I will now turn the call over to Hugh
Gillen, CEO and MD. Please go ahead. Good morning, and thanks for joining us to discuss Aaco's half year results for financial year 2021. I am Hugh Killam, Aaco's Managing Director and CEO, and with me today is our Chief Financial Officer, Nigel Simmons. In today's presentation, I'll take you through some of the highlights across our half year performance.
I will outline our swift response to COVID-nineteen, which has had such a significant impact on the world and on our industry this year. I will then take you through the progress we've made against our strategy over the year to date. After that, I'll hand over to Nigel to take us through the financials in more detail. And then I'll provide an update on our operating environment as we move into the second half of the financial year. We'll turn now to the key points for the half year on Slide 4 and Slide 5.
The story of AACo's first half is our disciplined response to unprecedented uncertainty in our industry. At the end of last financial year, every one of our markets was impacted by COVID-nineteen restrictions in dining and hospitality. Despite a good performance in the previous year, we had no certainty about market or seasonal conditions that lay ahead. I'm pleased to report that we responded decisively to the threat of COVID-nineteen. We focused on staff safety and ensuring business continuity, including working closely with state, territory and Commonwealth governments.
We moved quickly in the market, leveraging our global supply and distribution networks, and we maintained our disciplined focus on cost across the supply chain. Together these responses, we achieved a positive half result positive result for our first half. We achieved favorable margins compared to the first half of last year. We improved operating profit and cash flow performance. We secured positive operating cash flow, and we drove improvement in our average price per kilo of waste sold.
Our statutory EBITDA results for the half was $15,000,000 This was an $18,000,000 improvement against the first half of FY 2020. These results underscore the importance of our strategy in good times and symmetrical times. This is important because we will continue to be challenged in the coming months. We have previously announced overall food reductions following the Gulf floods in 2019 and what multiple years of drought. And those changes are broadly consistent with the overall shift in the national herd.
The nature of our industry and our supply chains means these reductions will flow through into internal supply production, which will result in lower volume of meat production in the rest of this year. We'll continue to face genuine uncertainty from COVID-nineteen in our consumer markets around the world. And we continue to face ongoing risk of seasonal variation at home. And more broadly, the global geopolitical environment remains uncertain in ways which have the potential to impact our business. And our positive half year results in FY 'twenty one provide confidence.
Our strategy is the right one for AECO. We are continuing to make progress against this strategy and this strategy positions us well to navigate both seasonal and also market uncertainty. I now want to go through our response to COVID-nineteen in more detail. As I mentioned before, our primary focus has been staff safety and business continuity. We implemented protocol measures across all of our operations in line with health advice.
We made our plans and procedures available to the wider industry, and we immediately engaged with the state and territory governments to ensure we could safely continue cross border operation. On the business side, we had to move quickly to protect momentum from FY 2020. And let me remind you of the context at the time. In March 2020, every one of our 16 foodservice export markets implemented COVID-nineteen restrictions on dining and hospitality. Foodservice has been central to our brand new strategy from the beginning.
Therefore, we had to execute a rebalancing of our sales towards retail channels, And we had to do it smoothly and we had to do it immediately. I'm very proud of the way our sales and marketing teams responded. They immediately began identifying and assessing market changes and opportunities. They use the growing knowledge and in market presence to strengthen existing retail channels and move us into new ones. They identified new direct to consumer channels for us to thrive and they leverage our distributor partnerships on the ground to gather intelligence and also to help us to adjust.
In parallel, our team at home built some planned cost discipline measures aimed at optimizing our internal supply chain. We also restricted non essential operating capital expenditure. We implemented senior executive and board pay reductions for a quarter, and we temporarily reduced working out for our corporate and commercial team members. In fact, there is very significant uncertainty, we also sought and were eligible for government assistance through the National Job Caper Program. Together with our internal response, this support was important in maintaining business continuity.
As a result, we're able to maintain staff and refocus our business to navigate the impact of the global pandemic. For us, Job did the Job it was intended to do. It helped us avoid significant disruption to our operations, our markets and to our people. This gives you a picture of the steps we took at the start of the current financial year. And I want to thank the AA Co team for their commitment throughout this period.
We turn now to Slide 8 through to 12 and our progress against strategy in the first half. The history of TACON have had a positive impact in the first half of this year. We've driven a 14.5% improvement in our average meat sales price per kilo. And over the period, our flagship West Home brand sales increased from 7% of overall meat sales to 22%. These results reflect continued growth in the value of our brand around the world, And they reflect our ability to leverage AA Co's global supply network to deploy every kilo of product where it will achieve optimum value.
