Australia: GrainCorp sees big fall in profit despite solid performance by barley and malt businesses

As forecast in September, GrainCorp saw a big fall in profit that was softened by a solid performance by its barley and malting businesses which continue to ride the global craft beer boom, Sharecafe reported on November 16.

The company very skilfully softened up the market in its September update to expect the profit structure and the performance of the barley and malting business.

Net profit slid 43.7% to A$79.5 million – which was smack on the September guidance – because of the impact of the drought on East Coast wheat and grain harvests and exports, and the prospects of no improvement well into 2019.

All that seems to be bad for the company and yet the unchanged final dividend of 8 cents a share, 30% franked confirmed that the company remains cautious but upbeat about the outlook.

Full year dividend was sliced to 16 cents a share from 30 cents in 2016-17, but again that is a prudent move.

So was the loss of 50 jobs in management at head office at the start of November as the company prepares for a tough summer harvest period with little or no grain to handle.

The serious financial pain looks like being felt in the interim report to March 31 next year

The shares hovered for a while in early trading, then eased 4% at one stage before bouncing back to end the day off 1.4% at A$7.80.

That means the shares are only down just over 5% for far this year, despite the distinct worsening in the drought in Queensland, NSW and now more of Victoria.

Revenue fell 7.1% or A$322 million to A$4.253 billion, in the year to September 30, with a rise in malt and oil revenue failing to offset a A$380 million drop in grain earnings.

“The 2019 financial year will be extremely challenging for GrainCorp with expectations of a substantially smaller (East Coast) crop due to the current drought,” chief executive Mark Palmquist said in a statement.

“In response to the constrained grain availability, the grains business is focusing on network rationalisation, cost reduction, and domestic transshipments.”

The fortunes of GrainCorp are in stark contrast to other rural players Elders and RuralCo, which earlier this week credited their diversified businesses for protecting their profits from the worst of the drought so far. But Elders shares were hammered after an odd 19% surge on Monday.

Total GrainCorp grain sales were down 1.4 million tonnes, or 16.9%, to 6.9 million tonnes, with grains revenue dropping A$380 million to A$2.24 billion.

GrainCorp said recent rain across the northern cropping regions was positive news for summer plantings, but added it was early in the cycle and further rain would be needed while the planting window was open.

The company expects a negligible exportable grain surplus in the current year, with just under half of the 0.5 million tonnes of grain received into its network so far coming from Western Australia and South Australia to meet domestic demand.

There was, however, a craft beer-driven rise in GrainCorp malt revenue, which was up A$47 million to A$1.15 billion.

“Malt’s performance included a full second half contribution from our expanded plant in Pocatello, Idaho, and we recently announced a substantial expansion to our malting capacity in Scotland to support growth in distilling demand,” Mr. Palmquist said.

The company’s edible oils revenue was also higher, rising A$24 million to A$969 million, but this too is set to be hit by drought in the next few months.

Tight canola supplies are placing upward pressure on crush margins, though oils are benefiting from strong demand for liquid animal feeds and dairy blends.

However, GrainCorp said both the malt and oils processing businesses continue to be impacted by high energy prices.

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