United Malt braces to weather COVID-19 storm with $165m share deal

United Malt seeks $165m and cuts costs as coronavirus flattens beer sales

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United Malt Group's Barrett Burston malting plant in Brisbane.

United Malt Group's Barrett Burston malting plant in Brisbane.

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Maltster UMG locks in $140m from capital raising and offers shareholders $25m in extra shares to strengthen its books

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GrainCorp shareholders who automatically gained a stake in newly listed United Malt Group when the business recently split from its parent agribusiness have the chance to buy extra shares as part of a $165 million equity raising.

The global maltster and craft brewing ingredients supplier has already locked in $140m of its target via a share placement to institutional shareholders late last week as part of its preparations to ride out the coronavirus recession.

About 36.8m shares were issued for $3.80 each - an 11.4 per cent discount to the company's $4.29 trading price on May 13.

A share purchase offer to existing eligible retail shareholders to spend up to $30,000 each on new stock will be dispatched on May 28.

Pre-emptive action

That $25m equity raising plan and the institutional offer are part of UMG's strategy to take "pre-emptive action to strengthen the balance sheet and increase resilience in the current uncertain environment".

The malt company's new board and executive management team will also take a 20pc pay cut for the rest of the 2019-20 trading year and have deferred about $5m in capital spending plans in response to slumping malt sales to the valuable craft beer market after coronavirus lockdowns worldwide.

We maintain flexibility to curtail some production capacity if required to reduce cost to meet lower demand in the near term - Mark Palmquist, United Malt Group

Managing director Mark Palmquist, said while overall revenue from major brewers was so far only down "marginally", United's business had been impacted by COVID-19 stay-at-home restrictions which had significantly cut demand from craft brewers servicing the on-premise market.

Some Scottish whisky distillers had scaled back capacity, too, although remained operational.

Mr Palmquist, said packaged beer sales for take home consumption had actually increased, but overall demand for malt sank 30pc in April.

The company was responding by targeting cost savings of about $10m in the second half of 2019-20 year.

"We maintain flexibility to curtail some production capacity if required to reduce cost to meet lower demand in the near term," he said.

Construction on the company's new Arbroath malting plant in Scotland had stopped after the UK government halted all non-essential construction as part of its COVID-19 response.

Although the pandemic had required the business to split its processing shifts and enhance its safety measures which subsequently chewed into processing margins, until March UMG had enjoyed solid sales for malt and brewing ingredients from brewing and distilling customers.

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The maltster which owns Australia's Barrett Burston Malting and similar operations in Canada, the USA, and Britain, made an underlying net profit after tax of $28.53m for the six months to March 31, with revenue up 9pc on the same time in 2019 to $664.6m.

Underlying earnings before interest, tax, depreciation and amortisation were $77.9m thanks to a 7pc lift in processing processing segment EBITDA to $58.7m after revenue grew 11pc to $511m.

Mr Palmquist said the world's fourth largest commercial maltster continued to enjoy solid US and UK volume growth in the compared to the prior corresponding period.

Mark Palmquist

Mark Palmquist

United's warehouse and craft products distribution segment revenue grew 3pc to $168.7m, but underlying segment EBITDA fell 29pc to $12.5m, partly due to a $3m write-off of aged inventory and labour costs relating to warehouse build-out activities.

Share support

Mr Palmquist was delighted with the strong support received for the institutional share placement from existing institutional shareholders and new domestic and offshore investors.

The transition to a separate business after the March GrainCorp demerger has progressed well. - Mark Palmquist

"We are confident that completing the placement was a prudent and pre-emptive step to ensure we are well placed to navigate the current period of uncertainty while having the ability to continued disciplined investment opportunities we see in the business," he said.

"The transition to a separate business after the March GrainCorp demerger has progressed well.

"We are implementing our strategy by targeting those high value markets where the long-term outlook for growth remains supportive.

"We remain focused on optimising the capacity utilisation of our plants and driving further efficiencies across our warehouse and distribution network."

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