SunRice profits slip 27pc as drought and market costs bite

SunRice revenue up, but profits drop to $33m as drought bites

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Stockfeed division, CopRice, grew revenue 40pc, but drought and the lower dollar have created challenges for SunRice

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Total revenue has risen - slightly - but drought and overseas grain buying costs have burnt into full-year profits for national rice marketer and processor, SunRice.

The Australian Securities Exchange's newest agribusiness recruit has posted a big 27 per cent drop in net profit after tax to $32.8 million despite revenue lifting a modest 1.3pc to $1.2 billion for the year to April 30.

Earnings per share dropped from 76 cents last financial year to 54.5 in 2018-19, and return on capital employed was down 34pc to 9.9pc.

Drought has, however, been helpful for stockfeed division CopRice, which is also about to acquire northern Victorian horse feed producer, FeedRite, at Wangaratta for about $10m.

Revenue jumped almost 40pc to $155m and pre-tax profit hit $8.5m as strong beef and sheep feed sales underpinned a second year of profit turnaround for the division.

Increased CopRice stockfeed sales outpaced rising raw material costs, with sheep nutrition pellets and concentrates selling particularly well as dry seasons continued.

While there is no escaping the drought we are facing in the Riverina, we continue to invest - Rob Gordon, SunRice

Diversified earnings from SunRice's Riviana gourmet and food service food division also grew against 2017-18 results, up 6pc to $127m, but were undermined by rising import costs as the Australian dollar fell, eroding final profits by 3pc to $8.7m.

Riviana's costs were also higher as it integrated the recently acquired chilled food business, Roza's Gourmet.

"While there is no escaping the drought we are facing in the Riverina, we continue to invest," said managing director, Rob Gordon.

SunRice was also spending $11m on a stabilised bran processing plant at Leeton to add value to rice milling by-product, and repurposing its Coleambally rice mill as a stockfeed plant.

"Despite challenging conditions, which undermined profitability, our achievements have been reflected in our ability to deliver net profit after tax on guidance," Mr Gordon said.

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Apart from the dry season's impact on rice crop production in southern NSW, other challenges included about $15m in adverse foreign exchange movements compared to 2017-18 which eroded international rice sales earnings and lifted imported rice food costs, particularly in the first half.

However, the lower dollar helped SunRice pay a record rice pool price for growers of $411.19 a tonne - up from $403 in 2015 - as it realised the advantages of a depreciating exchange rate on export sales.

Higher international prices were also achieved for SunRice branded products, while export earnings from lower returning Pacific markets were swapped for higher returning Middle Eastern sales.

Rob Gordon

Rob Gordon

More affordable rice supplies for the Pacific buyers were secured from Asia.

Crop financing costs were also down due to the introduction of the company's PayRice scheme and a smaller 2018 crop size (623,000 tonnes versus 802,000t in 2017) , resulting in lower borrowing requirements.

The 2018-19 year also saw SunRice open new rice markets in Spain and Libya and re-established distribution relationships in Syria.

We secured an affordable rice supply for our Pacific markets from Asia, while at the same time backfilling the shortfall created by the lower calendar 2019 Australian crop - Rob Gordon

"In Vietnam, the acquisition and development of a world class milling and packing facility in the Mekong Delta will set a new standard for Vietnam rice processing," Mr Gordon.

"It assures our customers the quality standards we apply to our Australian product can be replicated internationally.

"We secured an affordable rice supply for our Pacific markets from Asia, while at the same time backfilling the shortfall created by the lower calendar 2019 Australian crop with high quality product from multiple locations.

"This demonstrates our agility and the value of our international sourcing program to protect premium markets during times of low water availability such as those we are experiencing currently.

SunRice will pay a fully franked dividend of 33 cent a share to its B-class shareholders, whose shares began trading on the ASX in April.

"In an intense year of activity across the group, we continued to deliver for both A and B Class shareholders," Mr Gordon said.

"We have demonstrated a resilience and agility which should hold us in good stead in the current year."

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