AUSTRALIAN Agricultural Company (AACo) chief executive Craig White has defended major shareholder Joe Lewis's motives for increasing his stake in the company and said that the $90 million Darwin abattoir will help AACo return to profitability after posting a half-year loss of $31.6 million.
Last month Mr Lewis, a British billionaire based in the Bahamas, was the primary backer of a $299 million capital raising AACo launched to shore up its stretched balance sheet and fund construction of the abattoir.
Mr Lewis's Tavistock Group owns almost 20 per cent of AACo and some media reports claimed the currency trader – who owns football club Tottenham Hotspur – wants to break the company apart to realise value. AACo has refuted the suggestions.
Mr White said that it was "easy to look at the negatives and conspiracy theories", but he "wanted to focus on the positives", The Australian Financial Review reports.
"Tavistock Group was key supporter of this capital raising and I think that support basically meant that we had a very strong response from both the retail and institutional investor base," he said.
"All I can say is, like any shareholder, they will be looking for improved returns on their investment and we will be looking to deliver that."
Mr White, who is AACo's acting CEO while the board conducts an executive search, described the company's 1 per cent return on capital as "sub-optimal", and said the company is working to get returns above AACo's 10 per cent weighted average cost of capital.
He said the company's $90 million Darwin abattoir will play a "crucial" part in improving profitability. The facility is due to begin operating in the second half of calendar 2014.
The cattle industry has been battered by both the 2011 live cattle export ban to Indonesia and protracted drought.
For the six months ended September 30, AACo's after tax loss widened to $31.6 million from $18.7 million.
Operating cashflow improved by $4.5 million but remained in the red at negative $1 million. Average live weight cattle prices during the period fell 12 per cent and contributed to a $20.4 million fall in revenue for live cattle sales.
Total revenue fell $15.6 million to $177.7 million.
RBS Morgans analyst Belinda Moore said she expected a weak result in light of low cattle prices and the drought. "Returns are very low, but international prices are high and the US herd size is at 50-year lows and they should be able to take advantage of that," she said.
Mr White said conditions are starting to improve. "It's been very problematic for all operators here and in Indonesia. There's been tremendous frustration and destruction of value.
"But with the change of government, we're seeing a lot of very positive signs and real commitment to address this issue with Indonesia. We're not quite there yet, but all the signs are extremely positive," he said.
Prime Minister Tony Abbott, who has said Australian foreign policy needs "more Jakarta and less Geneva" made his first visit in office to Indonesia.
Mr Abbott took 20 senior business figures, including AACo chairman Donald McGauchie, as part of the delegation and Indonesia has since lifted its Australian cattle intake quotas.
Mr White said AACo now had a strong balance sheet against which the company could execute on its strategy.
He said AACo wants to work closely with government to ensure the policy settings are right to help meet demand for red meat into Asia.
"Demand in China has grown enormously and seems to be at a real inflection point. We're certainly very positive on that market going forward," he said.
"This is not an industry where it's easy to turn on and off production. The lead times are relatively long and what we need as an industry is stability."
With around 600,000 head of cattle across 7.2 million hectares, AACo is Australia's biggest beef producer.
AACo shares were flat at $1.13 on Thursday. The stock is down 3.9 per cent over the year to date.