These have come to effect ongoing investment in our sales and marketing team and our distributor partnerships around the world. They also reflect the work we've done to drive a cheaper and more efficient AA Co at home. And this has been critical to ensuring we produce the right cuts for the right markets at the right time. Our cheaper and more efficient AA Co has been crucial to our performance on the cost side as well. We've shown strong cost performance this half by streamlining our supply chain.
This is predominantly focused on limiting our exposure to external backgrounding and feeding as well as cattle transport and processing. On slide 9, you can see how material the impact of COVID-nineteen has been for our business. And you can see what the team's response has produced an important outcome. We've got significant impacts in revenue compared to the previous first half across Asia, Europe, the U. S.
And Australia from food service restrictions. But despite this, you can also see the improvement in our average price per kilo of meat sold and positive signs from our markets in North America and in Asia excluding China. This is a great demonstration by team's efforts over the last 6 months. We're able to execute a shift in strategic allocation of products across a number of markets. Through our long search being in distributor partnerships in Canada, for example, we delivered significant volume in new retail channels under local brands, and we're able to trial new direct to consumer channels across digital platforms, content take up under our West Home brand.
In both these instances, our marketing and sales team did a fantastic job. Our distributor partnerships are crucial in identifying capturing these opportunities, and our entire operations team has worked tirelessly to deliver for these new channels. I want to make the point that these responses to COVID-nineteen were only possible because of the ongoing investment we have made as part of our branded lease strategy. Investment in our end market sales and marketing teams, investment in quality distributor partnerships, and investment in efficiencies through a simpler and more efficient AA code at home. In particular, our strong performance in North America is a demonstration of the agility and resilience we have built into AA code through this investment.
Our positive performance in Asia outside of China reflects a number of key initiatives. In particular, I note our Darling Brands brand refresh in South Korea, which is one of our leading and longest standing retail sales channels. Running through all of this work is our commitment to the customer. From the beginning, our branded base strategy is about working with chefs and restaurants, building a connection with our customers. In developing direct to consumer sales, we saw the need and the opportunity to refine this approach in a number of ways.
We deployed digital campaigns to target new customers to digital platforms. We created and launched online video series, Cooking at Home with West Home. We brought our brand into the home through our West Home unboxing experience. And we launched the place of initiatives to promote and support restaurant and bar that was heavily impacted by COVID-nineteen. And we launched our industry first West Home flavor wheel of the University of Queensland to drive our unique brand experience.
Our customer centric marketing approach has been a key response to COVID-nineteen, but it's important to note that this reflects our thinking from well before the pandemic. And as with our retail and direct to consumer approach in the first half, this enhanced customer focus will stay with us long after the pandemic. I'm now going to hand you over to Nigel who will take us through our financials for the half year in more detail.
Thank you and good morning everyone. And thank you for your interest in what has been a positive half year performance for Aaco in the face of great uncertainty and disruption. As you can see, there are some key positive financial highlights in the first half. We have achieved operating profit and cash flow improvements versus the prior year and this remains the case when we exclude the positive impact of JobKeeper, which Jim has referred to earlier. JobKeeper assistance totaled $6,700,000 for the half with $4,000,000 received in cash payments at the end of September.
Overall, our operating profit improvement reflects the continued progress against our branded beef strategy. This included an average 14.5% improvement in our mid sales price per kilo, continued brand strength, customer engagement and the strategic allocation of product. We also reduced operating and cost expenditure by streamlining costs across the supply chain. This included savings in groundings, seeding, cattle transport and processing along with the different objectives on optimizing discretionary costs. And this resulted
in a
$22,000,000 reduction in controllable cash costs. At the same time, adverse seasonal costs were reduced by around $28,000,000 against the same period. This result has allowed AA Co to deliver positive operating cash flow for the half. Our balance sheet remains strong and our gearing ratio has improved. Together, these results have driven a statutory EBITDA result of a $15,000,000 profit compared to a $3,400,000 loss in the first half of last year.
And as Hugh has already mentioned, these numbers highlight the resilience of our business. They show that our branded beef strategy is progressing well and the execution of this strategy has helped us work through the uncertainty of COVID-nineteen so far in FY 'twenty one. I'll now turn to our P and L on slide 13. As mentioned before, we achieved a positive operating profit result of $23,500,000 compared to $6,300,000 in the first half of last year. And excluding JobKeeper, our operating profit is $16,800,000 dollars This was achieved despite a reduction in overall revenue, which means we are generating stronger margins off a lower sales base because we have improved our average meat sales price per kilo.
