GrainCorp profit surges to $142m

GrainCorp profit hits $142m after big harvest year


Farm Online News
Surging energy costs will weigh heavily on GrainCorp’s future grain processing investment decisions in Australia says managing director, Mark Palmquist.

Surging energy costs will weigh heavily on GrainCorp’s future grain processing investment decisions in Australia says managing director, Mark Palmquist.

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GrainCorp will pay its biggest full-year dividend since 2013-14

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Last season’s monster harvest and a big export program have helped big east coast grain handler and marketer, GrainCorp, post a four-fold increase in its statutory full-year net  profit to $125 million.

It will pay its highest full-year dividend since 2013-14 - a total 30 cents a share –  after announcing a second half dividend of 15c today.

An underlying net profit of $142m was also a big lift on last trading year’s $53m. 

But a leaner season ahead, plus a $9m rise in energy costs, and fast evolving trends in the farm storage and margarine markets have kept celebrations at the big agribusiness in check.

The current eastern states harvest season is likely to yield about half that of 2016-17 (16m tonnes), with the best of the crop in GrainCorp’s most competitive southern NSW and Victorian turf.

There is no concerted effort on our behalf to invest outside Australia, but if we can see higher growth prospects elsewhere that will attract our capital - Mark Palmquist, GrainCorp managing director

Meanwhile, sky-rocketing energy costs are set to weigh heavily on GrainCorp’s future grain processing investment decisions in Australia, according to managing director, Mark Palmquist.

“There is no concerted effort on our behalf to invest outside Australia, but if we can see higher growth prospects elsewhere that will attract our capital,” he said.

Australia’s biggest listed agribusiness has just built a 120,000 tonne capacity malt plant in the US, where it was attracted by low-cost energy, ample water supplies and good freight options in the heart of a solid malt barley growing area in Idaho.

Revenue up 10pc

GrainCrop’s total revenue for 2016-17 lifted 10 per cent to $4.58 billion thanks largely to the near-record 27 million tonne eastern Australian grain crop and solid malt market activity driven by the booming craft beef and single malt whisky sectors.

The malt business in Australia, North America and the UK also defied difficult foreign exchange pressures and a revenue dip after the sale of three sites in Germany to record “consistent year-on-year earnings” – or effectively a better result than last year.

However, the company’s Victorian-based foods business has struggled with tight earnings.

Changing consumer trends for margarine products and a “prolonged challenge” associated with gaining efficiencies at the new packing and processing plant in Melbourne contributed to a $3m dip in oils division earnings before interest, tax, depreciation and amortisation (EBITDA) to $58m, despite total revenue rising from $924m the previous year to $946m.

GrainCorp is bringing in outside help to guide management and re-think production priorities at its West Footscray factory and the upgraded Numurkah oilseed crushing facility in northern Victoria.

“We have taken significant steps to reshape this business including removing costs and combining the foods and oilseeds businesses to simplify the operating structure and increase efficiencies,” Mr Palmquist said.

Storage and handling

The grains businesses benefited from increased storage, handling and merchandising opportunities aided by last season’s large harvest.

We successfully executed a large grain export program despite persistently high global crop supplies and depressed grain prices - Mark Palmquist, GrainCorp

“We successfully executed a large grain export program despite persistently high global crop supplies and depressed grain prices, which continued to be a headwind for Australian growers,” he said.

The company handled 7.2m tonnes of eastern states bulk and containerised exports through its port sites - more than twice the volume moved in 2015-16.

Another growing contributor to GrainCorp’s trading business was grain sourced overseas via the company’s trading desks in Singapore, Shanghai, Hamburg, Calgary and Sydney for buyers not interested taking Australian crop.

Mr Palmquist said the massive stocks of northern hemisphere grain available at cheap prices meant buyers as near to Australia as Indonesia or the Philippines were sourcing wheat from the Black Sea and Europe.

While ever global stocks were so high he expected overseas origination services to continue to be in demand.

Malting pays

GrainCorp’s local and overseas malt business was enjoying high capacity utilisation and strong demand for specialty products.

A big boost for the division GrainCorp’s new Idaho site at Pocatello, which will produce twice as much malt – and more efficiently for export and local markets – as the three “non core” German plants sold mid-year.

Mr Palmquist warned rising energy costs were a “serious challenge for the long-term sustainability of food and malt processing in Australia”.

“We are evaluating a range of energy efficiency and alternative generation options to mitigate the impact of energy price volatility,” he said.

“This is important to remain internationally competitive.”

Energy costs were likely to rise by $5m and $4m respectively for GrainCorp’s oils and malt divisions in Australia in the 2017-18 trading year.

Part of a wider restructure of the foods business is focusing on switching more of GrainCorp’s contracted margarine production to spreadable dairy blend products, which use about 35 per cent vegetable oil and 65pc cream.

Less appetite for margarine

Changing consumer preferences will see some traditional canola based margarine products phased out.

The West Footscray plant - the most modern of its type in Australia – makes and packs lines for a variety of household brands, as well as GrainCorp’s own Pilot brand, supplied to commercial kitchens and hospitality and institutional customers.

The plant’s earnings for the past year were also dampened slightly by volatility in the infant formula market, which contain up to about 34pc vegetable fats.

Uncertainty about Chinese regulatory approvals for Australian formula exporters significantly disrupted GrainCorp’s special supplies to this market in 2016-17.

However, Mr Palmquist was confident Australia’s reputation as a premium formula supplier with strong ingredient traceability protocols will drive future business growth.

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