by Lynda Kiernan
Consolidated Pastoral Company (CPC) continues its divestment strategy, announcing the sale and lease-back of its Manbulloo Station located in the Northern Territory through a deal reported to be valued at more than A$25 million (US$17.4 million). The buyers are said to be a collection of domestic and foreign investors.
Held by UK private equity firm Terra Firma, rumors about the sale of the CPC portfolio have circulated since November of 2014, but the divestment process did not being in earnest until last year with the announcement of the sale of Nockatunga Station, a bullock fattening operation located in southwest Queensland.
In January of this year, CPC sold three more cattle stations: the Auvergne and Newry Stations in the Northern Territory, and the Argyle Downs Station in Western Australia – with a combined total of 740,000 hectares (1.8 million acres) of land, and 52,000 head of cattle – to Vietnamese investment group Clean Agriculture and International Tourism (CAIT) in a deal valued at $135 million.
In March CPC parted with its Mimong Station for a reported A$20 million (US$14.3 million) to Baldy Bay Pty Ltd, which is owned by pastoralist Sterling Buntine. And by May, Baldy Bay returned to acquire CPC’s Comley Station aggregation in central Queensland for a reported A$50 million (US$35.27 million).
All told, the agreement CPC reached for Manbulloo represents the seventh sale agreement committed to by the group since March of last year.
At 380,000 hectares, and with 60 kilometers of frontage on the Katherine River, and many on the King River as well, CPC wanted to retain Manbulloo for a longer period of time, as many of its other properties have been significantly and negatively affected by drought.
“Manbulloo has formed a more important part of the company this year than it has in previous years because of the dry conditions on the Barkly,” CPC chief executive Troy Setter told ABC.
“It has allowed us to move some of the weaners and some of the older cows up from the Barkly. [Manbulloo] has been quite helpful in the group this year, more helpful than it would have in a normal year.”
Drought, Flooding, and Earnings
Flooding, which resulted in the loss of 1450 head of cattle at CPC’s Manbulloo Station and widespread drought conditions, has had a toll on Australia’s cattle industry.
For the 2018-19 financial year ending in March, CPC posted pre-tax earnings of $36.2 million and profit of $22.9 million, after costs of $23 million tied to flooding and drought have been accounted for. Meanwhile, revenue saw a decline of 8.8 percent to $128.5 million on a decrease in average cattle values year-on-year.
Total combined asset value for CPC for the year was $921.5 million, slightly lower than $925.5 million for 2018, based on higher land values, a larger herd, and the October divestment of its Nockatunga Station.
Over the course of the year, CPC also continued with its plan to convert grazing land to cropping.
There exists a number of drivers behind the decision to expand into cropping, according to CPC CEO Troy Setter, including the establishment of additional channels of income.
“…whether its sorghum hay or sorghum grain, or whether the next crop following the sorghum could be something like mangoes or melons. We’re still working through that, but we’re certainly committed to developing and looking at all opportunities in northern Australia,” Setter told ABC in June of last year.
The addition of cropping operations and higher self-sufficiency in cattle feed could make CPC stations more attractive on the market.
In a Global AgInvesting Europe 2017 presentation on the key risks and effects on farmland returns, David Sackett, managing director at Growth Farms Australia, highlighted the need for investors in Australian pastoral assets to focus on properties that bring the potential for optionality if the markets changes.
The company also upgraded its assets through water and fencing improvements at the cost of $4.4 million. This investment, which was undertaken with the goal of improving production and capacity, resulted in an uptick in the value of CPC’s holdings of $14.4 million.
Looking at Years
Although divestments seems to be occurring one upon the next for CPC, the company has no targeted date by which to complete the process.
“There’s no set timeline set by shareholders, they are pretty relaxed and comfortable, and we will continue to work through to create the most value that we can for the shareholders, but also at the same time ensuring that the properties, the cattle, the people, and the environment are all looked after during our stewardship but also post our stewardship,” said Setter.
CPC still controls one of the largest portfolios of pastoral holdings in the country, with a capacity of between 300,000 to 330,000 head.
In addition, over the next five years there is expected to be a steady rise in demand driven by higher incomes and population growth in markets targeted by Australian exporters. As a dominant Australian cattle exporter, with its direct sales channels primarily involving the sale of cattle and beef to Asian consumer markets through its 90 percent stake in a joint venture holding two Indonesian feedlots, CPC is well positioned to benefit from notable trends.