Dairy industry problems worry Ridley
"Ridley advises that a number of external factors are currently having a detrimental effect on some sectors of the business compared to the first half financial results announced to the market on 20 February, 2013," Ridley said in a statement to the Australian Securities Exchange on Friday.
Ridley fell 19.5¢, or 17.3 per cent, to 93.5¢ after the announcement.
The external factors hurting Ridley include continued price pressure in the dairy industry and dairy farmers reducing the use of compound feed.
Oversupply and fierce competition in the packaged product sector and continuing restrictions on rendered product exports to some Asian countries arising from avian influenza outbreaks were also affecting Ridley's earnings.
Subdued trading conditions were likely to constrain the full-year earnings of Ridley AgriProducts (animal feed business) to a level similar to last year.
Ridley also said there had been no finalisation yet to talks with Penrice Soda Holdings over the likely end to a long-term contract to supply brine from Ridley's Dry Creek salt field in Adelaide.
Ridley has said that the Dry Creek site has significant potential for redevelopment.
The outcome of the Penrice talks would affect Ridley's future level of borrowing and gearing, particularly in light of the subdued trading conditions being experienced by Ridley AgriProducts.
Ridley said that once it had clarity on the contract termination and the future of Dry Creek, it would update the market on expectations of net profit and cash flow and its capital management intentions.
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Ridley shares fell 19.5¢ (about 17.3%) to 93.5¢ after the company said a number of external factors were hurting parts of the business. The announcement cited price pressure in the dairy industry, dairy farmers reducing use of compound feed, oversupply and fierce competition in the packaged product sector, and export restrictions on rendered products linked to avian influenza outbreaks.
Ridley said continued price pressure in the dairy industry and dairy farmers cutting back on compound feed use are reducing demand for its animal feed products, which is weighing on Ridley AgriProducts’ trading and earnings.
Ridley reported that continuing restrictions on rendered product exports to some Asian countries, arising from avian influenza outbreaks, are negatively affecting its rendered product sales and overall earnings.
The company highlighted pressure on Ridley AgriProducts (the animal feed business), the packaged product sector (which is facing oversupply and fierce competition), and rendered product exports as the areas most affected by current trading conditions.
Ridley said subdued trading conditions are likely to constrain Ridley AgriProducts’ full-year earnings to a level similar to last year, rather than showing growth.
Ridley said talks with Penrice Soda Holdings over the likely end of a long-term contract to supply brine from Ridley’s Dry Creek salt field in Adelaide have not been finalised. The company also noted the Dry Creek site has significant redevelopment potential.
Ridley said the outcome of the Penrice talks would affect its future level of borrowing and gearing, especially given the subdued trading conditions in its AgriProducts business. Once there is clarity, Ridley plans to update the market on expected net profit, cash flow and capital management intentions.
Investors should look for Ridley’s updates on the Penrice contract outcome and the future of the Dry Creek site, plus revised guidance on net profit and cash flow. Also watch trading conditions in the dairy sector, packaged products and rendered product export restrictions, since these factors were highlighted as drivers of current performance.
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