The Australian Agricultural Company (AACo) today announced earnings before interest and tax (EBIT) for the six months to 31 December 2001 of A$41.2m (US$21.3m), an increase of 142% over the previous corresponding period. 

Net profit after tax (NPAT) for the period rose 136% to A$28.1m. Earnings increased primarily as a result of higher beef sales revenue and mark to market valuation increases brought about by the continued strength of cattle prices. Prices finished the six-month period to 31 December 2001 at a considerably higher level than at the start of the financial year.

An EBIT uplift of A$21.3m was recorded in the period as a result of market value accounting (which has replaced the absorption cost accounting basis for renewal resources) reflecting the strength of the company's production assets.  Normalising for management fees pre-IPO, the underlying EBIT for the six months was A$19.9m, up 120% from A$8.8m in the previous year. Operating cashflow for the period reflected the higher selling prices achieved, increasing to A$7.1m from A$0.2m. Operating cashflow was, however, tempered by increases in cattle purchase costs and higher grain prices.  

The Group's balance sheet strengthened with gearing (net debt/equity), on a book value basis, of 33.5% at 31 December 2001. An independent valuation of land, buildings and fixed improvements during the period shows an unbooked surplus over net book value of A$21.2m. 

Net Tangible Assets as at 31 December 2001 was A$1.08 per share on a book value basis, and A$1.20 on current market value (including the unbooked property valuation surplus referred to above).

Factors that impacted on the quarterly result follow:

*Production The number of cattle on hand at 31 December 2001 was 408,092, compared with 380,004 at 31 December 2000, due to good seasonal conditions and increased breeding productivity resulting from the company's investment in its breeding program.

*Beef sold for the six months to 31 December 2001 was up 14% to 14.0 million kgs. 

*The natural increase in cattle numbers for the six months was 48,881 head while the full calendar year natural increase was a record 122,401 head.Breed development is bringing rewards with our composite cattle winning the Australian Lot Feeders Association Supreme Domestic Champion in both the breeder and carcass section at the National Grain Fed Awards.

Cattle prices obtained by AACo for sales in the Q2 through to 31 December 2001 continued to strengthen from levels received during the first quarter. External factors, such as the BSE outbreak in Japan, caused some reduction in cattle prices in late 2001 and these factors may continue to have a negative impact on prices in the short term and particularly the Q3 of the current financial year. In the Q1, management assumed a 5% increase in the cattle price across the company's herd. During the Q2, consistent with market evidence, management has assumed a further increase of 10% in cattle prices across the herd. This results in a cumulative cattle price increase of 15.5% over the 6 months ended 31 December 2001, compared to the 3% assumption contained in the prospectus forecasts.

During the period under review, AACo has continued the implementation of its business growth strategy, central to which is the expansion of the AACo business into the value chain and the development of retail brands, as indicated in the prospectus. In November 2001, AACo announced it had entered into a heads of agreement to acquire a controlling interest in beef retailer, Polkinghorne's. Since that announcement, due diligence has been finalised and key management and consultants identified and/or appointed. Consistent with AACo's branding strategy, AACo recently announced the formation of a joint venture with R.M. Williams Holdings Limited to create a tourism venture. The high end tourism concept will be structured to ensure that efficient cattle operations on AACo properties are not interrupted. The five star tented camps will allow additional commercial use of AACo properties while highlighting the AACo brand attributes of high quality production and environmental sustainability.

Management continues to pursue its growth strategies of increasing herd size, vertically integrating up the value chain and building both wholesale and retail brands. Additional branding, beef retailing and food sector opportunities have been examined during the second quarter and further evaluations will continue on a number of fronts.The impact of cattle sales (both number of sales and timing of sales), cattle sale prices in the H2 of this financial year and cattle market values at 30 June 2002, remain critical in meeting AACo's full year 30 June 2002 prospectus forecasts. It should be noted that cattle prices in January 2002 have been about 5% to 7% lower than at the end of December 2001. The company expects that cattle prices will remain volatile for the period to 30 June 2002.

On 30 January 2002, AACo advised the ASX that subject to cattle price trends referred to above, the company's current expectation was that earnings for the year to 30 June 2002, would be at least 15% above those set out in the full year forecasts contained in the prospectus. Upon finalisation of the prices received for the period to 31 December 2001, and completion of management's re-forecasting, and notwithstanding AACo's sensitivity to cattle price movements, the company now expects the following EBIT and NPAT will be achieved for the full year to 30 June.

The Q4 assumption is for no change. The upward revision of the FY forecasts is based on a net cattle price increase approximately 7% above the prior year, compared to the 3% assumption upon which the prospectus forecasts were based. The forecasts assume average seasonal and rainfall conditions across AACo's portfolio of properties.