A trio of downgrades yesterday straight into a market that fell all day, closing down more than 155 points or 2% for the ASX 200.
United Malt, Bubs Australia and EML Payments all announced either weaker than expected figures, downgrades or unexpected problems – the sort of hiccups that in an upbeat market companies often get away with.
But in Tuesday’s post-holiday catch up and sell off sparked by China’s worsening second Covid wave, investors had little time for explanation or the nuances of updates – if the figures were not up to scratch or seemed low, down went the shares.
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United Malt Group (ASX: UMG) revealed its interim and annual earnings will be hit by a range of costs including from global supply-chain disruptions, tighter labour markets and drought in Canada
The malt processor and supplier on Tuesday said that delayed sales stemming from supply chains delays would reduce its earnings before interest, tax, depreciation and amortisation (EBITDA) for the 12 months through September by about $A8 million.
The company also told the market that it expects an $13 million hit from software costs related to the implementation of its new tech platform, attributing the tech cost to tight labour markets.
A shortage of skilled labour will restrict the benefit over the year to September 30 from the company’s so-called transformation program to $4.5 million, compared with the $30 million in savings it hopes to achieve by 20-20-24.
Stripping out the software costs, United Malt said it anticipates underlying EBITDA of $57 million for its March 31 first half, and of between $115 million and $140 million over the full year.
If achieved while it could be just above the $123.3 million EBITDA earned in 2020-21, it will be sharply lower than the $153.3 million forecast by data group, FactSet.
United Malt said drought in Canada had reduced barley yields and quality, driving up FY 2022 production costs by between $10 million and $13 million. It has also had to import barley to Canada from Denmark and Australia, at an annual cost of between $10 million and $12 million.
CEO Mark Palmquist said Canadian barley quality had further deteriorated since United Malt flagged the issue at its annual general meeting in February.
Sales volumes in United Malt’s processing segment are expected to exceed those of 2020-21 as markets re-open and demand rises thanks the easing of Covid pandemic conditions.
Yet the higher input costs will reduce annual EBITDA by about $4 million, with the company looking to boost price rises over the next nine months to reduce the impact in the 2023 financial year.
A small positive for UMG was the 14% improvement in its warehousing and storage business in the March half and for the full 12 months.
UMG said its dividend policy remain unchanged at paying out approximately 60% of Underlying NPAT as dividends.
UMG shares fell 5.4% to $4 by the close.
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Goat dairy product and infant powder producer Bubs Australia (ASX: BUB) saw its shares down 6% yesterday despite posting revenue growth in the third quarter of the 2022 financial year.
In the three months to March, the company’s gross revenue of $17.6 million was up 49% increase on the same time last year.
Infant formula sales in the domestic retail market doubled (up 108%) and China sales grew 8% compared to the same period last year.
Bubs founder and CEO Kristy Carr said in the update the company had worked with stakeholders to ensure its supply chain could withstand volatility, and pointed to the Chinese market as an ongoing focus.
“It is a key factor for us to remain optimistic with the long-term growth trajectory for China, especially in the Daigou channel following the signing of the strategic equity-linked alliance with … Daigou distributor Willis Trading,” said Carr.
In terms of outlook, the company expects “modest half on half” revenue growth for the second half of the financial year, in line with guidance issued previously, but said macroeconomic uncertainty and COVID-triggered supply chain hiccups could lead to some temporary disruption.
“The new environment is likely to involve our capability to compete for market share in the category,” said Bubs executive chair Dennis Lin.
But some Asian based analysts have picked Australian infant formula groups like Bubs and A2Milk to be caught by the impact of the lockdowns in China, especially in major markets like Shanghai and parts of Beijing.
The update was more than OK – stronger than that from UMG and EML – but it didn’t convince the market and the shares fell more than 8% to 45 cents.
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Shares in EML Payments (ASX: EML) shed 38% of their value yesterday after an earning update left investors unconvinced about the health of the company’s profits.
The company cut its June 30 full year guidance, and revealed a number of challenges in its European business.
The shares ended at $1.665, down 38.5% and the lowest they have been since the dark days of the first Covid pandemic and lockdowns in the first quarter of 2020.
EML, a global payments provider, cut its guidance for earnings before interest, tax, depreciation and amortisation for 2022 by about 8% to a range of $52 million to $55 million.
The company said while its North American and Australian businesses were performing in line with forecasts, it was facing “operational execution issues in Europe.”
It added that “a more risk averse approach to new programs impacted the launch of new programs,” in Europe and it expected continued challenges throughout its fourth quarter.
The company also pointed to a deterioration in foreign exchange forecast rates, and spending on overheads (costs) being towards the higher end of expectations.
