Brunette Downs: The cattle empire that’s red meat for billionaires
TANSY HARCOURT
The Australian. 9 October 2022
When you fly in low over Australia’s biggest cattle empire, it’s easy to see why billionaires have been tripping over themselves trying to grab control of the company that accounts for 1 per cent of the nation’s land mass.
The scenery is vast and spectacular at Brunette Downs, a 1.2 million hectare estate in the Northern Territory, the biggest property owned by the Australian Agriculture Company.
“Thanks for flying AACo,” says the pilot as he drops us in gently in one of the company’s five private planes. As if we had other choices of transport – this station is surely close to the middle of nowhere, a six-hour drive from the nearest major town, Mount Isa.
AACo is on a mission to retell its story after a difficult few years.
In the past few months, there’s been a bustling of billionaires for AACo stock, with British businessman Joe Lewis, owner of Tottenham Hotspur soccer club, creeping to majority ownership, Andrew Forrest grabbing a 17.4 per cent shareholding, partly from the Holmes a Court family, while wealthy retailer Brett Blundy – the man behind the Lovisa jewellery chain – also disappeared as a significant investor.
Much-liked chief executive Hugh Killen departed suddenly in June amid speculation of a workplace affair, leaving Dave Harris to fill his role. The company is still recovering after Covid-19 shut down restaurants, and in 2019 it was left reeling after floods wiped out 40,000 head of cattle.
Issues rich is somewhat of an understatement.
The controversy that surrounds the 198-year-old AACo is at odds with the straight-speaking country people who work there.
So what is the draw? For starters, it’s now the world’s biggest wagyu beef producer and our biggest cattle producer by value. Its lands include Lake Sylvester, home to the second-biggest pelican hatchery. It has seven road trains, 150 passenger vehicles, manages 14,000km of road, and has more watering points than Shell has service stations.
AACo’s scale is enormous. The company has 6.5 million hectares of land and at one point had 600,000 head of cattle, with the number now closer to 420,000 as it rebuilds after the floods.
Harris starts his first interview since taking the reins at AACo as we sit hundred of kilometres away from the Brunette Downs homestead waiting for help to unbog a Toyota Landcruiser.
We wait for a helicopter to return with a strap to pull the 4x4 out of the mud. Harris says it’s not the headline-grabbing billionaire tussle that keeps him up at night.
“I worry about things I can control, and I can’t control that one,” says Harris. “We’ve got a wonderful story to tell and my focus is on the business and extracting the most out of the opportunity that we’ve got and creating the best environment for great leadership and great agricultural practices.”
That has, however, been a sideshow to the jostling billionaires. Forrest is said to have been surprised and infuriated when Lewis – who became a significant shareholder in AACo nine years ago – increased his stake in September from 48 to 50.7 per cent.
Snipey tales emerged questioning the authenticity of Francis Bacon paintings on Lewis’s super yacht that Forrest is believed to have visited in Bordeaux. Some billionaires, it could be concluded, are not above a cat fight.
Forrest had assumed, wrongly, that Bahamas-based Lewis, who made a fortune in hospitality before jumping into the bigger league with currency trading, did not have government approval to move to majority ownership.
So what do any of these big-name shareholders – or anyone – get from shares in AACo?
There is certainly massive value in the 30 stations, farms and feedlots that AACo owns and in
the hardworking people it employs, but the company hasn’t paid a dividend since 2008 and doesn’t look likely to soon.
AACo is focused on growth in the underlying business, according to its chairman, Donald McGauchie, who says that Australians have a “fixation” with dividends because of the superannuation industry and beneficial tax arrangements.
“In many parts of the world, growth in the underlying value of the business is certainly seen as being a reasonable objective,” he says. “Frankly, it is very much the objective of agriculture across the board and in family businesses that’s what they do.”
McGauchie points to the ability to increase capacity through better fencing and greater use of irrigation licences as an example. “We’re not making huge cash profits but we will significantly improve the underlying value of the business and, obviously, we would like to think that will be reflected in the share price.”
Truth be told, without dividends and the share price arbitrage that comes from hoping one of the billionaires will take a stab at the full company – there is a strong case for taking AACo private. Many former investors certainly question why a company with little interest in paying shareholder returns is a good fit for the Australian Securities Exchange.
“That’s a question for shareholders and we can make an argument for both sides,” McGauchie says. “It’s been a relatively short period in its very long history as a listed company.”
AACo was created in 1824 as a wool producer before moving into coal, gold and then cattle. It first listed on the ASX in 1976 and was purchased by Elders in 1995 before being relisted in 2001.
