Yesterday’s full year results from GrainCorp (GNC), the country’s biggest listed agribusiness, again gives us an opportunity to study dividend policy as an indicator of board thinking about the outlook.
We have already noted how Incitiec Pivot (IPL) directors lifted the final dividend, despite a weak to average outlook for earnings pressures expected in key businesses. On Wednesday the board of DuluxGroup (DLX) boosted dividend because they saw earnings rising in 2015 from 2014’s already record level.
And yesterday GrainCorp directors slashed final dividend because of fears the outlook could be worse than expected (its immediate view of Australian agriculture is about as gloomy as that of IPL).
The board set the final at 5c a share, down from 20c a share. That took the full year payout to 20c a share, half the 40c paid in the 2013 year (which included a special 5c a share payment).
Full-year profit dropped 64% to $50.3 million, thanks to a combination of $44 million worth of one-off charges and smaller grain crops due to dry weather.
And in handing down his first result, the company’s new CEO Mark Palmquist said the outlook remains tough.
“We expect the environment to remain tight for our grains businesses. The current eastern Australia harvest is expected to below average, this year’s carry-in is a near record low of 1.9 million tonnes, there is a smaller exportable surplus and there will again be competition for grain,” he said. That helps to explain the very conservative approach to dividends.
GNC 2Y – Dividends, profits dry up at GrainCorp
Mr Palmquist said grain growers were faced with continuing hot and dry conditions in many areas, and low rainfall in the north.
While the eastern Australian crop was smaller, the quality was good.
"Some good rainfall in the next few weeks in northern regions is also required to encourage summer crop plantings," Mr Palmquist said.
GrainCorp’s malt business was a rare bright spot, reporting solid forward sales of 1.1 million tonnes and a 24% lift on earnings.
“It’s pleasing to see the sustained strong performance of GrainCorp Malt, whose earnings grew by 24% in an environment where beer consumption in developed markets continues to decline. The business continues to benefit from its unrivalled commitment to quality and strong relationships in the growing distilling and craft sectors. It’s also good to see the solid progress that has been made with the strategic initiatives in this part of the business," Chairman Don Taylor said in yesterday’s statement.
“GrainCorp Oils benefited from continued strong performance and high capacity utilisation in the Liquid Terminals business, offset by some pressure on refined oils volume in the Foods business. Good progress has been made on the optimisation of this business’ footprint, as well as the Liquid Terminals expansions at Port Kembla, Fremantle and Pinkenba.
“GrainCorp Storage & Logistics’ performance was restrained by a 47% drop in carry-in to 2.3 million tonnes (FY13: 4.3 million tonnes), a smaller crop translating to a 23% year-on-year reduction in receivals to 8.0 million tonnes (FY13: 10.4 million tonnes) and a 47% drop in grain exports to 4.4 million tonnes (FY13: 8.3 million tonnes),” Mr Taylor said.
Besides the dry weather, GrainCorp’s outlook is being hurt by continuing speculation about its 19.9% shareholder, US agri-giant ADM (Archer Daniels Midland), whose $3.2 billion offer was rejected by the Federal Government just on a year ago.
There has been market talk that ADM might come with another, lower bid , which would upset many shareholders who remain disgruntled by the government’s costly rejection.
With the Weather Bureau forecasting a 50% chance of a mild El Nino dry spell next year (that has been moved from the present period to early 2015) GrainCorp’s share price will remain under pressure until the weather turns.
GrainCorp shares fell 0.9% to $8.46 in a weaker market yesterday.
