Ann: Resignation of Managing Director and CEO, page-31

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Minnesota Fats

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14/08/17

10:25

Post #: 26475483
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Originally posted by Minnesota Fats ↑

Can understand your frustration particularly with the abattoir - i have previously pointed out that the abattoir was not Jason Strong's decision - it was the prior CEO and the current Chairman. When a new Chairman arrives it would be good to see a sell down / joint venture of the abattoir. Whether it is operating well enough to allow this is questionable but at least a new Chairman might be prepared to accept any necessary write downs.

AAC as a whole does seem problematic - they have let the beef boom pass them by - 12 months ago we could see they had
so many variables in their favour

* record beef prices
* rising land values
* record low interest rates
* low Australian dollar
* very good wet seasons
* low oil prices

Some of these factors are now going the wrong way and some models suggest a late or dry wet season. Due to their business mix the accounts are harder to analyse but from the recent 2017 Annual report the following item was concerning

A2 OPERATING MARGIN
March 2017 March 2016

Meat Sales 383 036 000 428 272 000
Cost of meat sold (341 558 000) (335 145 000)
Operating Margin 41 478 000 93 127 000

Not a great trend for all the investment in branded beef - while the AAC top brass are fond of telling stories of their beef being sold for $400 kg in Harrods (quantity ??) it seems almost invisible in Sydney and Melbourne markets with 10 million plus people. A lot of Aussie consumers want grassfed and AAC has an iconic brand (Brunette Downs grassfed) but there seems very little effort to develop it for the domestic market whereas Cape Grim (Tasmania) does well. Yes they are targeting affluent Asia but it would be reassuring to see that they can compete locally. It goes without saying that a deterioration of the Korean peninsula situation would be very tough for branded beef into those markets.

Its also instructive to compare AAC to the successful Northern Australia family run beef operations such as McDonald and Hughes. Note Peter Hughes last week on Beef Central saying that although they had developed Organic beef , with all the time and investment involved, at the present they were just selling into feedlots for higher returns. AAC does not seem to respond with such flexibility and as such has let the beef boom pass them by , apart from herd and land revaluations which are now exposed to downward revisions in NTA if cattle prices continue to fall.

Joe Lewis owns 40 per cent of AAC and as he likes to soak up 3% a year as allowed without triggering takeover a lower share price might suit him in gaining majority control without ever paying a premium. That the board gifted him 20% of the company at a bargain basement price in Convertible Notes / Rights Issue to pay for the abattoir still hurts. If he decided to sell his stake it could trigger a full takeover and upside for shareholders.

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Sorry the Operating Margin on Meat sales didn't format legibly - in short the operating margin fell from $93 million (March 2016) to $41 million (March 2017)

AAC Price at posting: $1.56 Sentiment: Hold Disclosure: Not Held
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Ann: Resignation of Managing Director and CEO, page-31

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