What Forrest, the second-richest person in Australia, thought he could achieve by buying into a company already effectively controlled by another billionaire remains to be seen. He declined an interview.
And of Lewis’s strategy in holding this asset? He’s certainly not saying. The Bermuda-based businessman doesn’t do media and gave his last interview in 1998, to the New York Times.
His closed-shop approach privately frustrated Killen, leading him to second-guess the motives of Lewis’s two representatives on the AACo board, and undoubtedly irked other shareholders, with Paul Holmes a Court once saying he’d never spoken to him.
With AACo, it is probably the same long-term land play that has Lewis, Forrest, Gina Rinehart and wealthy families the world over – from the Gateses to the Waltons – snapping up farms and ranches.
Like the chairman, Harris thinks the best value comes from improving the properties. “If we increase the profitability of the business, if we increase the net asset value of the business – and the net asset value of the business has increased over time – they can still sell out of a share at a better share price than they bought it for and extract value out of that.”
Harris’s arrival at the top job – he was formally appointed in September – was not part of the company’s immediate plans. Killen, who had run the business since February 2018, was suddenly out of a job after an unsettled period that included questions put to him by AACo directors over whether he might be conducting an office affair. As The Australian’s Margin Call column first reported in March, Killen strongly denied this was the case.
It was not the only nasty story to emerge. The company had donated a “VIP experience”, sold as a “non-stop outback fun and entertainment” experience, to The King’s School, the wealthy Sydney school Killen had attended. (The company said the use of the AACo jet for the prize had been approved internally.)
So what will Harris do, now that he has stepped up from chief operating officer? “We are going to have a very similar direction.” he says. I think our branded beef will continue to grow … and I think that getting closer to a customer is an important one for us to extract value out of.”
To that end, three chefs who exclusively use AACo’s wagyu are visiting Brunette Downs to see the process of raising the animals that end up in their kitchens.
Via helicopter they see cattle being mustered on horseback, and ask questions about the process of moving from grass-fed to feedlot. They are also here to showcase their cooking to AACo staff and explain what cuts they use and want to see more of.
Malcolm Lee says his customers at Candlenut keep returning for the wagyu beef rendang. His Michelin-starred restaurant in Singapore is recognised for its Malay-Chinese cuisine and Lee says wagyu’s tenderness is key.
Roger Rungpha, from San Jose’s LB Steak, is a fan of AACo’s Westholme beef. And Brisbane’s Brent Poulter, who spent time working at Brunette Downs before starting the Low n Slow Meat Co and 18-store Getta chain, says knowing the paddock-to-plate process is critical to his success.
“Understanding the provenance of products we sell is important, especially with the wagyu we offer,” he says. “It’s such a high-end purchase for a customer and they deserve to know what they are buying.”
AACo’s approach is to control the whole process – from breeding the cattle to packaging the resulting beef into Westholme, Darling Downs and Wylarah branded products. It is unusual in an industry where cattle farmers usually sell at market rather than seeing it through to the plate.
Some argue that taking a higher margin approach through branded beef comes with more risk as countries across the world struggle with rising inflation.
Harris, 41, disagrees. AACo’s two biggest markets of North America and South Korea use different parts of the carcass so complement each other, he says. And consumption of wagyu is still low. “We’ve found people that appreciate our product, and desire our product, and that the growing middle class and upper class buying this product typically don’t get affected too much in those tough financial times … we don’t see that as a risk,” he says.
In fact, Harris says this side of the business will continue to grow. “Our returns and our effort and the size of our branded beef side of things, as well as sustainability, will be larger portions of our day-to-day business than they are today,” says Harris.
Sustainability is a huge issue for a company with as much land and herd size as AACo, particularly given livestock is estimated to produce 11 per cent of Australia’s greenhouse emissions.
AACo is participating in a trial feeding asparagopsis – a type of seaweed – to cattle to reduce methane output. It is promising but at a cost of $2 a cow a day it is currently financially unviable, and would require giving farmers access to carbon credits.
AACo shares fell from a 14-year high in the days after Killen’s departure in June and are yet to regain that ground, though AACo is worth more than $1bn, up 22 per cent over the past 12 months.
Harris looks like a man who will step comfortably into his new role, but it’s likely the bigger issue investors are trying to get their heads around is the squabbling at the top echelons of the wealthy.
Will Forrest get his way with Lewis? Will another rich-lister buy in? It’s hard not to wonder how our nation’s wealthiest people feel about being humbled or, worse still, ignored.
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