COVID-19 places AA Co in ‘inherently unstable operating environment’, MD says

 

Jon Condon, BEEF Central (AU)

May 20, 2020

 

WHILE the Australian Agricultural Co’s end of financial year on 31 March meant the company’s annual results released this morning escaped most of the impact of COVID-19, managing director Hugh Killen made a number of references to the pandemic’s supply and demand impacts on the company since the start of April.

 

He said COVID-19 had placed AA Co in an “inherently unstable operating environment.”

 

Mr Killen quoted a Rabobank report at one point, noting that US food service sales had taken 18 months to recover, following the 2007-08 Global Financial Crisis.

 

“Having said that, Australia is relatively well positioned to weather this storm,” he said.

 

“Lower national beef herd numbers and good seasonal conditions are a positive. A lower Australian dollar, and disruption to our competitors will help. African Swine Fever will continue to impact protein supply, benefiting alternative sources such as Australian beef.”

 

Mr Killen said AA Co continued to monitor developments in the COVID-19 pandemic and the measures being implemented in the global economy to control and slow the outbreak.

 

“Given the dynamic nature of these circumstances and the significant increase in economic uncertainty, the impact of COVID-19 cannot be reasonably estimated at this stage.”

 

By the second week of March, all of AA Co’s 16 food service export markets had been impacted in some way by COVID-19, he said.

 

The company last month issued an advice to shareholders about the impact of COVID-19, including standing down sales and marketing staff, and reductions in hours for all corporate staff until August to “assist the company through its difficult period.”

 

“As government directives around the world have forced most of the restaurants which buy AA Co beef to close temporarily, we are accelerating our allocation of product to the retail markets where we already have a strong presence across our geographically diverse customer base,” AA Co chairman Don McGauchie said at the time of last month’s announcement.

 

While Wagyu beef is largely seen as aligned with the food service (restaurants, hotels, resorts and conferencing, for example), AA Co made the point that 40-50 percent of its overall meat sales in FY20 already found its way into the retail channel, via supermarkets and retail butchers.

 

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