I would now like to hand the conference over to Mr. Hugh Killen, Managing Director and Chief Executive Officer. Please go ahead.
Good morning, and thank you for joining AACo's Half Year Results Presentation for Financial Year 2022. I'm Hugh Killen, Managing Director and CEO of AACo, and joining me today is our Chief Financial Officer, Nigel Simonsz. I will start our presentation today by running through the key highlights of AACo's interim performance. I will then discuss our progress against strategy so far in FY 2022, and after this, I'll go through our regional and brand progress for the half. I'll then hand over to Nigel to take us through the financials. After which, I'll briefly discuss our sustainability strategy framework, and I'll finish up with an update on operating environment as we move into the second half of the financial year. Moving on to slide number four. I'm pleased to report that AACo has delivered a strong set of results for the half.
Our operating profit increased by 28% to AUD 30 million. We've continued execution of our branded meat strategy. Our team has improved average price per kilo by 9% through a continued allocation to high-value markets around the world. We've continued to increase the proportion of branded meat sold through our Westholme and Darling Downs brand. This work, together with continued cost discipline, has helped drive overall improvement in meat sales margin. This half, we've seen the continuation of record high cattle prices, and this has helped push our cattle margins higher as well. We've worked hard to develop our industry sustainability strategy framework. I will formally launch this tomorrow. However, I'll make some brief comments about this as well in my later slide presentation.
On the finance slide, we've just stepped through the refinance of our debt facilities, giving AACo increased capacity and flexibility for the future. This will be integral to our next phase of growth, which will build on our strong position today. Our balance sheet strength has strengthened further from a good position last year. The value of our net assets now exceeds AUD 1.1 billion. AACo's net tangible assets per share has increased to AUD 1.89. This all combines to deliver an AUD 83 million statutory net profit after tax, which is an AUD 85 million improvement on the first half of FY 2021. Importantly, we've delivered this result despite lower meat volume sold, which we'll talk through in more detail on the next slide. As discussed at the FY 2021 full-year results presentation, we've seen lower volumes of meat sales this half.
This comes off the back of lower cattle levels between 2018 and 2020 as a result of prolonged drought conditions that also took off flow. Lower volumes have been reflected across the wider Australian beef industry. National herd levels reached 25-year lows in 2020, and MLA is forecasting slaughter rates dropping to 36-year lows by the end of 2021 as a result of ongoing supply constraints. These rates are only predicted to improve from the year 2023. At AACo, we anticipate lower meat sales volumes through the rest of this year and also into FY 2023. At the same time, our AACo cattle herd rebuild is continuing well. Brands are up during the half year. Cattle in the branded production are also up 31%, and this gives us confidence that production is continuing to move strongly in the right direction.
Turning now to slide six and our progress against strategy in the first half of FY 2022. Our overall strategic focus is on delivering outcomes in three key areas: consumer and customer centricity, operational excellence, and our team. I'm pleased to report good progress across these areas in the first half of FY 2022. In terms of consumer and customer centricity, our strategic focus is on building stronger connections with our brands. In particular, we've continued to drive sales through our very strong Westholme and Darling Downs brand. In the most recent half year, 53% of our branded meat sales were through these brands compared to 75% in FY 2021. The team's been working hard to build brand awareness among consumers, and we've seen strong progress through our Westholme influencer strategy, which has multiplied our audience reach by eight at this time.
This work has driven important results in North America, in particular, where branded meat sales have increased 55% compared to the prior period. This has been supported by strategic reallocation of higher-value cuts into this market at premium prices. This has supported an overall 9% increase in our average price per kilo of meat sold. Our second strategic focus is operational excellence. This is where we continue to concentrate on creating a simpler and more efficient AACo. Ongoing cost discipline has contributed to our half one results. We've seen 13% lower cost in production this half compared to the first half of FY 2021. This has included production efficiencies through the supply chain as well as reduced adverse seasonal impact. Another key efficiency driver within our operations is effective supply and demand planning.
They're continuing to become more accurate and forward-looking, helping to manage costs throughout the whole supply chain. Importantly, this helps us to make better investment and operational decisions as we grow. We've also continued our focus on creating a high-performance culture where our people can thrive. As part of this, we worked hard on refining our guiding purpose and vision, which we relaunched during the half, and we invested in the mental health first aid skills of our people. We also saw a 17% improvement in the Lost Time Injury Frequency Rate compared to PCP, and overall team engagement improved by three points in the half. Now turning to slide seven and our commercial review. Strategic revenue management is another core part of our business strategy and operations.
