SYDNEY, AUSTRALIA — Underlying EBITDA at GrainCorp Ltd. totaled A$27 million in the first half of fiscal 2019, down from A$119 million in the same period a year ago, dragged down by severe drought conditions in eastern Australian and grain flows that have been disrupted by grain trade conditions.
The company sustained a net loss after tax of A$48 million, which compared with a net profit after tax of A$36 million in the same period a year ago.
“East coast Australia grain production was the lowest in over a decade and this has had a significant unfavorable impact on both our grains and oilseeds businesses,” said Mark Palmquist, chief executive officer of GrainCorp.
EBITDA for the company’s Grains business in the first half sustained a loss of A$52 million, which compared with earnings of A$30 million in the first half of 2018. Revenue climbed slightly in the first half of 2019 to A$1.5 billion, which compared with A$1.02 billion in the same period of last year.
GrainCorp attributed the decline in oilseeds crush margin to the eastern Australia drought as well as freight costs and lower canola meal pricing.
EBITDA for GrainCorp’s oils business fell to A$22 million in the first half of 2019 compared to A$29 million in 2018. Revenue for the first half was A$471 million, a decrease from A$490 million in the first half of 2018.
“There was continued positive performance from our Malt, Feeds and Bulk Liquid Terminals operations,” Palmquist said. “Our Foods business also continued to achieve ongoing efficiency improvements.”
Malt EBITDA slipped slightly to A$73 million in the first half of 2019, which compared with A$75 million in 2018. Revenue jumped to A$610 million in 2019 from A$534 million in the first half of 2018.
GrainCorp expects continued demand from Malt products in the 2019 northern hemisphere summer and further benefits to be derived from the continuous improvement program in foods during the second half.
“GrainCorp recorded encouraging improvements in the group’s two key safety measures, although we are determined to pursue further improvement,” Palmquist said.
As a result of the half-year financial performance, the board has determined that GrainCorp will not pay an interim dividend this period.
The group expects the challenging conditions in eastern Australia to continue in the second half. The company noted planting for the grain crop winter is well under way in eastern Australia, “however it is too early in the season to forecast grain production levels and the potential implications for GrainCorp.”
GrainCorp said its 2019 full year earnings hinge on multiple variables including:
- East coast Australia: second half of 2019 receivals, port elevations and grain import volumes;
- Impact of global crush margins on Australian edible oils;
- Global grain trading conditions;
- News season grain trading opportunities in the fourth quarter; and
- Foreign exchange movements.
The company continues to progress its portfolio review initiatives, including the demerger of its Malts business, the combination of Grains and Oils, simplification and cost reduction initiatives and the sale of the Australian Bulk Liquid Terminals to ANZ Terminals.
On May 6, The Long-Term Asset Partners Pty Ltd (LTAP) pulled its bid to acquire GrainCorp. The Dec. 3, 2018, proposal included LTAP acquiring 100% of the shares in GrainCorp for cash consideration of A$10.42 per share.
Shortly after, GrainCorp began working with LTAP “to assist them as they undertook due diligence and sought to develop a binding offer capable of consideration.” In mid-December, GrainCorp’s board updated its shareholders with a letter stating the co-op was waiting on a “more certain proposal.”
After financial, legal and grain industry assessment LTAP pulled its proposal.
“LTAP was a very serious bidder with significant Australian and international backing across the proposed transaction,” said Tony Shepherd, chairman of LTAP. “Had due diligence supported our operational assumptions, we are confident we would have turned the LTAP proposal into a binding offer as contemplated. GrainCorp provides a valuable service to the nation’s grain growers and we wish them well.”
