CEO exits as beef producer trims down
The boss of Australia's biggest beef cattle producer has abruptly quit the company after reaching a "mutual" agreement with its board.
Australian Agricultural Company surprised analysts on Wednesday by announcing its chief executive of four years, David Farley, had resigned. The decision followed a board meeting on Tuesday night, and after AACo posted a $46.5 million loss in the three months to March 31.
In a statement to the sharemarket, AACo chairman Donald McGauchie said the new chief executive would need a "different skill set to lead the company in its next stage of growth".
Agribusiness analysts interpreted that to mean someone capable of delivering cost savings, with cuts expected to come from trimming the middle management, which had become "a little bit fat".
AACo's share price has varied little in Mr Farley's time at the helm. When he began his tenure in December 2009, it was trading about $1.34; at Wednesday's close the shares were $1.15, having shed 5¢ after the resignation.
Analyst Paul Jensz, of Phillip Capital, said the company was entering a new phase. "They have had a lot of ructions with the owners, with the board, and David was the right sort of personality to sort all those things out. He's good at telling the big picture strategy.
"But I think you need a different person to drive costs out and to run this as a lean group and getting into the exports markets," he said.
AACo attributed its first quarter loss to a write-down on the value of its 676,000-head herd, which was due to low rainfall and the impact of a suspension of live exports.
Mr Jensz said the company had battled a high dollar and a correction in land prices, particularly in Australia's north.
"They were rocketing up quite high until five years ago and now they have been coming back," he said, adding that AACo's net tangible asset backing had fallen from about $2.75 to $1.80 in that time.
Nevertheless, he was surprised the company was unable to get itself into a better financial position.
"They've had two or three good growing seasons and they still weren't able to deliver free cash flow. That's the real conundrum," he said.
"Yes, they had to build up their breeding herd, they have had to deal with a lot of other issues. But I would have thought after three tremendous seasons you should be able to deliver some free cash flow."
AACo has been selling some of its rural properties and is building an abattoir in Darwin to reduce its reliance on live cattle trade.