SYDNEY, AUSTRALIA — Drought and a drop in production bogged down GrainCorp’s grain business during the 2018 fiscal year, but strong performances by the company’s processing businesses lifted its overall results.

“Despite these challenges, our FY 2018 results demonstrated solid improvements in returns from our two processing businesses,” Graham Bradley, chairman of GrainCorp, said during the general meeting on Feb. 20.

GrainCorp’s earnings before interest, tax, depreciation and amortization (EBITDA) for the 2018 fiscal year ended Sept. 30, 2018, were A$269 million, down 31% from A$390 million in fiscal 2017.

“GrainCorp Malt maintained its high capacity utilization and continues to benefit from strong demand, particularly from craft beer customers and distilling consumers,” Bradley said. “This business enjoyed the benefit of a full second half contribution from the expanded facility in at our state-of-the-art facility in Pocatello.”

Improved performance by Foods, achieving operational efficiencies and cost reduction and demand for animal feed sustained GrainCorp Oils.

“This business did experience weaker oilseed crush margins, due to the drought conditions limiting canola supply,” Bradley said. “Our investment to expand production at Numurkah, Victoria, was completed by last September, delivering a 40% increase to our crush capacity. Liquid terminals again performed solidly.”

Despite drought and lowered grain production, the Grains business continued to focus on international growth.

“Our Grains business made good progress in expanding its international origination capability, by establishing a new office in Ukraine and through securing port access for GrainsConnect Canada through our agreement to partner in the Fraser Grain Terminal at the Port of Vancouver,” Bradley said. “In addition, the board has also approved the establishment of a presence in India to build our exposure to the growing pulse trade. This expansion and our investment to increase supply chain efficiencies will improve future earnings for the Grains business.”

Bradley spoke about GrainCorp’s progress in reviewing Long-Term Asset Partners (LTAP) takeover bid during the general meeting.

“GrainCorp continues to engage constructively with LTAP to assist them as they undertake due diligence and seek to develop a formal, binding offer capable of consideration and response by your board,” Bradley said. “I have spoken actively with LTAP’s chairman in advance of this meeting and the engagement between GrainCorp and LTAP remains active.”

Bradly said the proposal remains non-binding and it is not definite that LTAP will offer or make a binding proposal. 

“Should a binding proposal be received from LTAP, the board would assess its merits to deliver superior value to shareholders in light of the alternatives that are being evaluated as part of our ongoing review,” Bradley said.

With the active discussions continuing with LTAP, Bradley also confirmed the company has been approached by others interested in GrainCorp’s portfolio.

“As announced late last year, your board and management have been working through a comprehensive review of our asset portfolio for many months, aimed at identifying options to maximize value for shareholders,” he said. “This review covers all parts of our portfolio. It is well progressed and ongoing. Today, I can confirm that GrainCorp has been approached by a number of parties who have expressed serious interest in purchasing part or parts of our portfolio.

“Regrettably, I am not able to disclose further information about these parties or discussions today, as our engagement is ongoing, incomplete and the details, are of course, subject to confidentiality.”

Bradley ensured that the board continues to look at all options best for GrainCorp’s shareholders.

“In addition to these matters, the company had realized significant benefit from the business and process simplification changes made in the Grain business, which has streamlined processes, improved decision making and our responsiveness to customers, and delivered cost and efficiency benefits,” Bradley said. “As a result, our review is actively exploring options to apply similar business and process simplification approach across other parts of our portfolio.”

Looking forward GrainCorp expects continued strong performance in its malts platform.

“GrainCorp Malt will benefit from a full-year contribution from the Pocatello plant, and will also be working toward delivery of our A$94 million expansion of malting capacity at Inverness and Arbroath in Scotland, a project due for completion in calendar year 2021,” Bradley said.

The project will increase malting in Scotland by 80,000 tonnes. GrainCorp continues growing, expanding in the United States recently opening a new warehouse in Florida.

“GrainCorp Oils will be focused on continuing its performance and efficiency improvements, however we expect ongoing pressure on crush margins due to the limited supply of canola rising from the drought conditions,” Bradley said.

Drought continues to weigh on GrainCorp’s grain outlook.  

“For Grains, unfortunately growing conditions have deteriorated further since Sept. 30, 2018, with year-to-date rainfall amongst the lowest recorded in the past century and most of eastern Australia in drought,” Bradley said. “This will further challenge GrainCorp to improve cost-efficiency and build on the substantial progress made through actions taken by the business over the last four years to improve its underlying performance. These actions include integration of the former Storage & Logistics and Marketing business units in 2017, which was a fundamental change to our operating model, simplifying the operating structure, streamlining the network and other operational changes to reduce costs.”

The company also continues to improve rail transportation with a focus on improving costs.

“Additionally, the company has entered into improved rail supply arrangements to substantially eliminate ‘take or pay’ obligations and minimize associated fixed costs,” Bradley said. “Collectively, these initiatives are expected to deliver a substantial annualized improvement to underlying earnings.”