June 3, 2009

Beef producer Australian Agricultural Company Ltd (AAco) said it is not expecting a profit in the first half of 2009, due to low cattle prices, flood-related issues and movements in the Australian currency.

 

The profit outlook for 2009 is unpredictable given volatility in cattle prices and the value of the Australian dollar, AAco said Tuesday (Jun 2), a statement opposing its February expectations of returning to profitability this year.

 

If cattle prices remain low, AAco will not be expecting a profit in the first half, or even the full year, the company said.

 

The second half of 2009 will be particularly unpredictable as the final full year profit will be impacted by currency movements, mark-to-market valuation on the herd and the cattle prices achieved on physical sales, the company said.

 

The importance of the latter two factors is showed by the fact that for every one percent movement in cattle price, EDIT is impacted by A$4 million in changing herd value and A$1.5 million in physical sales revenue.

 

A number of cash and non-cash elements would also impact earnings in 2009, AAco said.

 

Since December 2008, cattle prices have remained low at A$3 to A$3.20 per kg, compared to just over A$3.60 in September 2008. The Australian dollar also recovered from a low of 63 cents against the US dollar in February 2009 to around 80 cents now.

 

These price trends are not supportive of the previously anticipated profit turnaround, AAco explained.

 

Monthly average cattle prices have dropped five to 10 percent since the start of 2009, which could affect first half revenue by up to A$10 million, AAco said.

 

The company said floods this year had caused an estimated A$2 million in damage to property, but could be recovered through insurance. But the floods had also led the company to increase its estimate of mortality rates for 2009 to six percent of the herd, compared to four percent in the previous year.

 

The effect of this higher attrition rate will be felt both in a negative A$7 million non-cash impact in the 2009 year-end inventory valuation of the herd and, subsequently, in later year cattle sales numbers, AACo said.

 

Calving percentages were also expected to fall from 70 percent to 63 percent, which would adversely affect non-cash revenue in 2009.