Strategic financial analysis: AACo

Author: Iloka Benneth Chiemelie
Published: 7th December 2016

1.0 Comprehensive analysis of a company's operations and performance

AACo is a world leader in the beef industry and other anima food sector with its over 600 thousand head of cattle and operate in 19 cattle stations across Australia. It also has two feedlots and three farms that are spread across more than 7.2 million hectares of land across Queensland and other parts of Northern Australia (AACo 2013).

The company was established in 1824, and is still standing firm as the oldest and continually operating company in Australia (AACo 2013). In terms of maintaining its continuous business operation, the company has been successful in establishing itself by offering high quality products and meeting the demands of customers exceptionally; this have led to AACo being accorded a number of awards and recognitions such as those form LPAQA, EUCAS, NFAS, WQA, and MSA quality assurance programs. Measuring their achievement from a strategic view point, a number of literatures (such as Ansoff & McDonell 1990; Womack et al 1992) have made known that it is vital for increased growth and profitability. This is because it has helped the company to position itself as offering high quality products, meeting the demands of customers and providing product features that are second to none. As such, it influences consumers’ loyalty positively.

2.0 Board of Directors

3.0 Business strategy in AACO

The company owns and operates a vertically integrated business process that is designed to diversify their agribusiness operations while applying necessary innovative business practices and technology to achieve its long-term business productivity gams (AACo 2013). This strategy was implemented to ensure a turnaround in the company from early 2010 with David Farley taking over the role of CEO and MD, and returning the company to its profitability wing in 2011.

The company stated that its strategic initiative is designed to align the possibilities of meeting market demand and the development opportunities that the company have broadened through its global thematic in developing countries. Other opportunities are the increase level of population growth, increasing urbanization and growing income rate that all results from GDP expansions across the world.

The company also made known that its primary assets and sources of value remains in line with the size and unique nature of its agricultural land holdings as combined with quality and productivity of its cattle herds. Innovation is also part of business process in the company and AACo have constantly adopted new approaches to business management that are designed to ensure enhancement of efficiency in its business process. Overall, the company is renowned across the world for its contribution in the growth of agricultural business and enhancement of human life through improved product innovation.

4.0 Argument about performance based on the analysis of five aspects of performance evaluation:

4.1 Profitability

During the period under review, it was noted that the company experienced strong progress with increased focus on cattle trading, better utilization of assets, enhancement of vertical integration and improvement of its herd, which have all be commended for helping in the turnaround. Operationally, it was noted that 2011 was a year of high productivity irrespective of the challenges posed by the summer floods and other challenges that were born from the government’s policy in relation to exportation of live cattle to Indonesia (AAco, 2012).

The outcome of the strategic approach in terms of productivity can be analysed across its operational metrics that include: an increase in the total kilogram up to 80,688,870 kilograms, 156,282 branded calves and an acquisition of 177,516 head of cattle that where purchased by the company in line with investment of properties worth AU$21.6 million.

Figure 1: Ten years revenue

Sources as adapted from: AAco (2012).

There is no better way to conduct an analysis of the company’s business profitability than to take a comprehensive look at the revenue generated by the company over the years. Over the years, the company has continued to increase its revenue generations except for the case of 2009. Basically, the reduced profitability and revenue in this year can be linked to the global economic recession which struck the world within the periods of 2008 to 2009, affecting most of the developed countries such as Australia due to its ties with the US. Ashfaqul & Sayed (2011) confirmed this view by stating that the 2008 has negative influence on the Australian economy and affected the agricultural sector more than other sectors due to the reduction in purchases and demands for FCMGs.

4.2 Efficiency of resources

Figure 2: Assets of AACo

Sources as adapted from: AAco (2012).

Basically, efficiency is a measure of how a company is able to make the best out of its available resources, in terms of increasing productivity even if the resources are decreasing. It can be used to describe a form of sustainability created for the company’s profitability by ensuring that resources are properly managed and used precisely for the purpose which they have been designed for.

From the above analysis, it can be seen that the land, property plant and equipment as a measure of the company’s assets decreased in 2010 as opposed to what is obtainable in 2011. In any case, the company still managed to maintain increase in resources for the years following 2009. However, this increase can also be linked to the increased in cattle, inventories, intangible and other resources. No matter the case, the fact is that AACo has been able to maintain efficient use of resources as it still maintained its profitability irrespective of decrease in its assets.

