Big GrainCorp profit bounce-back to $388m after malt demerger

GrainCorp statutory half-year profit leaps to $388m

UPDATED
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GrainCorp's $388m statutory profit after tax, up from last year's loss of almost $60m.

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UPDATED 3pm

Fresh from breaking away from its malt business, GrainCorp's financial fortunes have rebounded to a $388 million statutory half-year profit after tax - up from a loss of almost $60m when drought conditions were biting hard last year.

Revenue for the half year rose 3.4 per cent to $1.96 billion.

The profit result included earnings from the malt division, United Malt Group, which split off in March and earnings from the sale of Australian Bulk Liquid terminals in late 2019.

"Each of our business segments was up substantially on the prior corresponding period, reflecting GrainCorp's new operating model and the steps we have taken to manage crop variability and maximise our assets," said managing director Robert Spurway.

"We're confident we are well on track."

Oilseed crushing and processing margins improved markedly after fractious canola supply conditions last year.

Processing revenue jumped from $256m a year ago to $306m for the six months to March 31 thanks to much improved reliability of canola supply, better utilisation of the company's Numurkah plant in Victoria and stable demand for food products, meal and oil.

Despite the drought, total grain sales from domestic and overseas marketing activities also rose from 3.9m tonnes in the first half of 2018-19 to 4.6m tonnes this year.

No dividend

However, with more subdued earning prospects expected in the second half, the company was waiting until the end of the full trading year before making a call on declaring a dividend.

Mr Spurway told a market briefing the slimmed down GrainCorp, which is now focused on grain handling, marketing and oilseed processing, was less complex to run and well placed after the United Malt demerger, with an improved trading result from continuing operations and a strong balance sheet.

Core debt had shrunk from about $800m to zero.

The company intended to maintain a minimal debt target and a capital expenditure target of $35m to $45m for the year, including preparations for a much bigger harvest in spring.

That's significantly below spending of up to $170m on the storage network and processing assets in Australia and North America back in 2016-17.

Restructuring and a leaner business model had enabled better decision making and cut first-half corporate costs from $16m last year to $6m, before an adjustment for UMG fair valuation.

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GrainCorp's underlying net profit after tax for the six months of 2019-20, and before significant items, was $55m, derived from underlying earnings before interest tax depreciation and amortisation of $183m.

Both were up substantially on the same time last year.

Market conditions have improved considerably, with widespread rainfall across much of eastern Australia providing optimism for a much larger crop - Robert Spurway, GrainCorp

The trading result included "compensation" earnings from the new crop production derivatives-styled contract with insurer Aon, which paid $45m after deducting fixed payment costs and a $7m fair value adjustment, after the drought-ravaged winter harvest in Queensland and NSW last summer.

"Market conditions have improved considerably, with widespread rainfall across much of eastern Australia providing optimism for a much larger crop later this year," Mr Spurway said.

Robert Spurway

Robert Spurway

"Favourable soil moisture patterns are resulting in widespread planting in almost all areas of the east coast cropping belt."

GrainCorp's harvest readiness strategy was subsequently already well underway, including site preparation, a focused maintenance program, equipment relocation between sites, large-scale procurement of tarpaulins and an extensive training and recruitment program for seasonal workers.

Better trading conditions

After struggling with drought reduced crop volumes for three seasons the agribusiness was now benefiting from less volatile market conditions and new rail contracts which would shaving freight costs by about $10m to $15m this year.

Bulk and containerised grain exports so far this financial year have totalled 600,000 tonnes, which are 400,000 better than a year ago.

Exports were expected to rise further over winter, but improved seasonal conditions for livestock producers meant demand for grain trans-shipments drawn from WA and SA via GrainCorp's east coast port terminals would taper off.

Some summer crop had benefited from February and March rain events, but yields would be minimal and unlikely to generate much second half trading or logistics revenue.

Group chief financial officer Alistair Bell said the agribusiness' performance was strong, notwithstanding eastern Australia's recent third drought-depleted harvest in a row.

GrainCorp's 10pc minority interest in United Malt was valued at $112m on March 31 which Mr Bell said provided additional balance sheet resources and financial flexibility.

Future growth

Meanwhile, Mr Spurway who took over the top job less than two months ago said at the moment, the company was "probably not looking for any big funded acquisitions" as it prepared itself for future growth.

It's important to have a strong, well funded balance sheet and whatever growth moves we take we will be maintaining a strong balance sheet - Robert Spurway

"We could look at partnerships or extending our existing business," he said.

"The obvious areas are in the vertical supply chain, or adjacent extensions to what we do, and maybe some geographic opportunities."

"I'm looking at the strengths and weaknesses in the business at the moment.

"It's important to have a strong, well funded balance sheet and whatever growth moves we take we will be maintaining a strong balance sheet."

He said while COVID-19 presented challenges, it was pleasing food and agriculture have been classified as essential services and "we have shown resilience through the ongoing crisis by continuing to deliver for our customers".

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