Total sales pricing per kilo has increased in line with overall market increases and our disciplined focus on realizing efficiencies across our supply chain is working. And as mentioned already, we have secured a $22,000,000 reduction in controllable cost for the period. These cost reductions combined with $28,000,000 of reduced adverse seasonal costs compared to half 1 last year. Our cost discipline during COVID-nineteen has also included reduced non essential travel and expenditure and pay reductions from the Board and senior executive team along with temporary reductions in working hours for commercial and corporate staff. And now turning to Slide 14, I'm pleased to report a positive operating cash flow for the half.
This result is $22,300,000 compared to $11,000,000 in the prior year. And our result for the first half was $18,300,000 when we exclude JobKeeper. And as I mentioned previously, this reflects our continued progress against our branded beef strategy, efficiency gains and value realization through a simpler and more efficient AOCO, identification and capture of new market opportunities, strategic allocation of product across our markets and our rapid coordinated response to COVID-nineteen. The same strategic focus will continue to drive us in the future. We will continue to focus on optimizing cash flow and operating expenses.
And this will remain particularly important as the world continues to navigate uncertainty around COVID-nineteen. And now to our balance sheet on Slide 15. You can see we have maintained our strong balance sheet position at the end of the half and our gearing ratio has improved compared to the prior period and is well within our target range of 27.7 percent excluding the impact of AASB 16.
The strength of the balance
sheet and assets will continue to underpin our branded based strategy going forward and as we work through the ongoing challenges of COVID-nineteen. With that, I'll now hand back to Hugh to take us through our operating environment.
Thanks, Nigel. Turning now to the outlook for Australian beef. International demand for Redneck remains strong. Australian beef continues to benefit from long term global trends
in the middle class demand,
and this is compounded by the ongoing effects of African swine fever and Chinese pork supply. COVID-nineteen has changed the food service industry globally, but customers are finding new ways to satisfy the ongoing demand. Menus are adapting to cater for lower in venue capacities, and customers are increasingly searching up restaurant dining experiences in the home, including through online food marketplaces. The rise of the home chef has been fueled by growing engagement with virtual cooking classes by well known chefs and rapid growth in the availability of restaurant quality meal kits for at home dinner events. The inherent uncertainty of COVID-nineteen means we have to be prepared for a start stop recovery in the global foodservice channel.
And it is likely that consumer behavior will center around the home for the next 12 to 18 months, while eating in is the new going out. Over the coming period, we also need to be prepared for ongoing uncertainty in terms of access to the Chinese market. In particular, this has potential to impact our food meat category, where China has traditionally provided stronger prices in other markets. On each of these fronts, the work our team has done in responding to COVID-nineteen will position us well to continue to benefit from positive long term trends. We've shown great resilience and capacity for redaction this year and this can only benefit AECO going forward.
Turning now to the outlook for the Australian cattle industry, which is on slide number 18.
There are
a number of important dynamics playing out in the Australian cabin industry at the moment. We've recently faced compounding drought cycles and bushfires in key parts of the country. And as a result, the national herd is forecast to reach its lowest level in 20 years. Flying on from this change, cattle slaughter rates in the eastern states have grown significantly compared to the Q1 of calendar year 2019. And this is expected to flow into a 17% decline in national slaughter rates in 2020 compared to the 2019 calendar year.
On the weather front, forecast subject to La Nina event for the current season. Potential seasonal improvements to reduce slaughter rates could lead to growth in the national herd. And together, these trends are likely to impact prices in the market. Looking forward now from the AECO perspective, which is on slide 19. The impact of prolonged drought conditions from 2018 to 2020 in the Gulf Coast in 2019 are still being felt.
At Aeoco, this has driven a strategic re stocking program over the last few years. And at the end of last financial year, we announced an overall herd decrease of 19%. Long lead times in our industry from animal conceptions through the final meat processing means that reduced herd numbers take time to flow through into meat production. We started to see this impact at AA Co with reduced meat production volumes in the first half of this year, which is down 9% compared to 2019. And this will continue to impact meat production volumes for the rest of FY 'twenty one, both for AA Co and also nationally.
We also expect cattle sales to reduce nationally should more balanced seasonal conditions emerge. The outlook for markets will also continue to be uncertain as COVID-nineteen continues to impact the Northern Hemisphere. We note that the global cases increased significantly in October. The Northern winter is likely to affect our key European markets and the impact in North America remains highly uncertain. We're also cognizant that ongoing geopolitical uncertainty has the potential to impact different markets and also different segments.
