Crop outlook to trim grain trader's profit
GrainCorp said the total crop size this year was expected to fall to about 18 million tonnes from 21 million tonnes last year.
"The size of our crop drives our receivals," the company's chief executive, Alison Watkins, told analysts on Thursday. "This crop size is a more normal size", with earnings helped by the above-average carry-over crop from last season.
This helped to limit to 3 per cent the decline in earnings before interest, tax, depreciation and amortisation, as it benefited from its diversification program.
The profit at this level was $227.4 million, down from $235.1 million a year earlier.
But net profit dropped to $88.2 million from $133.7 million, with earnings a share dropping to 38.6¢ from 66.7¢, hit by profit declines across all divisions.
Pre-tax profit of the key storage and logistics division fell to $93.8 million from $122.7 million, with marketing dropping to $15.9 million from $26.6 million and malt to $38.9 million from $57.3 million. The oils division posted an inaugural $22 million pre-tax profit contribution.
Ms Watkins would not be drawn on the crop outlook, saying that she was "very comfortable" with the outlook, pointing to the "good state of preparation" as farmers began work sowing their winter crops.
She said there was likely to be a smaller canola crop this year after the record crop last season.
"Farmers are looking for rain," she said, while pointing to the recent good falls in parts of Victoria and southern NSW. "We're not seeing any cause for concern and expect 10 million hectares to be planted."
Along with expanding into the malt sector, GrainCorp has more recently bought into the oils processing sector in a bid to help reduce earnings volatility.
GrainCorp has also entered into long-term agreements for port throughput, pointing to 3.8 million tonnes of arrangements entered into, although about half of that figure is in-house, coming from its own trading arm.
GrainCorp is subject to a $13.20-a-share takeover offer from US agriculture group Archer Daniels Midland, which comprises $12.20 in cash and $1 in dividends, with the first part of that, 25¢ a share, declared on Thursday.
Analysts said the focus remained on progress, with ADM receiving regulatory approvals for its bid to proceed.
"We are waiting for more definition on progress with the regulatory process," one analyst said, which GrainCorp cannot talk to since it is up to ADM.
Frequently Asked Questions about this Article…
GrainCorp's March-half earnings were hit by a return to more typical crop conditions and a smaller crop this year. The total crop is expected to fall to about 18 million tonnes from 21 million tonnes last year, which reduced receivals across its business. Diversification helped limit the fall in EBITDA (earnings before interest, tax, depreciation and amortisation) to about 3%, but net profit and earnings per share were materially lower.
GrainCorp reported EBITDA of $227.4 million, down from $235.1 million a year earlier. Net profit dropped to $88.2 million from $133.7 million, and earnings per share fell to 38.6 cents from 66.7 cents.
Pre-tax profits fell across core divisions: storage and logistics declined to $93.8 million from $122.7 million; marketing fell to $15.9 million from $26.6 million; malt dropped to $38.9 million from $57.3 million. The oils division made an inaugural pre-tax contribution of $22 million.
GrainCorp has expanded into the malt sector and more recently into oils processing to smooth earnings volatility. It has also entered long-term port throughput arrangements totalling about 3.8 million tonnes, roughly half of which comes from its own trading arm.
CEO Alison Watkins said she was 'very comfortable' with the outlook, pointing to farmers being well prepared as they began sowing winter crops. She warned a smaller canola crop is likely after last season's record, noted recent good falls in parts of Victoria and southern NSW, and said she expects about 10 million hectares to be planted.
GrainCorp is subject to a $13.20-per-share takeover offer from US agribusiness Archer Daniels Midland, made up of $12.20 in cash and $1 in dividends. The first dividend component of 25 cents per share was declared. Analysts are watching regulatory approvals and progress on the bid, which GrainCorp itself will not comment on.
Investors should watch seasonal crop updates (total crop size and canola prospects), progress of winter sowing and rainfall reports, divisional performance updates (storage & logistics, marketing, malt and oils), and any developments in long-term port throughput agreements that affect volumes and revenue.
GrainCorp's diversification into malt and oils processing, plus long-term port throughput deals, is designed to reduce earnings volatility and has already provided some support (for example the oils division's inaugural $22 million pre-tax contribution). However, the company remains exposed to crop size and seasonal conditions, so diversification helps but does not eliminate volume-driven earnings swings.
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