SunRice is flagging its debut on the Australian Securities Exchange in the next few months, but warning shareholders the year is shaping up as a tough one.
That’s despite a seven per cent rise in first half sales.
The national rice processor and exporter’s net after tax profit for the six months to October 31 tumbled 42pc on the same period in 2017-18, to $13.9 million.
With only enough irrigation water for a well-below average rice crop in its southern NSW heartland this summer and milling infrastructure now being mothballed, SunRice has been sourcing a big portion of export orders from overseas suppliers.
At the same time global purchasing costs have jumped about 30pc in the past six months.
However, the higher international prices and a slipping Australian dollar have also helped earnings from last season’s Australian crop exports.
Rice pool revenue lifted 15pc on the same period in 2017-18, helped by sales to Japan and the Middle East, and the expansion of the Koshihikari variety and long grain sales into food service channels.
Pleasingly, the outlook for international rice prices is anticipated to support improved profitability in the second half of 2018-19
Drought has also had an upside for the company’s CopRice stockfeed division which reported a 50pc lift in overall sales, in particular, enjoying strong demand for its new sheep nutrition supplement products.
Managing director, Rob Gordon, tipped group net profit after tax for the full trading year would be in the $30m to $35m range, assuming no significant changes to global market trends and exchange rates, particularly the kina in Papua New Guinea, which fell in value in the first half.
“As advised at the annual general meeting in September, 2018-19 is anticipated to be a challenging year for the SunRice group,” Mr Gordon said.
“Prevailing global rice market trading conditions and exchange rate movements are beyond SunRice’s control and have impacted on the group’s first half revenue and profitability.
“Despite stronger revenue, profitability was undermined by several factors including firmer rice prices increasing the cost of some of SunRice’s key internationally sourced export varieties.”
However, the company’s Rice Food, CopRice and Riviana businesses all recorded profitability growth, with Rice Food’s pre-tax earnings up 144pc thanks largely to sales of rice flour and mini bite snacks.
The Riviana snack and food service ingredients division’s pre-tax profit grew 5pc, driven mostly by margin and market share growth in its retail product range, including private label lines.
Mr Gordon said while competition in the food service sector was stiff, Riviana made gains with new product launches and more direct sales through manufacturers.
Unfortunately, its imported lines were impacted by negative foreign currency exchange movements.
SunRice continued pursuing “strategic opportunities” to diversify its earnings base, acquiring the Roza’s Gourmet business to expand Riviana’s presence into specialist chilled sauces and dips.
The company also bought a rice mill in the Mekong Delta province of Dong Thap which will provide a key vertically integrated supply chain in Vietnam, enabling more consistent supplies of rice for export markets, particularly in low harvest years in Australia.
Mr Gordon said despite poor milling yields from last season’s crop, the SunRice pool price range for base grade medium grain (Reiziq) remained between $360 a tonne and $400/t.
“While SunRice is confident of achieving the lower-end of this range, market factors and trends will need to continue in our favour in order for the upper-end to be realised,” he warned.
“Pleasingly, the outlook for international rice prices is anticipated to support improved profitability for our international segment in the second half of 2018-19.”
He said the business looked forward to moving its shareholder capital base from the National Stock Exchange to an ASX listing “in early 2019” following shareholder backing at the recent AGM.
A specific date is yet to be announced.
“This will provide an opportunity to raise equity capital in the future, so we can continue to pursue our 2022 growth strategy.”
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