Graincorp Limited’s HY19 Earnings Impacted By East Coast Australian Drought

Leading international agribusiness, Graincorp Limited (ASX: GNC) has reported revenue growth of 25.5% for the half-year ended 31 March 2019. However, the group recorded an underlying net loss after tax of $48 million in the half-year period as compared to the net profit of $36 million in the previous corresponding period, driven by challenging conditions in Eastern Australia.

Due to the low east coast Australian grain production during the half year period, the company’s grains and Oilseeds businesses were negatively impacted. The company is expecting that the challenging conditions in eastern Australia to continue in the second half of FY19.

The company witnessed some relief in its Malt, Feeds and Bulk Liquid Terminals operations which reported positive performance during the period. Further, the company’s Foods business also continued to achieve ongoing efficiency improvements. The company believes that the robust demand for Malt products will continue in the 2019 northern hemisphere summer. Moreover, it expects to receive further benefits from the continuous improvement program in Foods during the second half.

During the half year period, the company also witnessed a good performance from Bulk Liquid Terminals and Feeds, and improvement in Foods driven by the ongoing cost reduction and efficiency improvements. In its oilseeds business the company witnessed a significant decline in crush margin due to East Coast Australian drought and impact on canola supply and freight costs, and lower canola meal pricing.

During the half year period, the company entered into a deal to sell its Australian Bulk Liquid Terminals business to ANZ Terminals Pty Ltd. As part of the transaction, GrainCorp is going to enter into a long-term storage agreement with the purchaser. As at 31 March 2019, the assets and liabilities relating to the Australian Bulk Liquid Terminals business, and other GrainCorp properties have been classified as held for sale.

The company recently announced its intention to demerge the Malt business which would result in the formation of two independent ASX-listed companies, referred to as ‘MaltCo’ and ‘New GrainCorp’

As per the company’s announcement, GrainCorp’s FY19 full-year performance remains subject to a range of variables, including:

  • East coast Australia: 2H19 receivals, port elevations and grain import volumes;
  • Impact of global crush margins on Australian edible oils;
  • Global grain trading conditions;
  • New season grain trading opportunities in Fourth quarter of FY19; and
  • Foreign exchange movements.

As at 31 December 2019, the company had Core debt of $880 million and net debt of $1,744 million. At the end of the half year period, the company’s core debt gearing was at ~32% and net debt gearing at ~42%. Net debt gearing higher due to higher inventory levels and timing of commodity shipments.

At the time of writing, i.e., on 9 May 2019 AEST 2:32 PM, the stock of the company was trading at a price of A$7.690, down 3.513% during the day’s trade with the market capitalisation of ~A$1.82 Bn.


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