Australia: United Malt Group raising A$140 million to strengthen its balance sheet
United Malt Group is raising A$140 million to strengthen its balance sheet after taking a hit from a drop in beer consumption during COVID-19 shutdowns across its global markets, The Australian Financial Review reported on May 14.
The newly listed maltster noted a 30 per cent drop in demand in April with pubs and other hospitality and entertainment venues closed for business.
United Malt has production plants and distribution assets in Australia, North America and the United Kingdom where there are varying degrees of restrictions and no certainty around reopenings.
Subject to the decisions of each government to ease restrictions in each of our markets, we expect a slow return to pre-COVID-19 volumes," chief executive Mark Palmquist said.
"We anticipate that consumers may remain cautious on returning to public venues which may continue to impact on-premise sales."
United Malt started to feel the impact of stay-at-home measures from mid-March with a sharp drop in its distribution business.
The effects flowed through to production by April with sales and shipments disrupted as brewers and distillers tried to conserve cash and drew down on inventory.
The raising comes less than two months after United Malt started trading on the ASX after its demerger from GrainCorp.
United Malt reported underlying net profit after tax of A$28.5 million for the six months to March 30 in a result that included three to four weeks of venue closures that were only partially offset by a rise in people drinking at home.
The company has focused on cutting costs and not ruled out further job losses and scaling back production if malt demand remains weak.
United Malt is targeting A$10 million of savings in discretionary spending in the second half and deferring A$5 million in capital expenditure.
Board members and executives, including chairman Graham Bradley and Mr Palmquist who both jumped ship from GrainCorp, will have their base fees and salaries cut by 20 per cent for the remainder of 2019-20.
United Malt said the $140 million raising, via a fully underwritten institutional placement and a non-underwritten share purchase plan of up to A$25 million, was a pre-emptive measure to strengthen the balance sheet in the current uncertain environment.
The placement was priced at A$3.80 a share, which represented an 11.4 per cent discount to United Malt's $4.29 last closing price on May 13.
James Ferrier, of investment house Wilsons, said the result was softer than expected.
However, Mr Ferrier said United Malt's commentary suggested trading conditions had started to improve in recent weeks with some jurisdictions moving to ease social distancing measures.
"Even if you look at beer consumption over the past eight weeks it has actually been pretty robust in the context of every single bar and restaurant being shut," he said.
United Malt said its processing sites were considered essential services and continued to operate as did its warehouse facilities with the exception of Oakland in California, which has been affected by COVID-19 movement restrictions.
The company said strengthening its balance sheet and liquidity position would help it withstand an extended period of market disruption while maintaining operational and financial flexibility.
Mr Palmquist said United Malt remained in a strong financial position with significant headroom in its financing facilities.
The company's net debt was A$502.6 million at March 31 higher than the A$483 million forecast in an information memorandum issued before listing after what it said were adverse foreign exchange fluctuations.
United Malt said it remained on target to complete a £51 million ($96.7 million) expansion of its Scottish malting capacity by the end of calendar 2021 despite work on the Arbroath plant being halted under COVID-19 restrictions.
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