GrainCorp Reports Disruption In Grains Business Unit; Stock Plunged On ASX

On 18 April 2019, a leading global agribusiness with diversified operations, GrainCorp Limited (ASX: GNC) notified the market, that its Grains business unit had gone through a disruption to grain trading conditions, in the last one and a half month period, of its half-year reporting duration to 31 March 2019.

The main reason for the disruption in grain business is attributed to the influence of the global trade tensions on grain flows coupled with the influence of ongoing drought conditions in East Australian region, which substantially influenced summer crop production, predominantly sorghum.

The reasons mentioned above, resulted in the Grain’s business unit to experience a decline of around $40 million in anticipated EBITDA for the period. The impact would be integrated into GNC’s audited half-year report, which is scheduled to be released on 9^th May this year.

GNC’s CEO, Mr Mark Palmquist said that it was a disappointing result during the challenging period, in the global grain markets, which was compounded by the continuing drought conditions in the Australian region. He further added that the company has a solid risk management procedure in place, and it continues to closely monitor market conditions.

On 4 April 2019, the company updated the market about its intention to demerge its international malting business segment, although it remains subject to shareholder and other approvals.

In its financial report for the period ending on 30 September 2018, the company recorded its total revenue by the end of the period standing at $4,253 million, compared to $4,576 million in the previous corresponding period (pcp). The Underlying EBITDA for the period was at $269 million (FY17: $390 million). The Underlying NPAT stood at $71 million (FY17: $142 million).

The company declared a fully franked final dividend of 8 cents per share; total FY18 dividend payment was of 16 cps from (FY17: 30 cps). The total assets of the company on 30 September 2018 was noted at $ 3,974.7 million from 3,598.4 in pcp. The total liabilities for the period was noted at $ 2,032.5million from $ 1,738.0 million in pcp.

From the cash flow perspective, the company recorded net inflow from operating activities at $ 183.3 million as on 30 September 2018, compared to $ 300.5 million in pcp. The net outflow from investing activities stood at $126.6 million, compared to $ 37.2 million in pcp. The net outflow from investing activities stood at $126.6 million, compared to $ 37.2 million in pcp.

As noted on 14 November 2018, a total of 0.5 million metric tonnes (MMT) had been obtained into GNC’s network, comprising of 0.2mmt in grain transported by vessel from Western and South Australia to eastern Australian ports to meet domestic demand. It was predicted that there would be an insignificant exportable surplus in the existing year. As its outcome, FY19 was supposed to be difficult for the Grains business section of the company.

Owing to severe drought condition, the company is expecting a considerable decline in grain production in Eastern Australia. In view of this, the company is working on its country network to better match the size and location of the crop, while focussing on cost optimization, capex allocation and asset utilization.

The stock of the company is currently trading at A$9.155 (as on 18 April 2019, 03:03 PM AEST), down by 2.7%. The company has a market capitalisation of around A$2.15 billion with circa 228.86 million shares outstanding.

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