WEST PERTH, AUSTRALIA — After a strong campaign in 2017, performance in fiscal 2018 was far more challenging for GrainCorp Ltd. The company suffered from below average grain production due to drought across the eastern seaboard of Australia, which contributed to softer year-over-year results.
GrainCorp’s underlying net profit after tax was A$70.5 million in fiscal 2018, down from A$125.2 million in fiscal 2017. Underlying earnings before interest, tax, depreciation and amortization (EBITDA) totaled A$269 million, down 31% from A$390.1 million in fiscal 2017. Revenue decreased 7% to A$4.253 billion.
“2018 was a challenging year with prolonged dry conditions in eastern Australia leading to below-average grain production and a substantial drop in grain exports,” Mark Palmquist, managing director and chief executive officer, said in a Nov. 15 report. “As an owner and operator of country and port assets, grain throughput and asset utilization are important for GrainCorp and with lower volumes in eastern Australia, our Grains earnings were negatively impacted. The benefits of our diversified business model, however, were evident with a strong Malt result and improved performance from Oils. The two businesses contributed a combined 77% of Group EBITDA.”
Grains EBITDA in fiscal 2018 totaled A$68.4 million, down sharply from A$205.9 million in 2017. Revenues fell to A$2.241 billion from A$2.622 billion.
Palmquist said the decline in grains EBITDA primarily reflected a sharp drop in grain production in eastern Australia to 16.6 million tonnes, which compared with 28.2 million tonnes in 2017. Lower grain exports also were a factor in the decline.
“The result was also negatively impacted by GrainCorp’s ‘take-or-pay’ rail commitments, due to the lower volumes,” he said. “These rail commitments expire at the end of FY19, with the new rail contracts coming into effect in FY20 and providing greater flexibility to manage transportation costs through the crop cycle.
“Despite the tightness in grain supply, GrainCorp has benefited from the integration of its storage, handling and trading businesses by achieving a higher share of domestic grain trade. We continued to rationalize our country network, with grains operating approximately 145 sites during harvest, down from 160 last year.”
Palmquist said the company expanded grains’ origination footprint, commissioning the second of four GrainsConnect Canada sites and opening a Black Sea office in Kyiv, Ukraine, both in June. The company received its first grain shipment from Ukraine in October, he said.
GrainCorp’s malt business EBITDA totaled A$170.3 million, up 7.5% from A$158.4 million a year ago. Revenues increased to A$1.152 billion from A$1.106 billion.
Palmquist said the malt business’s results included a full contribution from the expanded malting capacity in Pocatello, Idaho, U.S. In October, GrainCorp said Bairds Malt announced a A$94 million investment to expand malting capacity in Scotland by 79,000 tonnes. The project will involve upgrading Bairds Malt’s existing Arbroath facility and building a new malting plant at its Inverness site. The expansion will support growth in distilling production in Scotland.
The oils business EBITDA for fiscal year 2018 was up narrowly to A$61.1 million from A$58 million. Revenue experienced an uptick to A$969.1 million in 2018 from A$945.5 million in the 2017 fiscal year.
“Liquid terminals and feeds performed strongly, however oilseeds was down year-on-year due to reduced Australian canola supply and quality issues, both of which impacted the crush margin,” Palmquist said. “The foods business made steady progress with improved operational efficiencies at West Footscray.”
GrainCorp said it completed expansion of an oilseed crushing plant at Numurkah, Victoria, in September, increasing the facility’s crush capacity by 40% to 1,000 tonnes per day.
“In FY19, we expect a considerable decline in grain production in eastern Australia due to the severe drought that has affected much of the region,” Palmquist said. “It is anticipated that production will again be skewed to Victoria and southern New South Wales, with deficits in northern New South Wales and Queensland. In response to the outlook, we are adapting GrainCorp’s country network to better match the size and location of the crop and keeping a strong focus on cost control, asset utilization and (capital expenditure) allocation. With expectations of minimal exportable surplus in eastern Australia, we anticipate grain to continue flowing from Western Australia and South Australia via vessel to ports in eastern Australia. We have adapted several GrainCorp ports to handle the reverse supply chain and the in-loading requirements.”