AAP’s former leased orchard delivers a $2.36 million first-year benefit

Former leased orchard becomes AAP’s main earnings test

Australian Agricultural Projects Limited (ASX:AAP) has completed the first full season of farming the former Victorian Olive Oil Project orchard for its own account, turning a major structural change into a $2.36 million net benefit. The result helped offset the loss of traditional lease and management income as AAP took direct control of 285 hectares near Boort, Victoria.

The transition also reshaped the balance sheet. Orchard assets that were previously classified as bearer plants and investment property are now carried as property, plant and equipment, contributing to a year-end balance of $18.41 million compared with $947,070 a year earlier. That accounting change does not represent a cash inflow, but it marks the point at which AAP’s direct farming model became the centre of the business.

Profit fell as harvest economics moved in-house

Profit after tax dropped to $886,870 from $1.96 million, while revenue declined to $1.13 million from $5.60 million. The comparison is distorted by the lease expiry: AAP no longer records the former VOOP I orchard’s lease and management income in the same way, instead recognising the value of agricultural produce from the crop it now farms itself.

That accounting treatment produced a $2.36 million fair-value gain on agricultural produce. It is not the same as cash collected during the year. AAP’s operating cash flow nevertheless improved to $1.59 million from $929,851, supported largely by receipts from the previous harvest. Olive oil inventory rose to $4.02 million from $607,148, with sales proceeds expected to flow through progressively after harvest.

639,900-litre harvest clears an off-year hurdle

The 2026 harvest yielded 639,900 litres, below the 752,600 litres produced in 2025 but above the 551,500 litres harvested in the comparable 2024 off-year. Management described the result as at the top end of expectations, despite cooler conditions reducing oil accumulation in the fruit. It estimated that output might have been 10% to 15% higher if oil accumulation had matched historical averages.

Harvest infrastructure also received a practical test. New control systems on AAP’s harvesters and upgraded washing and conveyor equipment removed key processing bottlenecks, while the company said the orchard was harvested within a reasonable timeframe. A minor March flood temporarily restricted access and left some trees underwater for several weeks, although management said the orchard remained in good health.

Debt reduction continues as balance sheet repair nears completion

AAP reduced loan debt by $539,000 during the year, while borrowing costs fell to $402,750 from $446,271. Total borrowings stood at $5.67 million at 30 June, including a $4.10 million secured bank loan and an $800,000 unsecured facility associated with managing director Paul Challis. The company also retained $210,823 in cash at year-end, down from $450,567.

Management says the balance sheet repair that followed the replanting of roughly 200 hectares between 2018 and 2022 is nearing completion. The next strategic question is how AAP will use that improved position, with the company saying it continues to review options for simplifying its structure and making better use of the two projects it manages.

Next harvest carries the operating narrative

The coming season is expected to be an “on year”, and AAP has set an initial harvest budget of 800,000 to 870,000 litres. The estimate remains dependent on flowering, fruit set, oil accumulation and general growing conditions, with management planning to refine it later in the year.

AAP’s olive oil supply agreement with Cobram Estate Limited (ASX:CBO) has been extended for at least five further harvests, giving the company a continuing sales channel for oil from its own orchard and managed projects. Yet the commercial picture still rests on several moving parts: retail pricing has remained firm despite more normal European bulk prices, input costs are elevated, and variable-rate borrowings leave the company exposed to interest movements. The next quarterly updates should show whether the promising production capacity translates into cash receipts rather than simply another favourable accounting harvest.