CEO INterview

AUSTRALIAN AGRICULTURAL COMPANY LIMITED

CORPORATEFILE.COM.AU

Australian Agricultural Company Limited (AACo) recently forecast a
$23.2 million net profit for the year ending June 2002, 10 percent
higher than the prospectus forecast of $21.1 million but below a more
recent projection of $28.1 million. The swing in profit forecasts is
largely due to movements or anticipated movements in cattle prices.
Can you outline the cattle price swings since the prospectus was
issued?

CEO PETER HOLMES A COURT

The indices show that by December 2001, cattle prices had risen 30
percent from the start of the financial year, and have come back 15
to 20 percent since then. But, those swings are not entirely relevant
to AACo. The reported indices are generic indicators and don't
accurately reflect the price of higher quality cattle. The indices
are more a benchmark for commodity product. Our product has much
lower price volatility.

Our cattle prices are tracking at a net increase of 7 percent since
the start of the financial year, versus the 3 percent we forecast in
the prospectus.

It's important to note that mark-to-market accounting reflects the
value of our cattle, which is also a product of weight and number.
Price is only one variable.

CORPORATEFILE.COM.AU

What has driven the recent cattle price movements and what factors
are likely to drive future cattle prices?

CEO PETER HOLMES A COURT

The price we receive for our cattle always reflects a combination of
international factors and domestic demand and supply.
Internationally, we've seen demand reduced as a result of the BSE
outbreak in Japan, confusion around allocation of the US import
quota, and the economic uncertainty after September 11. Domestically,
the dry conditions in Queensland and New South Wales have resulted in
a lot of low quality, light cattle being put onto the market, which
has increased supply.

As we look forward, we see demand returning in Japan, we see US quota
issues being resolved positively and we see the oversupply of light
cattle coming to an end as farmers complete off-loading their excess.
We therefore see supply tightening and demand increasing.

CORPORATEFILE.COM.AU

AACo's share price has weakened from the $1 issue price to a current
level of 80 cents. EPS of 12.5 cents is derived from the forecast net
profit of $23.2 million in June 2002 implying a PE ratio of about 6
times. How do you intend to restore shareholder value?

CEO PETER HOLMES A COURT

By demonstrating the efficiency and resilience of our core business,
which is one of the best cattle-producing systems in the world. As
well, our prudent move into value-added beef markets, at retail and
wholesale level, will eventually be a major contributor.

CORPORATEFILE.COM.AU

Was the company over priced at the time of the IPO?

CEO PETER HOLMES A COURT

We went public at a prospective PE of 8.5 times, with a projected,
fully franked dividend yield in the region of 6 percent and net
assets at or around the IPO price. I'm very comfortable the IPO
represented fair value.

We'd expect a higher share market rating as we deliver on our
full-year forecasts and are able to demonstrate returns from our
value-added initiatives.

CORPORATEFILE.COM.AU

Self-Generating and Regenerating Assets (SGARA) accounting standards
require you to mark the value of your cattle herd to market at the
end of each accounting period. Reported earnings don't necessarily
reflect cash earnings. Do you consider the SGARA standard appropriate
for your company?

CEO PETER HOLMES A COURT

No accounting standard matches reported profit with cash and
therefore wise investors always look through P&Ls to a company's
cash-generating capacity. I'm a broad supporter of mark to market and
the rigour of reporting what the market value of an asset is, not
some obscure accounting book value.

Therefore I'm comfortable reporting mark-to-market earnings and
focussing investors' attention on the cash-generating abilities of
the company. When we look at an investment, we look at it on a
cash-generating basis and on the return on capital employed, which is
how wed hope wise investors will look at us.

CORPORATEFILE.COM.AU

Given the SGARA impact on reported profits, what measures do you
employ to assess the performance of AACo management?

CEO PETER HOLMES A COURT

Our KPIs are production driven, to ensure management makes and
creates the greatest value out of the herd. The indicators tend to be
very specific to each sector of the company. For managers in the
breeding sector, indicators relate to increasing calving percentages
and branding percentages, while for those in the feed lot sector,
they'd relate to decreasing feed costs, increasing conversion rates
and increasing weight gain.

CORPORATEFILE.COM.AU

What KPIs do you monitor to measure the company's performance?

CEO PETER HOLMES A COURT

Three issues. The first is cash, cash and cash. The second is return
on capital employed and the third is progress toward our strategy
goals.

In terms of cash, we forecast operating cash flow in the current year
in the low $20 million range and we've reiterated we're on track for
that.

On return on capital employed, we're in the region of 12 to 13
percent, but have targetted 15 percent, which is our hurdle for every
incremental investment we look at. It should be said that our capital
employed includes assets that we mark to market, as opposed to the
historic cost used by many other companies.

Finally, on strategy progress, we've said we want to bring new skills
into the group and capture more of the value add, and we've said
we're going to do that carefully. To date, we've made two small moves
in that area that are showing early signs of positive progress.

CORPORATEFILE.COM.AU

In the July 2001 prospectus, AACo forecast a fully franked dividend
of 5.9 cents per share. To what extent is the dividend likely to be
covered by cash earnings (as distinct from SGARA EPS) and what will
be the priorities in allocating any surplus cash?

CEO PETER HOLMES A COURT

Our cash earnings are well in excess of the dividend. The priority
for surplus cash is to expand the business, expand the herd under
management and to create more value for our shareholders by capturing
more of the value chain.

CORPORATEFILE.COM.AU

Nearly 35 percent of AACo's beef production goes to the Japanese
market, which has been negatively affected by the recent BSE scare.
Are there any signs of a recovery in demand from Japan?

CEO PETER HOLMES A COURT

There are very clear signs of a recovery in demand from Japan, which
is now in the region of 70 percent of its pre-BSE levels. We believe
the market is on track to reach 80 to 90 percent by the end of the
calendar year. Our beef goes into the chilled, grain-fed sector of
the Japanese market, towards the middle-to-top end of the market, but
because of its quality it's also in demand in the domestic and
American markets. This versatility means we can target, and aren't
tied to the Japanese market.

CORPORATEFILE.COM.AU

Where are your international growth opportunities and what is your
competitive position versus your peers in international markets?

CEO PETER HOLMES A COURT

The competitive advantages of Australian cattle production are
significant and sustainable. There's the scale of our production,
which is many times that in any other country. And the low capital
cost of our land, which on a beast-area basis is a fraction of land
cost in Europe and North America.

Cheers
Cerberus