Shares in Australian Agricultural Company have slumped after the beef producer said it expects a statutory earnings loss for fiscal 2018 amid higher costs for production and procuring cattle, and unfavourable seasonal conditions.
AACo also says earnings losses at its Livingstone Beef processing facility near Darwin are expected to widen as the operation continues to be impacted by high cattle prices, which has increased cattle procurement costs.
AACo expects a statutory EBITDA (earnings before interest, tax, depreciation and amortisation) loss of between $30 million and $40 million for the 12 months to March 2018.
AACo shares closed 10 cents, or 8.2 per cent, lower at $1.12
"We recognise that AACo's recent financial performance, including the FY18 result update outlined today, are below expectations," AACo chief executive Hugh Killen, who took over at AACo two months ago, said on Wednesday.
"The new management team is fully committed to executing the changes required to enable our strategy and improve financial performance."
AACo said performance in the second half of the fiscal year had continued to be affected by increased competition in some markets, a higher Australian dollar, higher feed prices, and the elevated cattle price environment for Livingstone Beef.
The company will take a hit of $60 million to $65 million related to Livingstone Beef, including an impairment charge on the carrying value and a provision on an onerous gas supply contract.
AACo has begun a strategic review of Livingstone Beef, which started operating in February 2015, to determine how to better value for shareholders from the operation.
"While this strategic review is under way, management will continue to focus on the controllable aspects of this production process, including further improving the operational efficiency of the plant," Mr Killen said..
AACo is also examining the group's supply chain to improve processes, cut costs and lift the profit margin.
The changes include moving to a cattle sale model in the non-wagyu short-fed beef supply chain, rather than selling beef.
"The impact of this decision of AACo's financial profile will be a reduction in the volume of beef sales in the premium (non-wagyu short-fed) supply chain and an increase in the volume of cattle sales," Mr Killen said.
Mr Killen said AACo is not considering selling its cattle properties and cattle and returning cash to shareholders.