This includes a relentless focus on maximizing returns from every cut of meat that we produce, and leveraging our global distribution network to get the right cuts to the right market opportunities at the right time. In the first half of FY 2022, this has produced important results. Overall, strategic market allocation has helped support a 9% improvement in price per kilo compared to the prior period. A particular highlight to note is our performance in North America, where our average price per kilo of branded beef sold is up 33% compared to PCP. This reflects the strong demand for higher marble score loins and rump in the region. Our team are able to redirect product away from Asia to capture these premium pricing. Asia continues to represent our largest meat sales region at 53% of total meat sales revenue in the half.
The Australian market is our heartland and very important to who we are as a company, and we continue to manage volumes to optimize returns in this market. Across all regions, we're seeing COVID-19 vaccination rates wind back restrictions and drive a return to food service options for consumers, and we'll continue to respond to this situation as it continues to develop. Moving on now to slide eight and the development of our Westholme brand. As mentioned previously, we've seen good progress in execution of our branded beef strategy over the half year. A key component of this work is our in-market efforts to build brand awareness for Westholme. This has included engaging with customers and consumers through digital channels in North America.
We've adopted the approach of engaging with chef influencers online, and this has been supported by creation of content designed to spark conversations between chefs. As a result of these campaigns, we've seen positive growth in engagement and audience reach. We've also continued to build brand awareness through our online gourmet e-marketplaces over the half year. We are leveraging shopper analysis and insights from these sites to further develop our knowledge of consumer habits. Closer to home, we're continuing to refine and build the value of Westholme in Australia. This includes continued support for food service industry in Australia as it reopens. So far, we've run a number of programs with our Australian food service customers during the half, and we'll continue to partner with good initiatives that let us connect with chefs and the wider food service industry at home.
Moving now to our Darling Downs brand on slide number nine. Our focus with Darling Downs in the first half of 2022 has been increased consumer engagement in South Korea, where we have launched our first promotion in South Korea to drive user-generated content. Earlier this year, I mentioned our Darling Downs brand refresh in Korea, and this has generated good results in terms of sales. Off the back of these positive results, we extended that refresh of our Darling Downs brand into Hong Kong. I'll now hand over to Nigel, who will take us through our financials for the half year in more detail.
Thank you, and good morning, everyone. Thank you for your interest in what has been a positive half year for AACo. I can report that the business has achieved some notable highlights during the first half of FY 2022.
Firstly, meat sales price per kilogram grew on average by 9% versus the prior period. This is largely off the back of optimizing our strategic market allocation of product, combined with continued progress in executing against our branded beef strategy. The increase in price has offset lower volumes of meat sold during the period, as Hugh referred to earlier. The business has delivered increased profitability during the half. This included a 28% increase in operating profit and notably an improved operating profit margin as a percentage of sales of 20.9%. Both of these results were driven by improved sales margin across both meat and cattle sales. For noting, the prior comparison period included AUD 6.7 million in operating profit and AUD 4 million in operating cash flow relating to JobKeeper.
Net operating cash flow for the half was a positive AUD 17.3 million for the period. We've also seen a strong 7% improvement in net tangible assets versus year-end FY 2021, with further strengthening of our balance sheet. Now turning to slide 12, where I'll talk to revenue in some more detail. Overall, total revenue has remained largely in line with PCP at AUD 143 million. This result has been supported by higher pricing, which has been offset by lower volumes sold. Meat sales revenue has remained flat on PCP at AUD 102.9 million. This has largely been driven by a 9% increase in average weighted meat sales price per kilogram, which was worth an additional AUD 8.5 million this period.
Notably, this was achieved despite an adverse foreign exchange variance of $6.9 million versus PCP. As referred to earlier, lower calvings in previous years continue to impact the business, which has translated into an 8% decrease in volume sold during the half, also worth AUD 8.5 million, which easily offset meat sale price gain. Cattle sales revenue decreased marginally on the prior period to AUD 44.5 million. This has largely come off the back of 17% lower cattle sales volume worth AUD 7 million. This reduced cattle sales volume is partially offset by a 19% increase in price worth AUD 6.4 million. The cattle price increases are reflective of the record high trading and restocked cattle market pricing the industry is currently experiencing. Now moving on to cost of production on slide 13.
