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High cattle prices impact Wellard’s half year results

by Beef Central, 28 February 2017

Australia’s largest livestock exporter Wellard Ltd has reported an underlying EBITDA loss of $1.3 million and a statutory net loss of $17.9m for the six months ended 31 December 2016.

wellardThe results compares to an EBITDA profit of $26.9 million profit fa statutory net loss of $23.9 million for the previous corresponding period (pcp).

Half year results released by Wellard Ltd to the ASX this morning included:

  • Revenue increased 2pc to $281.9 million (pcp: $275.5 million) due to commissioning of a new vessel, record high cattle prices in Australia impacted on cost of sales which increased 18pc to $265.6 million (pcp: $225.9 million) resulting in a 67pc decrease in gross profit to $16.3 million (pcp: $49.6 million)
  • Net assets at the end of the period were $172.7 million (30 June 2016: $188.7 million)
  • Net debt increased $17.2 million to $188.8 million (30 June 2016: $171.6 million) due to an increase in working capital debt plus reduced cash and cash equivalents, but was partially offset by a reduction in ship and other asset debt
  • The drawn balance of ship and other asset debt facilities decreased $7.0 million to $179.0 million (30 June 2016: $186.0 million)
  • Cash and cash equivalents as at 31 December 2016 were $15.0 million (pcp: $30.9 million)
  • Undrawn working capital debt facilities secured against inventories and accounts receivables as at 31 December 2016 were $44.1 million (pcp: $51.3 million).

Debt covenant update

Wellard said that breach covenants on December 31, 2016, as with its FY2016 results, required it to categories all debt as current.

Loans and borrowings of $150.6 million in the normal course are due to mature beyond 12 months until 2026, despite their classification as current liabilities (30 June 2016: $168.9 million).

It says it has now remedied all bank undertakings and has either received or expects to receive waivers for all covenant breaches that occurred on 31 December 2016.

Cost of buying cattle 76pc higher than two years ago

“As previously indicated, Wellard continues to be impacted by the scarcity of cattle available for sale in Australia which has resulted in record high cattle prices and historically low trading margins as the increase in cattle purchase prices was unable to be fully passed on to customers,” Wellard CEO Mauro Balzarini said in the statement.

“Wellard paid 76pc  more per kg for its cattle in the first half of FY2017 than it paid in the first half of FY2015.

“Wellard is actively seeking to strengthen its working capital position through negotiating improved trading terms with suppliers as well as assessing options including the possible sale of asset values and/or raising additional debt and/or equity.

Outlook

Mr Balzarini said trading conditions currently remained difficult and working capital required strict management.

Cattle supply numbers from Northern Australia were expected to remain low and therefore cattle purchase prices are expected to remain high during the third quarter of this financial year.

This was in line with normal seasonal trends.

However, as cattle availability improves with the onset of the dry season in March/April, Wellard expects the increase in cattle to be matched by an increase in customer demand, and, with that, a return to profitable trading for the group in the fourth quarter of this financial year.

Wellard expects to deliver its first shipment to China soon

“Given the herd rebuilding underway in Northern Australia matched with an expected growth in demand from China, we expect to return to full year profitability in the 2018 financial year,” the statement said.

“The new market for slaughter cattle in China is yet to generate material volumes, however we expect to undertake our first shipment to Chinese customers before the end of this financial year.

“As the China market grows we expect to see an increase in demand for our specialised vessels, resulting in increases in margins.”

Shipping out of South America

Wellard said cattle purchase prices in South America were below current Australian prices and this was providing a diversity of supply to the traditional Australian sources.

“Although normal export markets including to the middle east have been volatile, we expect trading conditions to improve as stability returns to the region. We are currently restructuring our South American operations to better reflect the market volatility and opportunities.”

Mr Balzarini said trading conditions remained tough in the current quarter, improvement was expected in April to June as cattle supplies return to more normal conditions.

“In the meantime, we are focussing on improving our market presence, as others reduce their exposure to the sector, pulling costs out of our business and improve our working capital position. We expect to return to full year profit in FY2018.” Mr Balzarini said.

Source: Wellard, ASX



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