In this file:
· AA Co remains upbeat, despite past year’s COVID, drought and market challenges
· AA Co AGM board questions: What was on shareholders’ minds?
AA Co remains upbeat, despite past year’s COVID, drought and market challenges
Jon Condon, BEEF Magazine
July 29, 2020
A ‘simpler, more efficient’ Australian Agricultural Co has allowed the business to continue to roll out its branded beef strategy and respond to challenges created by COVID-19, shareholders were told at this morning’s 2020 Annual General Meeting.
In May, AA Co reported a full-year (to end of March) operating profit of $15.2m, achieved while absorbing $42m in additional feed and transport costs brought on by last year’s drought. Higher property valuation, higher market value of stock and sell-down of stock also contributed to the result, which saw a statutory EBITDA result of $80.1m.
The improved financial position had positioned the company well to navigate the current uncertainty, today’s AGM was told.
“I’m pleased to report real progress at AA Co for the financial year just gone,” managing director Hugh Killen said in his annual report to shareholders.
“Our unique value proposition is our ability to produce the highest quality beef, at scale, and in 2020 we translated this into record Wagyu sales by volume and value,” he said.
All told, AA Co’s Wagyu sales for the 2019-20 year were up 19.7 percent.
“Our price per kilo was up 8pc overall, and this growth has been broad based, with double digit sales growth by value across all major sales regions,” Mr Killen said.
This was substantially driven by accelerated roll out of the company’s flagship Westholme Wagyu brand around the world, led by product launches in more than 20 key cities across Europe, the US, Australia and Asia.
“As a result, we increased the value of Westholme sales by 155 pc – while doubling the total amount of Westholme sold,” Mr Killen said.
In a breakdown by region, Asia represented 66pc of AA Co’s total global beef sales in 2020. This reflected 19pc growth in sales compared to the previous year. The company developed and strengthened its distribution arrangements in Hong Kong and Singapore, and its retail presence has grown in a number of regions – building on the company’s flagship retail presence in South Korea.
North America made up 7pc of overall AA Co Wagyu sales in 2020, including a strong 34pc increase in sales. Growth was driven by a focus on rebuilding business, the company’s brand presence and distribution relationships. In 2020 AA Co launched Westholme and built new distribution relationships in LA, San Francisco, Las Vegas, Washington, Miami, Chicago and New York, and established important new retail and direct to consumer channels across the US.
Europe and the Middle East accounted for 12pc of AA Co Wagyu sales last financial year, driven by 17pc growth in sales and underpinned by a restructured distribution partnership in the EU. The Middle East has continued to perform strongly off the back of multiple brand launches in the region.
The Australian domestic market made up 15pc of company Wagyu sales in 2020, driven by a 16pc increase in sales for the year – which was achieved with reduced overall volumes.
This reflected some strategic redirection of product to other markets as AA Co repositioned at the premium end of the Australian market. As with other sales regions, progress in Australia was achieved through revitalised distribution arrangements and successful Westholme product launches in Sydney, Melbourne and Brisbane, Mr Killen said.
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Focus on retail ...
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Demand for quality beef ...
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AA Co AGM board questions: What was on shareholders’ minds?
Jon Condon, BEEF Magazine
July 29, 2020
OVER-RELIANCE on China as a beef market, sustainability claims and future prospects for shareholder dividends were among the wide-ranging topics explored by shareholders tuning-in to this morning’s Australian Agricultural Co annual general meeting.
The company’s 2020 AGM and shareholder question session was held online for the first time due to COVID.
In a departure from previous AGMs where shareholder questions have been impromptu from the floor, this year most of the topics fielded by chairman Don McGauchie and managing director Hugh Killen were received beforehand, providing opportunity for preparation. If the past seven or eight AGMs are anything to go by, questions discussed this year were fewer in number, and less diverse in nature.
A number of shareholders focused on the company’s exposure to the China export market, and what effort AA Co was making to broaden its export customer base, given recent China market challenges including Australian processing plant de-listings, sharp rises in rates of import tariff on Australian beef, market volatility since late last year and other trading challenges.
Several questions were clearly encouraging AA Co to look elsewhere for market opportunities.
Shareholder David Lumley asked: “We need a reliable second, different market to survive economic downturns. I suggest that more effort be put into finding markets for beef products in countries other than China.”
Mr McGauchie said while China was AA Co’s second largest customer by revenue last financial year – South Korea being the largest, by far – since the full-year results were announced in May, China had suspended four Australian meat processing plants, including one utilised to process AA Co beef.
“At that time, we planned to divert the China product into alternative markets,” he said.
“I can now confirm that we have stopped packing product for China, with the exception of some trim (grinding beef), and have successfully diverted the higher-value products to more profitable and strategic markets. We are virtually sending no meat to China, as of now.”
“AA Co has diverse geographical markets for its products, and different sales channels as well. This allows the company to divert product to different countries, depending on demand, and also allows us to sell into retail, food service, or direct to consumers.”
Shareholder John Armstrong asked what percentage of AA Co’s meat sales were directed at China in 2019-20, and whether the company’s risk analysis for the China market was under review.
Hugh Killen said as reported earlier in annual results, AA Co’s total meats ales last financial year were just short of $230 million.
“Our China market revenue, which was reported separately for the first time, was $34 million (less than 15pc).”
“As a percentage of overall meat sales, I don’t believe that China is over-weighted. We are reviewing our options in relation to China more broadly, but I would say that China remains a valid export market for Australian beef in general, and we are hoping that the current situation and some of the challenges we face in the market more broadly, will be resolved soon.”
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