So, we'll continue to monitor these impacts very closely and we'll continue to drive growth in retail, online and direct to consumer channels where opportunities are identified. Fundamentally, our first half results tell a story of the resilience of AECO, of our value proposition, our strategy and most importantly of our people. We do face continued uncertainty and anticipate declines in restructuring volumes as we move forward. The execution of our strategy has delivered strong results so far in FY 2021 and this strategy puts us in the best position to navigate the uncertainty we face and to continue to deliver real value for our shareholders in good times and also in bad. We thank you for your time today and we can now take some questions.
Thank you.
We
have a question from Barry of Barry Fleming.
I just had sort of 3 questions. First of all, this sort of booking at home, it seems like sort of a new sort of strategy. Can you just expand a bit more on that like sort of optimally, are you like investing in things like that sort of happen, but you got to package stuff up and then get it out there? And then distribution wise, how it sort of works like your major centers is likely to happening in Sydney and Northern, those sort of centers. Just give a little bit more background on that.
Thanks for the questions, Mark. The Cooking at Home or the Rise of the Home Chef, as I've called it before, it's actually it's not same section in Australia. We're seeing that the world over. And so, what we're finding is that people can't go out or the increasing lockdown, they've got access to high quality restaurant food stuff, just from direct to consumer channels. And so, while people can't go out, they still want the restaurant experience at home with their families.
And so, we're getting access to high quality products such as ours at AECO. So, it's the same that we're seeing around the world. As I said before in my prepared remarks, we've been running programs such as West Home at Home where we work with a number of leading global chefs, especially on digital online platforms where we show people how to use the product to have a cook with it at home. And when they actually order our product through our distributors, we deliver West Home at Home in a unique what we call unboxing experience, which really drives consumer engagement with our products. So it's working really well for us.
I think it's actually probably something that's going to remain post COVID-nineteen, but we're seeing that globally. In terms of pickup of this, as I said, we're seeing it globally, it's not unique to Sydney, Melbourne, Australia, but it's happening all around the world. And I think it's a really good thing that we can talk about with our customers in a way that actually drives recognition of our brand outside of just going to a restaurant.
Right. So you're sort of plugging into like the systems out there to get your product out there. So these chefs have got this sort of you're sort of delivering stuff to the chef and then they're actually running the distribution
and getting the product out to
the consumers. What's happening in it?
Well, the way that our model works is that we have key distribution partners in all the major centers where we export to and we work with our distribution partners to get our product to market whether that's the chef, whether that's the consumer or other channels that we sell into. And so what's been notable in our response throughout the year is our ability to pivot out of what's been largely a foodservice category into retail and also been testing direct to consumer as we said before. So we work hand in glove with our distribution partners globally.
Okay. Is it still a very small percentage of sales? Do you have any numbers on that or?
We don't we don't add direct to consumer sales. What you'll see in our numbers is and it's unique to our first half this year as we've actually moved much harder into the retail sales channels as well. And that's obviously as well as direct to consumer channels and the fact that our distributors are getting to customs in different ways. The fact that we're selling more into retail has obviously reduced the better price per customer as we've announced today.
Right, okay. Can I ask about Slide 9? You've got sort of the regional sales. And so I think overall sales fell by 38%. Is that on one of the slides you had that, the numbers?
And then this slide here at Slide 9 just sort of show how that's happened across these different sort of areas. So you're sort of saying overall things got stronger in North America and Asia excluding China and then weaker across other areas. That's how you'd interpret that slide, isn't it? But overall, it was 38% down across AOC, across everything.
That's $38,000,000 down? No, dollars
38 down, I think. So, probably slide a bit further on where you've got your sales, I think, in the operating part. Yes, so that's slide on Page 21 or $38,800,000 Okay. So total cost $144,000,000 down from $182,000,000
That's correct. Yes.
And so I was just trying to understand how that interacts with Slide 9.
You'll see the decline. So Slide 9 relates to the meat sales profile and the overall revenue number that you're referring to includes cattle sales as well. All right. Okay.
Can I just ask a
final question in the dial on that? Or is that sort of just sitting in the golf balls or is there any sort of update on what's happening with that?
There's no material update with the Woodingston base at the half year. As we've been really clearly articulating to the market, It's still in
a suspended
state and we'll continue to assess our options for the gateway asset as we move forward in the year.
All right. Okay. That's all I had.
Thank you. No further questions at this time. Would you like to make some closing comments?
I'd just like to thank everyone for joining the call today and look forward to speaking to you and updating you in the full year.
Thank you. That concludes today's call. Thank you for joining us. We will now disconnect your lines.