Big Dry Squeezes GrainCorp Profits

Australia’s GrainCorp announced that it is set to post a full year profit of $60 million after recording a net profit after tax of $30 million for the six months to March 31. This would be about half of what the company recorded for the same period a year before.

Dry weather conditions last year in Queensland and New South Wales cut returns for the company’s traditional grain handling and marketing business, as high foreign exchange rates, reduced freight advantages, and increased competition from overseas grain all put pressure on the company.

Despite these factors, GrainCorp’s overall result were supported by positive results for its edible oils and malt businesses, with its malt business reporting high capacity, and accounting for half of the earnings before interest, tax, depreciation, and amortization (EBITDA) for the first half period. The malt division has also made significant cost reductions through strategy initiatives and is maneuvering to capitalize upon the notable growth in the craft beer industry in North America.

GrainCorp remains on pace to post an EBITDA of between $240 million and $270 million for the full 2014-15 financial year and an after tax net profit of between $45 million and $60 million, according to managing director, Mark Palmquist.

GrainCorp Oils has also seen positive results. "There has been significant progress on the growth projects in the liquid terminals business and good sales volumes and margins for the oilseed crushing business," Mr. Palmquist tells Farm Weekly.

Sales volumes for the marketing business remain on par with those of last year but shorter supplies have created greater margin pressure. Strong competition is expected to continue through the second half but the group says it is seeing increased sales from its international offices and is committed to continuing to expand its global presence.

Meanwhile, favorable borrowing conditions have enabled the group to refinance and extend multiple debt facilities with is Australian and international banking group to an average tenure of 5.3 years. Mr. Palmquist adds, "Facilities of this size and tenure will support the progress of our corporate objectives and growth initiatives, while maintaining an appropriate capital and liquidity structure.”

Looking forward to next season’s crop, plantings are progressing but conditions are again dry, with many regions across the grain belt, particularly inland regions, needing rain.

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