This half, we've seen a 13% decrease in cost of production versus the prior period. This comes off the back of improved seasonal conditions, as well as a 31% increase in kilograms produced this half compared to the prior period, particularly in the breeding part of our business. More broadly, the business has continued its disciplined focus on costs. These results contribute to the overall cost of our F1 weighing animals, which accumulates over their approximate 3.5-year life cycle as they progress through the supply chain. Now turning to operating profit on slide 14. As mentioned earlier, operating profit has improved by AUD 6.5 million compared to the first half of FY 2021. This was largely driven by improved meat and cattle sales margin through higher average sales pricing.
Also as mentioned earlier, this was achieved despite the adverse foreign exchange variance AUD $6.9 million in sales. This should be looked at in conjunction with the favorable variance of AUD 4.6 million, primarily in FX hedging gains and losses versus the prior year. Now moving to slide 15 and our profit and loss summary. In addition to the comments on operating profit drivers already noted, we've also seen a strong improvement in net profit after tax of AUD 85 million versus half one FY 2021. This result comes off the back of a positive unrealized mark-to-market adjustment in the half of AUD 87 million to the value of the underlying herd. This adjustment was largely driven by current record Australian cattle prices. Now moving on to our cash flow summary on slide 16.
The business generated positive net operating cash flow for the period of AUD 17.3 million, compared to AUD 22.3 million during half one FY 2021. The key drivers of this variance are outlined in the waterfall chart on this slide. These include increased cash expenditure, due mainly to higher insurance and freight costs, which were offset by the impact of lower cattle purchases and favorable net working capital movement than was achieved for JobKeeper in the prior period. Now turning to the balance sheet on slide 17. AACo's net assets now exceed AUD 1.1 billion, reflecting strong growth in the value of our herd and land assets. This has translated into a higher net tangible assets per share of AUD 1.88.
In all, this constitutes a 7% increase compared to our full year 2021 results, and a 22% increase compared to the same time last year. We also successfully completed the refinance of our debt facilities during the half. This has increased our borrowing capacity by another AUD 50 million, and our total capacity is now AUD 600 million, which leaves us with AUD 240 million in available borrowing capacity. Our gearing ratio remains well within our targeted range of 20%-35%, and we maintain substantial headroom within our covenants. This key refinancing development will assist the business with its next stage of strategic growth. With that, I'll now hand back to Hugh to take you through AACo's sustainability strategy framework.
Thanks, Nigel. I want to briefly touch on our commitment to sustainability.
Sustainability has always been at the heart of AACo, as it is for all rural and regional communities. For almost 200 years, we've cared for some of the most important country in Australia, and we take this responsibility very seriously. Tomorrow, we'll take the next step in this journey and release our sustainability strategy framework. This framework will be used to prioritize the work we do and the goals we've set ourselves as a sustainable business. This will include immediate steps as well as longer-term strategies that are our blueprint for action. This will underpin the company's future as a food producer and also as a landowner. Moving to our operating environment. We're starting to see a number of important dynamics playing out in the global beef market in FY 2022.
While we tend to focus on more premium and less commoditized product, these dynamics will have important implications for AACo. The first of these dynamics is very strong global demand for beef. Continued protein shortages in China as a result of African swine fever are contributing to this demand growth. We're also seeing increased demand from developed markets as COVID-19 restrictions are lifted. The second important dynamic we are seeing is clear emerging constraints on supply. Supply from key export players, including Argentina, Brazil and Australia, already appear to be restricted. U.S. production and export numbers are forecast to be lower in 2022, and this reflects the likely peak in the U.S. herd rebuild this year. Closer to home with slide 2 1. In Australia, the national herd rebuild is still underway in earnest as producers look to rebuild stock.
