Financially-stretched Wellard is back on course to sell its livestock export ship, Ocean Swagman, and has pinned its hopes on better trends in the South American and northern Australian cattle trade.
South America's exports to Turkey have resumed after coming to a standstill early this year, while movements from Townsville and Darwin to Indonesia and Vietnam are up 30 per cent and 16pc, respectively, on a year ago.
Tough new livestock shipping rules and marine fuel standards are also likely to favour Wellard's relatively modern fleet, although the company is worried about earnings volatility and its debts.
After changing tack a few times in recent months, Wellard, will now sell the Ocean Swagman for about $32 million to its prominent shareholder and pastoral business, Heytesbury Holdings.
However it will keep the 130-metre-long vessel in its fleet, leasing it back from Heytesbury.
Sale proceeds will go towards patching up the company's battered balance sheet after it last week reported a $48.4m loss for 2018-19.
We carry more livestock in a quicker time period for a particular voyage, while consuming less fuel than competitor vessels
Executive chairman, John Klepec, said the current outlook was an improvement on a "very challenging second half".
Although the future remained uncertain, he was upbeat about the Wellard fleet's ability to perform more efficiently than three major competitor vessels, which were unlikely to meet January 2020 bans on double tiering in stock containment areas and improved ventilation rules.
Fuel efficiency in Wellard's fleet was also at the top end of the live shipping industry curve.
New international laws cutting sulphur content in marine fuels from 3.5 per cent to just 0.5pc are expected to also put extra cost pressure on rival companies' older livestock vessels.
"Put simply, we carry more livestock in a quicker time period for a particular voyage, while consuming less fuel than competitor vessels," Mr Klepec said.
"This is expected to either reduce our operating costs compared to our competitors, or foster additional charter demand for our vessels."
Italian buyer opts out
A month ago, Wellard, was poised to accept a $37m offer for the Ocean Swagman from Italian bulk shipping company, Nova Marine Holdings, having originally lined up a sale to Heytesbury back in July.
However, the board of a Nova subsidiary failed to follow through with approval to complete the $US25.2m deal by an August 19 deadline.
Wellard subsequently resumed sale talks with Heytesbury, which holds an 11.42pc stake in the livestock shipper, to complete documentation which had previously been a source of delay in the original sale plan.
The Swagman can carry 7000 cattle or up to 26,000 sheep, or a combination of both.
It has been working short-haul cattle shipping routes between Australia and Asia.
This week Wellard's biggest shareholder, the Hong Kong-based Fulida, which owns a quarter of the company, threw its support behind the transaction unless any superior proposal emerged.
Dealing with debt
It is the latest in an asset liquidation program to bolster the firm's accounts, which early this year included disposal of the Beaufort River Meats abattoir and a feed mill .
Selling the Swagman will help further pay down liabilities which currently stand at $142.5m - an improvement on the $194.3m at the end of 2017-18, when the company also reported trading loss of $36.4m
Although Wellard was able to boast a $6m lift in gross profit to $38.8m for 2018-19, and better earnings before interest tax and amortisation of $12m, it blamed increased financial costs of $11.2m, poor trading conditions in the financial year's second half and impairment costs relating to reduced vessel activity for an eventual $48m after-tax loss.
The second half saw South American shipments to Turkey cease as the oversupplied Turks imposed import bans.
All Wellard's vessels - the MV Ocean Shearer, MV Ocean Drover, MV Ocean Ute and MV Ocean Swagman - are currently chartered and the company was confident more short-term leases would follow.
It would only focus on chartering its ships until its balance sheet restructure was completed.
These results are further evidence that our earnings volatility cannot support the company's existing debt levels, particularly when there are major trade interruptions
Yet, despite the improving outlook, Wellard's long-suffering share price continued to be caned in the wake of its poor profit results.
Shares going cheap
It was flat at just four cents for the past week, although somewhat better than the 2c/share price paid in late June.
Wellard shares were worth about $1.30 when it first began trading on the Australian Securities Exchange in late 2015.
"We continue to work hard on restructuring Wellard's balance sheet as these results are further evidence that our earnings volatility cannot support the company's existing debt levels, particularly when there are major trade interruptions," Mr Klepec said.
He noted the company stripped another $2.2m from its operational and administration expenses last financial year.
"The post-balance sheet sale of the MV Ocean Swagman, with associated future reduction in liabilities to shipping financiers and noteholders will be of considerable help in this area."
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