4.3 Short-term and Long term solvency

Vehemently, it can be seen from the above analysis that 2011 represents the high volume of revenue; this can be attributed to the company’s strategic change with respect to increasing its business network, serving more customers, increased exportation, and a more efficient management (AAco 2012).

A look at the company’s financial highlight reveals that its financial growth was main driven over the year by high level of revenue growth. The company’s cattle and farming operations were particularly the highest performers for the year following a growth of 47% and 333% increase respectively. The production kilogram also increased by 26% from its original 64.2 million to 80.7 million kilograms as shown in the figure below.

Following the likes of other performance in the company, EBTTDA (see appendix) of the company also increase by 43% in comparison with the previous year, and this increase resulted in AU$ 58.1 million increase as illustrated below. The pre-tax net profit (NPBT) (see appendix) which also included a one-off impairment cost with operating loses that totalled up to AU$8.4 million was still able to experience an increase in the value of AU$14.6 million.

Overall, the company is very solvent both on the short- and long-term and this is based on the understanding that it has been able to maintain efficient business operations in the short-term and returned high financial performance, while also being Australia’s longest and only continuously serving company in history. Thus, investment has a sort of financial security with investors being more or less assured of high returns.

5.0 Market based analysis

A report by the Australian government revealed that notwithstanding the drought going on in much of the country, there is still high demand for beef and beef products from across the country (AusVet Animal Health Services 2013). However, there is change in demand in which customers now seek products that are free of diseases, but the Australian beef industry has experienced significant growth in the last couple of years as a result of increasing price and good returns on business investment. The government also stated that the country’s favourable health status in relation to cattle and beef products is the main factor that influences its growth across the globe (AusVet Animal Health Services, 2013).

Considering that earlier discussions as related to the background analysis of the company shows that it has been able to gain wide acknowledgement and reputation with regards to offering high quality products that are processed and packages under some of the most sophisticated packaging principles and processes in the industry, the change in consumers’ demand become more of a relative advantage to the company. This is because the company has been in the business for a very long time and have gained awards and recognitions for its profound competence, capabilities and business operations; which is the key necessary for ensuring long-term financial solvency.

6.0 Conclusion

In order to understand these risk factors, there is a need to also understand the terms used in determining these risk factors. Inherent risk is the probability that material misstatements have occurred in transactions entering the accounting system used to prepare financial statements. Control risk is the probability that the client's internal control system will fail to detect material misstatements. Control risk should not be assessed so low that complete reliance is on controls and no other audit work is performed.

In view of that, the auditor needed to access the internal control units in order to determine the level of assess provided by this unit and how such assess might impact on the whole auditing program. This is because, the higher the level of access the lower the risk as criticism might be made where appropriate on figure that seems to be misrepresentative in terms of per dollar valuation. The whole evaluation process involves understanding how the company influences the misrepresentation in its financial statement and productivity.

From the above analysis, it is clear that the performance of any given business is a reflection of the company’s capabilities with respect to financial efficiency and business profitability. This is because when a company is performing well presently, it is better positioned to acquire resources that will ensure sustainability of the business process. With respect to the case of the Australian Agricultural company discussed in this paper, it has been derived that the company has been very successful because of its efficient and effective management.

7.0 Appendices

Appendix 1: EBITDA of AACo

Appendix 2: NBPT of AACo

References

AACO (2012), “Australian Agricultural Company Ltd: Annual Financial Report 2011.” Available at: http://www.aaco.com.au/about-us/strategy/ [Accessed on: 24/04/2013].

AACO (2013), “Strategy.” Available at: http://www.aaco.com.au/about-us/strategy/ [Accessed on: 24/04/2013].

Ansoff, H.I. & McDonell, E. (1990), Implanting Strategic Management, Prentice-Hall, Englewood Cliffs, NJ.

Ashfaqul, Md. I. B., and Sayed, S. (2011), “The Recession and its Impact on Foreign Direct Investment Flows into the Food System of Less Developed Countries.” Available at: http://ageconsearch.umn.edu/bitstream/98786/2/Saghaian-SAEA2011%20selected%20paper.pdf [Accessed on: 13/09/2013].

AusVet Animal Health Services (2013), “A Review of the Structure and Dynamics of the Australian Beef Cattle Industry.” Available at: http://www.daff.gov.au/__data/assets/pdf_file/0006/723804/beef-movement-ead.pdf [Accessed on: 24/04/2013].

Womack, J.P., Jones, D.T. & Ross, D. (1992), The Machine That Changed the World, Van Nostrand Reinhold, New York, NY.