Demand exceeds supply in the market, which has helped drive the EYCI to an all-time high this week. Slaughter rates are forecast to reduce to 36-year lows this calendar year, and MLA are suggesting slaughter will only return to normal levels in calendar year 2023. Off the back of these macro themes, we expect these high cattle prices to remain for some time. In closing, I'd like to thank the AACo team for their continued hard work through the first half of the year. We've made material progress executing against our strategy, and we have delivered a strong result. Moving forward, our focus is on continuing to execute against our branded beef strategy, and this still remains the strongest pathway to delivering long-term value for our shareholders. Thank you for your time this morning.
This ends our presentation, and Nigel and I are happy to take any questions.
Thank you. If you wish to ask a question via the phone, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you're on a speakerphone, please pick up the handset to ask your question. We'll pause a moment for any questions to register. Thank you. Your first question comes from Jonathan Snape from Bell Potter. Please go ahead.
Hi, guys. Can you hear me okay?
Hey, Jono. No problem.
Yeah. Hey, look, can I ask a couple questions? One, around the pricing move that you got in the first half, like, you called out part of it is, I guess, moving stuff to different markets. How much of that 9% gain do you think was, I guess, the underlying commodity value move relative to, I guess, mix in there? Just, and then how should we be thinking about that in the second half? Like, is there a difference in the mix profile that you've got on hand?
Jono, I think there's two parts to your question. Obviously, one is, you know, there's a rising tide lifts all boats. I think to a degree, obviously, we're seeing very strong demand and market dynamics for red meat more broadly, and we're getting the benefit of that. We talk about, you know, optimizing our revenue and making sure we allocate correctly across the market, that's a major factor in it. One of the things is chasing opportunity in a very targeted way, which is another reason why you see product moves from Asia into the U.S. at the moment. That gives us the ability to take advantage of the current dynamics, but it also gives us the ability to optimize our overall allocation.
Okay. Look, I'm just trying to figure out sourcing. I think you guys flagged back at the full year that there'd be quite a bit of external sourcing with cattle this year. Looking through the numbers, it didn't look like there was much at all, like, maybe AUD 2 million as I was going through the cash flow. Is there a shift in the program or is, or should I be expecting that there's more external sourcing to come in the second half than maybe we saw in the first half?
Look, I think the first thing for us is, you know, we are. As we've been talking to the market, you know, kilos are down for the reasons we've been describing around droughts and floods, et cetera. We purchased AUD 14 million worth of cattle in H1. I'd expect to see some supplementary purchases as we flow through in the second half of the year. The important thing I think to note, Jono, is, you know, those purchases are also done on a margin basis as well. So, you know, our ability to look through from a margin perspective before we buy those cattle is a really important part of the result as well. So, clearly, you know, we'll remain supply constrained as the Australian industry does for the next little while.
You know, I think some similar purchases will be required in the second half of the year, but they're pretty well managed.
All right, great. Gives me a clear number. That's what 5.5 is operating profit if I'm reading that right.
That's right. Yeah, no, it's a really pleasing result under the circumstances, so we're very happy with that.
Great. Thanks, guys.
Thank you. Once again, if you wish to ask a question, please press star one on your phone and wait for your name to be announced. We'll pause it again for any further questions to come through. To ask a question via the webcast, please type your question into the Ask a Question box and hit Submit. The next question comes from Paul Jensz from PAC Partners. Please go ahead.
Thank you. Hugh, how are you?
Hi. Well, thanks, Paul.
Thanks. Similar to what Jono was saying, so you've got operating profit over the five halves. Just wanted to talk to those significant around the cash flow and how you are looking to optimize the, I guess, the operating cash flow and the free cash flow, now and into the second half of the year.
I'm like, Nigel, you might wanna take the question.
Yeah. No problem. Hi, Paul.
Mm-hmm.
I think as we've shown over the last few halves, you know, we continue to demonstrate an ability just to deliver positive operating cash flow, both from a continued discipline on the cost side. We've made continued progress on that over the past, you know, three years. Also really a relentless focus on maximizing value from a revenue perspective that we derive over the whole of the business. Clearly the focus around branded beef strategy remains our primary focus. Really is looking at both the revenue and cost side, Paul, to really drive maximum value across
Okay. How far are you feeling like you are in sort of the higher end demand of the beef business as opposed to cost out story? Maybe you can talk about percentages all the way through from the cost out story and the percentage of the way through on upgrading to that higher grade, obviously across the Wagyu and other brands.
