECTORS' REPORT

For personal use only

OPERATING AND FINANCIAL REVIEW (continued)

Key Financial Indicators Used by Management (continued)

Statutory EBITDA was a profit of $137.0 million in H1FY22 ($15.0 million profit in H1FY21) driven by changes in market pricing. Operating Profit was $30.0 million ($23.5 million profit in H1FY21). Operating Profit/Loss does not include unrealised livestock gains or losses, while Statutory EBITDA does include these.

Sales and Marketing

Wagyu beef pricing per kilogram has increased on average 9.3% on the prior comparative period. Improvements in pricing are a combination of market optimisation, mix and exchange rate factors. The Company has continued to execute its branded beef strategy, selling into strategic markets and building brand presence.

	6 MONTHS TO	6 MONTHS TO
	30 SEP 2021	30 SEP 2020
Wagyu beef revenue - $ mil	100.5	99.7
Wagyu beef kgs sold - mil kg CW(1)	5.7	6.2
Wagyu beef sold - $/kg CW	17.52	16.03
Cattle revenue - $ mil	40.5	41.1
Cattle sales - mil kg LW(1)	10.8	13.0

1. LW - live animal weight, CW - carton weight containing saleable boxed meat.

Production

Kilograms produced is a measure of the number of cattle live weight kilograms grown throughout the breeding, backgrounding and feedlot operations of the Company during the period. This metric excludes any offsetting impact of attrition kilograms. Kilograms produced has increased by 31.4% on the prior comparative period, as a result of increased brandings, as the Company rebuilds the herd following years of drought and the 2019 floods.

Cost of production is a measure of the operating costs incurred to produce a kilogram of live weight of cattle throughout the breeding, backgrounding and feedlot operations of the Company during the period. The cost of production decreased by 12.8% on the prior comparative period, which is a reflection of efficiencies in mix and kilograms increasing proportionately greater than the increase in costs.

	6 MONTHS TO	6 MONTHS TO
	30 SEP 2021	30 SEP 2020
Kilograms produced - mil kg LW	33.9	25.8
Cost of production - $/kg LW	2.39	2.74

4 AUSTRALIAN AGRICULTURAL COMPANY LIMITED | HALF YEAR REPORT 2022

For personal use only

DIRECTORS' REPORT

OPERATING AND FINANCIAL REVIEW (continued)

Statutory Financial Results

The H1FY22 results include a Statutory EBITDA profit of $137.0 million (H1FY21 profit of $15.0 million), driven by improvements in cattle and meat sales price, and $87.0 million in fair value improvements of livestock values due to market price increases on March 2021.

An operating cash inflow of $17.3 million was achieved in H1FY22 compared with an operating cash inflow of $22.3 million in H1FY21. This $5.0 million decline is a reflection of timing differences in working capital movements, as well as lower cattle purchases and the inclusion of $4.0 million JobKeeper receipts in H1FY21.

The Livingstone Beef facility continues to be maintained in a suspended state following suspension of operations in July 2018. The accumulated impairment recognised at 31 March 2018 remains unchanged. The Board and management continue to monitor various strategic options for the future of the Livingstone Beef operations.

Reconciliation of Operating Profit to Statutory Profit

Operating Profit is one of the key performance metrics of the Company, as Management believe it is a better reflection of actual financial performance under the control of management. It assumes all livestock inventory is valued on a $/kg live-weight (LW) basis and is derived by adjusting statutory EBITDA to substitute the movement in livestock at market value with the movement at cost of production. Management therefore believe that external stakeholders benefit from this metric being reported.

Operating profit for H1FY22 of $30.0 million (H1FY21 $23.5 million), was driven by a continued focus on costs coupled with the improvements seen in meat and cattle sales prices, yielding increased gross margins.

Operating Profit, Statutory EBIT and Statutory EBITDA are unaudited, non-IFRS financial information. A reconciliation of Operating Profit to Statutory EBITDA and Net Profit/(Loss) After Tax is provided below:

		6 MONTHS TO	6 MONTHS TO
		30 SEP 2021	30 SEP 2020
		$'000	$'000
Operating Profit/(Loss)	29,979	23,494
Unrealised mark-to-market of herd	86,967	(10,015)
Cost versus Fair Value: Kgs sold or produced	19,315	1,681
Other income/(expenses)	730	(140)
Statutory EBITDA(1) Profit/(Loss)	136,991	15,020
Depreciation and amortisation	(9,705)	(9,529)
Gain/(Loss) on equity investments	-	(385)
Statutory EBIT Profit/(Loss)	127,286	5,106
Finance costs	(7,401)	(7,169)
Income tax benefit/(expense)	(36,667)	390
Net Profit/(Loss) after tax	83,218	(1,673)

1. EBITDA is defined by the Company as earnings before interest, tax, depreciation, amortisation, impairment, gains/losses on equity investments and changes in the fair value of property.

5 AUSTRALIAN AGRICULTURAL COMPANY LIMITED | HALF YEAR REPORT 2022