Livestock exporter Wellard has announced it is selling one of its six year old mid-sized sister ships, the Ocean Outback, in a deal that will generate A$34.9 million for the company.
In an announcement to the ASX this morning Wellard said the deal will generate approximately A$16.34 million for debt reduction, an A$18.22 million increase in cash on hand and an approximately $13.02 million non-cash accounting loss resulting from the impairment in the book value of the asset and related inventory.
The vessel will be purchased by Israeli company, Dabbah Slaughterhouse Limited.
The MV Ocean Outback, a sister ship to the MV Ocean Swagman, was launched in late 2010.
It can transport 6000 cattle or 25,000 sheep, or a combination of both.
Wellard has previously stated the ship cost more than $40 million to build, with its design focused on the objective of enhanced welfare and safety of livestock, vessel and crew.
“Its Dual Independent Propulsion System, comprising separate engine rooms and propellers, provides levels of redundancy, and therefore safety, rarely seen in cruise liners and never before built into livestock vessels,” a description of the vessel on Wellard’s website reads.
“The advanced ventilation system fans an average of 110 air changes per hour, four times the Australian standard and 3.5 times the number of air changes per hour on a commercial airliner.
“The MV Ocean Outback has been classified by the Registro Italiano Navale (RINA) as a ‘Green Star Vessel’, due to its low emissions and pollution prevention design and systems.”
However the Outback’s six-year lifespan has not been all smooth sailing. In May 2014 it was forced to divert a load of cattle from the Middle East to South East Asia soon after leaving Western Australia due to an engine malfunction. Then in December 2015 the Outback was required to unload sheep and divert a load of cattle to Vietnam after it suffered an engine failure enroute to Israel.
Tight supplies of cattle, high cattle prices and trade-restricting Indonesian Government policies in particular have weighed heavily on the bottom lines of all Australian cattle exporters in recent years. Wellard, one of the few exporters that is publicly listed and must therefore publish its financial results, has reported a string of losses in recent years and suffered a series of profit downgrades, which has seen its shares also perform poorly.
Last month it completed a fund raising process to raise more working capital.
The sale of the Outback will also generate A$18.22 million in fresh working cash according to the statement.
Wellard said in the statement that the sale is part of an ongoing review of its fleet to match its shipping capacity to current market conditions and future fleet additions.
Wellard expects completion of the sale of the M/V Ocean Outback to occur in first quarter of FY2018.
The sale is subject to the Norwegian Shipbrokers’ Association’s Memorandum of Agreement for Sale and Purchase of Ships (BIMCO Form Rev, 2012), which provides standard terms and conditions adopted internationally for sale of oceangoing ships, and includes certain provisions, such as a final inspection of the
vessel that may result in minor adjustment to the cash received.
The vessel has undergone recent drydocking in Singapore and is considered in good working condition, according to the statement.
Wellard CEO, Mauro Balzarini said: “Wellard regularly reviews the make-up of its fleet to match it to current and expected future capacity demands.
“As previously announced in the Company’s 3 April 2017 Offer Document, Wellard had received several approaches from parties interested in purchasing our vessels, so we used the opportunity to progress the sale of the M/V Ocean Outback to right-size our fleet. The cash-realisation
and efficiencies Wellard gains in our view outweigh the capital loss on this transaction.
“Wellard continues to work through very difficult trading conditions, which have remained soft in the second half of the financial year. As previously announced, there will be trading losses reported in the Company’s year-end accounts.
“The Company is reviewing the carrying value of its assets, and subject to valuation, this may result in impairments when it finalises its accounts at year-end, which, together with expected higher trading losses, will lead to a second half loss higher than the first half. The quantum of such losses is yet to be determined as the year is not complete.
“Notwithstanding the very tough year, we are managing our way through. The completion of the Company’s A$53 million capital raising, our Costs Out Programme, and the sale of the M/V Ocean Outback leaves Wellard with an improved liquidity position. The market signals for the beginning of
the new financial year FY2018 are more promising than FY2017, which leads us to expect some improvement in performance in FY2018.”