Well, look, you know, cost out for me, you know, you've certainly pressed this talking about, you know, creating simpler and more efficient AACo. I'll never take away that focus on cost. You know, this is obviously a very cyclical business and, you know, you need to make sure you manage it through the cycle, and we'll continue to do that piece . You know, as you can see in terms of price per kilo achieved, you know, the growth in our brands as well in terms of the percentage of meat that's sold under our brands, you know, that continues to grow.
In our focus on, you know, key markets, especially now that COVID's starting to weigh in , I think we'll be a key part of the strategy and continue to build brand awareness. And especially in those really critical markets, such as the U.S. I don't know if I'll put percentage on our journey in terms of brand building, but, you know, that's something that's absolutely key for us and brands take a very long time to build. We're starting to see really positive traction in terms of Westholme and Darling Downs business for now, and I think there's a whole lot of opportunity there to continue to grow those brands and the focus we'll bring to them.
I would say, guess echo a point that, that Nigel was talking about in your first question and focusing across the entire carcass and for us, we need to optimize every kilo of beef that we sell and from a brand perspective, you know, there are absolutely options for us to actually build out and add value in different cuts, different parts of our business outside of just our premium Westholme and Darling Downs brands as well, which is the key part of our strategy that we'll be working on over the next period.
Thank you all for that detail. The final area is just the, kind of sort of operating cash flow to asset sort of ratio, are you after? You know, it all comes in one type or another. Is that something in your board decks?
Well, I guess it's something that, you know, as a board and management can obviously discuss, but I don't think that's something I'd willing to share here at the half of the year, mate.
All right. Well, you're going in the right direction. Obviously, there's a bit of a hit there with this COVID this half, but you know, the general direction's really, really solid. Well done to you and the team. It's not a mean feat.
No, no. Thank you, Paul. Well, I mean, obviously COVID's been a difficult situation for all companies to manage, and I think our company's navigated that pretty well. Thanks for your questions.
Okay. Thank you.
Thank you. Your next question comes via the webcast. The question is: What's the future of the meat processing facility outside of Darwin?
Thanks for the question. Look, I've been on record a number of times now saying that I believe there is absolutely key strategic value in Livingstone as a cornerstone asset, especially for the North. You know, I think I gave critical context in terms of my prepared comment and, you know, slaughter levels obviously are 36-year lows. You know, at the end of the day, I don't think the MLA forecast in that to return to normal levels until sometime like 2023. From my perspective, the fact that the Livingstone facility is not operational in that environment is a really good thing. I absolutely, you know, and the company shares this aspiration to have that asset running at the right time.
I don't think given where we are in the cycle at the moment, it's particularly conducive with the start up . We are working hard to make sure that when the conditions are right, that the asset is in the right position to be able to restart effectively and efficiently. It's a supportive comment around the Darwin facility. I think there's a lot of optionality there. We retain that as a core cost operation to support it, but certainly at the right time, I think it's an asset we'll look and grow.
Thank you. Your next question via the webcast asks: When will the next revaluation of property assets be completed?
We do a revaluation of our property assets on an annual basis, so that actually takes quite a long time to do. Actually takes a few months for us to run through given the size of the business. That just starts in the next few weeks, and we don't report our revaluation until the full year on 31st of March.
Thank you. Your next question asks: Please explain company attitude to retaining heifers from the branded program versus feeding them. Are you retaining significantly more heifers?
Look, our focus is always on maintaining AACo's core herd to support our branded beef program. Obviously there's a balance between having the right breeding stock coming through from a heifer perspective and obviously supporting our branded beef business. Now, we don't disclose the mix of that, but ultimately, given where we've been from a seasonal perspective, as well as industry in terms of the impact of the droughts and the floods, you know, we're retaining as many productive females in our herd as we possibly can. We'll continue to do that. That's a fine balance between actually making sure we've got the right number of cattle in our feedlot for our branded program, but ultimately we wanna make sure we have the right cattle on hand from a breeding perspective.
What I would say is the productivity of the female herd, like in terms of the age of our cow herd and heifers retained across AACo, will be very supportive of growing that herd in the right way over the next couple of years.
Thank you. There are no further questions via the webcast. We'll pause a moment for any final questions to come through. Thank you. There are no further questions at this time, and that does conclude our call for today. Thank you for participating. You may now disconnect.