GrainCorp Silo
First half profits, revenues up sharply from a year ago.

WEST PERTH, AUSTRALIA — A record Australian crop coupled with continued strength in the company’s Malt business contributed to strong profit and revenues at GrainCorp Ltd. in the first half of fiscal 2017. Profit in the half-year ended March 31 totaled A$90 million, up sharply from A$20.4 million in the same period a year ago.

Revenues during the first half of fiscal 2017 increased 19% to A$2.456 billion from A$2.070 billion a year ago.

Mark Palmquist GrainCorp managing director and CEO
Mark L. Palmquist, chief executive officer.

“GrainCorp’s strong first-half performance benefited from the large Australian grain harvest and higher export volumes, combined with our intense focus on improving network efficiency and managing costs,” said Mark L. Palmquist, chief executive officer.

In the company’s Oils business, reportable segment profit totaled A$31.5 million on revenues of A$459.3 million, which compared with profit of A$29 million and revenues of A$440 million in the same period a year ago.

“On Oils, we saw improved crush margins and also higher contribution coming from our bulk liquid terminals,” Palmquist said during a May 11 conference call with analysts. “Still experiencing continued margin pressure in foods, but our business is highly focused on the continuing improving production efficiencies in our recently upgraded and expanded West Footscray plant in Victoria.”

Moving to the grains side of the business, GrainCorp’s Storage and Logistics segment posted reportable segment profit of A$113.3 million in the first half of fiscal 2017, up from A$27.6 million in the first half of fiscal 2016. Revenues for the unit increased to A$394.8 million from A$212.9 million.

“A very good crop on the East Coast of Australia has increased our grains receivable and has absolutely improved the bulk grain export volumes and a good quality crop as well,” Palmquist said. “So it’s making it much better for us in terms of competing in the global marketplace. With this big handle that we have this year, we did it with 160 silos and averaging about 70,000 metric tonnes per site, and that compares to 40,000 tonnes per site average in 2016 and running 180. We’ll continue to work on improving our efficiencies in our overall network in Australia.

“Our export task, some of this has been deferred into the second half. We had some impact on the front end and some weather-related events in areas across Queensland and New South Wales primarily, and we have an ongoing issue in Victoria. There is an extended industrial dispute by a rail provider in that area, which has created some problems that we are managing, and it is rolling out an export program into the second half. We’ve also seen continued growth on on-farm storage.”

On the Marketing side of the grain business, reportable segment profit totaled A$31.5 million on revenues of A$1.320 billion, which compared with A$8.4 million and A$976.1 million, respectively, in the same period a year ago.

“(We had a) very good, strong performance driven by a large export program,” Palmquist said. “We’re running right now at 4.9 million versus 3 million last year, so a sizable increase. And we’ve seen that increase coming not just out of Australia or Eastern Australia but also coming out of Southern Australia, West Australia, Europe, Canada and the Black Sea. This has been very important for us because even with our increased crop, there are large supplies globally, and so there are still opportunities for us to be handling grains from other areas around the world. We have seen a slight increase in ocean freight rates, but relative to where they’ve been over the past 5 years, they’re still very low. So we still have, what we would call, a narrow freight spread from a lot of other origination areas around the world.”

GrainsConnect Canada_new grain terminal in Reford Saskatchewan_Photo cred Canadian National Railway
One of GrainsConnect's new grain terminal sites in Reford, Saskatchewan, Canada.
Photo courtesy of Canadian National Railway.
Palmquist said GrainsConnect Canada, the company’s 50-50 joint venture with Zen-Noh, continues to be on track and making good progress.

“We have two high-speed rail facilities that are under construction right now, one completed in time for harvest and one during harvest,” he said. “And we also announced that our third out of four facilities will go in Vegreville, Alberta, and that will start construction shortly.”

GrainCorp’s Malt segment posted reportable segment profit of A$74.4 million in the first half of fiscal 2017, down narrowly from A$75.8 million in the same period a year ago. Revenues eased to A$537.9 million from A$592.6 million.

“Our Malt sales volume, very consistent with what we have seen in the previous two years,” Palmquist said. “We’re still experiencing very high-capacity utilization rate, which is above 90%. Growth on our specialty products, we’re still seeing very good demand. Growth volumes in terms of craft beer is about 6% this past year and certainly down from the double-digit growth that we’ve been experiencing over the past four or five years. But again, the absolute size of this market has become a very important part of driving our earnings, and that 6% growth certainly gives us runway for the future.”

GrainCorp said it spent A$80 million in capital spend during the first half of fiscal 2017, with plans to spend an additional A$30 million to A$60 million in the second half of the year.