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## CHAIRMAN’S REPORT 

The Australian Agricultural Company announced at the start of the year its intention to move its year-end reporting date from December to March. This better aligns the company’s reporting with its business cycle, including the end of the wet season. As a consequence of this decision, the company is required to produce this annual report for the three-month period January to March 2013. 

During this three-month period the northern Australian cattle industry experienced one of the worst droughts in decades, with a lack of grass forcing an oversupply of cattle onto the domestic market, with a corresponding dramatic drop in cattle prices. This oversupply was exacerbated by the continuing fallout from the Federal Government’s 2011 suspension of live cattle exports to Indonesia. 

Under Australian accounting standards, the company’s financial results for the three- month period were significantly adversely affected by this slump in domestic cattle prices through a $43.2 million non-cash, pre-tax write-down of the market value of the company’s 676,000-head herd, due to this slump in domestic cattle prices. The majority ($35.3 million) of cattle written down in value were long life-cycle breeding cows and young grower cattle, not intended for immediate sale. The non-cash write-down was the key driver of the net loss after tax of $46.5 million for the quarter. It is also important to note that the three-month result is not representative of results for a full 12-month period as the bulk of cattle sales and profit are generated outside of this three- month period. 

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During the three-month period AACo increased both cattle sales and wholesale beef revenue, at significantly lower prices, with operating cash flows remaining approximately in line with the previous corresponding period ended 31 March 2012. 

The slump in domestic cattle prices is at odds with continuing higher global beef prices and reinforces the company’s decision to capture these higher global prices through the construction of the company’s Darwin Abattoir. This state-of-the-art facility will open up new channels to international markets as well as reducing total logistics costs currently incurred by moving cattle from the north to eastern Australian abattoirs. 

Stage One civil works have been completed for the facility and in April AACo announced that it intended to fund construction from its own balance sheet. The completion of this facility should go some way to insulating AACo from volatility in domestic and live export markets by accessing generally higher and more stable global beef prices. 

In March the company also announced its future strategy, building on the turnaround of the company accomplished in the past three years. AACo is now clearly focused on driving shareholder value by building a global, vertically integrated red meat supply chain, with particular focus on Asian markets, servicing the rising demand for red meat protein. The Darwin Abattoir will be a key part of this strategy. 

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