GrainCorp posts $59m statutory loss as drought bites harder

GrainCorp posts $59m statutory loss as drought bites harder


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UPDATED: GrainCorp flags challenging conditions ahead after smallest grain harvest in a decade decimates first half earnings

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Updated: The smallest eastern Australian winter grain crop since the depths of millennium drought has sent GrainCorp into the red, with the big grain handler, marketer and processor confirming a statutory half-year after tax loss of $59 million.

The loss compared with profit for the same period last year of $36m - a performance also restrained by the onset of current drought conditions across NSW and Queensland.

The company has also flagged ongoing "challenging conditions" because of the tough season in the second half of its trading year.

The poor results mean GrainCorp will not pay an interim dividend for the first six month period of 2018-19.

East Coast grain production was the lowest in over a decade and this has had a significant unfavourable impact on both our grains and oilseeds businesses - Mark Palmquist, GrainCorp

Chief executive officer, Mark Palmquist, said the trading figures reflected "a particularly challenging period in grains and oilseeds", including severe drought and grain flows disrupted by grain trade conditions.

"East coast Australian grain production was the lowest in over a decade and this has had a significant unfavourable impact on both our grains and oilseed businesses," he said.

The company reported a massive shrinkage in underlying earnings before interest, tax, depreciation and amortisation (EBITDA) for the half year to March 31, down from $119m for the same period a year ago to $27m - translating into an underlying net loss after tax of $48m.

While some planting activity for the upcoming winter grain crop was well underway in eastern Australia, GrainCorp bosses warned it was too early to forecast crop production levels and the potential implications for GrainCorp.

Mr Palmquist told a market briefing positive weather patterns in parts of NSW and Queensland in the past few weeks had improved the cropping outlook, but the start to planting was patchy or delayed in Victoria.

"Importantly, there is still not a lot of subsoil moisture available to the crop once it establishes," he said.

While confidence had improved on the levels of two months ago, it was premature to say how the coming season could pan out.

Grain intake slumps

Total grain receivals from winter and summer crop harvests during the half-year period were down to 2.3 million tonnes from an estimated total eastern crop of 7.7m tonnes.

Last year's receivals in the same period were 5.6m tonnes from a 16.7m tonnes harvest.

Grain exports were down to just 200,000t, compared to a still modest 1.5m a year ago.

The grain marketing and logistics division recorded a $52m first-half EBITDA loss compared to a $30m profit last year.

Market analysts noted GrainCorp would be facing an almost unprecedented situation if weather patterns did not improve and left eastern Australia struggling with its third drought-impacted cropping season in a row.

Outlook variables

Mr Palmquist said the company's full-year performance would be subject to a range of variables, including eastern harvest receivals, grain exports at its port terminals, and the increasing trend in grain import activity at its seaboard terminals.

Also important would be global grain trading conditions currently experiencing considerable market pressures, foreign exchange movements and the impact of global crush margins on Australian edible oil returns.

However, GrainCorp expected more robust demand for malt products in the 2019 northern hemisphere summer and further balance sheet benefits from continuous improvements to its foods business in the second half.

Mr Palmquist said GrainCorp's foods division was achieving "ongoing efficiency improvements" and the performance from its malt, stockfeeds and bulk liquid terminals operations was strong.

Importantly, however the bulk liquid terminals business is set to be sold in the coming six months, and GrainCorp's malt operations are to be spun off as a separate publicly listed business entity.

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He said the company continued to progress its portfolio review initiatives, including the demerger of its malt business.

It will also combine its grains and oils operations, simplifying its business to cut costs, and selling much its liquid terminal sites to ANZ Terminals for $350m.

Buyer interest continues

It was also still actively engaging with other "seriously interested" parties who had expressed an interest in part or parts of its portfolio.

Mr Palmquist said while still was primarily committed to its malt division demerger agenda later this year, this focus had not influenced negotiations with those who still had a serious interest in the company's assets.

The talks began in past six months while potential suitor, Long-Term Asset Partners, had a $2.4 billion indicative takeover offer for the entire GrainCorp business on the table.

Early this week LTAP scuttled its bid plan, however Mr Palmquist's confirmation of further discussions with other parties has triggered speculation about how much of the grains or oilseed business may be left by year's end.

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