June 10, 2011

 

Australian Agricultural Company affected by cattle export ban

 

 

After a ban on exports of live animals to Indonesia has taken place, shares in Australian Agricultural Company plummeted to their lowest in a year as the company warned of a profit hit.

 

The group, better known as AAco, cut to AUD$50-60 million (US$53-64 million), from AUD$60-65 million (US$64-69 million), its forecast for underlying earnings before interest, tax, depreciation and amortisation, or ebitda, this year to reflect the banning of cattle sales to Australia's biggest customer.

 

Indonesia bought around 520,000 Australian cattle last year, accounting for two-thirds of an export sector worth about AUD$500 million (US$530 million) a year according to National Australia Bank.

 

And Indonesia's purchases have historically been far bigger, before a drive for self-sufficiency prompted a 30% decline in its Australian cattle purchases in 2010.

 

However, Australia on Wednesday (Jun 8) barred shipments of live cattle to the South East Asian country for up to six months after a television programme exposed brutal handling of animals in some Indonesian abattoirs.

 

AAco's warning sent shares in the group to AUD1.37 (US$1.45) a share at one stage, their lowest since May last year, before recovering some ground to close at AUD1.40 (US$1.49), down 1.8% on the day.

 

Nonetheless, the fall leaves the stock which had been suspended from trading on Wednesday (Jun 8); pending the group's reaction to the trade curbs below the AUD1.42 (US$1.51) at which it raised cash last month for investors to pay down debt.

 

David Farley, the AAco chief executive, said the company would be working with the Australian and Indonesian governments to find a speedy and appropriate resolution to unacceptable abattoir practices.

 

He added, "We urge all parties to proceed with urgency in this matter, mindful of objectives of immediate improvements in animal welfare, cattle flow in Northern Australia, and the viability of livelihoods on Northern Australian stations.

 

"The current uncertainty will create unprecedented social and financial consequences in northern Australia."

 

However, the group, noting the graphic and horrific footage shown on the Four Corners programme, said that it supported the export ban, and would not resume sales to Indonesian importers until a full cycle of humane, proper and correct processing can be demonstrated.

 

Other major exporters also backed the curbs, including Paul Holmes a Court, whose Heytesbury Cattle Co empire exports about 25,000 head of cattle a year to Indonesia, and Wellard Group, the trade route's biggest operator.

 

Steve Meerwald, the head of Wellard's rural exports business, said that the company was working with other shippers and the Indonesian industry to develop a supply chain where cattle are supplied only to accredited abattoirs which meet acceptable infrastructure and training standards.

 

However, many smaller operators have stressed the financial hardship presented by the blanket ban, and urged the Australian government to implement more targeted curbs, and compensate farmers affected.