As expected, GrainCorp (GNC) has reported a sharp drop in half-year profit and slashed interim dividend by 50% because of the drought in Eastern Australia, and without the impact of the looming El Nino event.
The company yesterday told the ASX that interim earnings fell 40% to $30.2 million for the six months to March 31.
Revenue from continuing operations fell 3.9% to $1.975 billion in the half year from $2.055 billion a year earlier, due to lower commodity prices and harvest (grain) receivals.
Reflecting the sharp drop in earnings, directors declared an interim dividend of 7.5c a share, half the 15c a share interim paid for the first half of 2013-14.
The nation’s biggest-listed agribusiness said that it received 6.4 million tonnes of grain at its country storage sites in the six months ended March 31, down from 7.4 million tonnes last year.
And Graincorp said it also exported significantly less grain with just 1.4 million tonnes going through GrainCorp ports in the six months, down from 2.8 million tonnes.
“The smaller crop in eastern Australia last year means it’s been a tougher period for Storage & Logistics and Marketing,” GrainCorp chief executive Mark Palmquist said in yesterday’s release
"While sales for the Marketing business are comparable with this time last year, there has been greater margin pressure associated with the shorter supply. In addition, alternative origins have been competing strongly with Australian grain due to foreign exchange and reduced freight advantages for the eastern Australian crop."
Earnings before interest, tax, depreciation, and amortisation (EBITDA) in the company’s Storage & Logistics fell to $27 million from $63 million, while marketing EBITDA halved to $8 million.
GNC 2Y – Graincorp profit down as tougher El Nino conditions loom
The CEO singled out the malt and oils business for praise.
“Good performances by GrainCorp Malt and GrainCorp Oils have helped offset the leaner period for the grains businesses, highlighting the importance of our earnings diversification,” Mr Palmquist said.
“GrainCorp Malt has contributed approximately half of our EBITDA for this period and continues to report high capacity utilisation. While favourable foreign exchange rates have assisted the result, this business has embedded significant cost reductions through strategic initiatives and is well positioned to convert opportunities arising from the sustained growth of the craft beer sector in North America.
“GrainCorp Oils has had a solid first half. There has been significant progress on the growth projects in the Liquid Terminals business and good sales volumes and margins for the oilseed crushing business."
The malt business, was lifted buoyed by favourable foreign exchange movements and the continuing boom in craft beer in the US. As a result reported EBITDA from the business jumped to $69 million, up from $57 million a year ago.
Earnings in GrainCorp Oils, which supplies and refines edible oils, delivered EBITDA of $42 million, up from $36 million.
Mr Palmquist said that the tough, dry weather conditions facing east coast growers underscores the importance of diversifying GrainCorp’s earnings.
However, the size of the east coast crop is still the key driver of profitability and there is no sign of relief on the way for growers with an El Nino weather event declared this week by the Bureau of Meteorology.
Mr Palmquist said that seasonal conditions are not ideal as winter planting continues.
"Plantings are well advanced in many growing areas, however, progress has slowed substantially and further rain is needed across the grain belt to complete planting and help the crops establish," he said.
"Generally, conditions are looking more favourable in the eastern half of the eastern Australian grain belt; areas further inland remain very dry."
GrainCorp also revealed it had taken advantage of the current round of record low interest rates to refinance its debt and extend its maturity – even though much of the existing loans were not due until well into next year.
"While a number of the term debt facilities were not due to mature until July and October 2016, GrainCorp has taken advantage of favourable debt market conditions to extend the facilities on improved terms in the range of 4.5-7 years,” the company said.
"The average tenure of term debt has increased to 5.3 years."
“Facilities of this size and tenure will support the progress of our corporate objectives and growth initiatives, while maintaining an appropriate capital and liquidity structure,” Mr Palmquist said.
The debt move also has a suggestion of forward planning by the company in the event the El Nino event happens and curtails the size of the grain harvests in eastern Australia, which would in turn cut revenues and earnings for the company and make banks nervy.
