Key points:

• Underlying EBITDA $390m (FY16: $256m)
• Underlying NPAT $142m (FY16: $53m)
• Statutory NPAT $125m (FY16: $31m)
• Fully franked final dividend of 15c/share, taking total FY17 dividend payment to 30c (FY16 total dividend: 11 cps)

GRAINCORP has released its 2017 financial year results, showing a pre-tax profit of $390 million and a Statutory net profit of $125 million.

Notwithstanding strong contributions from the company’s malt processing businesses, the profit figure – four times that of 2016 – was linked to high-volume turnover in last year’s massive Australian winter harvest.

Managing director and chief executive Mark Palmquist said the result benefited from the near-record crop in eastern Australia and another good performance by GrainCorp Malt.

“Across our grains businesses, we benefited from increased storage, handling and merchandising opportunities aided by the large harvest. We successfully executed a large grain export program despite persistently high global crop supplies and depressed grain prices, which continued to be a headwind for Australian growers,” he told the market.

Malt strong, Food and Oils reshaped

Graincorp’s Malt division delivered another good result, with earnings consistent year-on-year despite an unfavourable foreign exchange impact from the higher A$ and reduced revenue following the sale of the company’s German malt plants. GrainCorp Malt continued to operate at high capacity utilisation with strong demand for specialty products.

Mr Palmquist said the foods business within GrainCorp Oils was facing a number of challenges, with margin compression and prolonged process in capturing efficiency improvements at its plant in West Footscray.

“We have taken significant steps to reshape this business including removing costs and combining the Foods and Oilseeds businesses to simplify the operating structure and increase efficiencies,” he said.

“Our diversified earnings base allows us to pay a final dividend of 15c, notwithstanding the leaner outlook for FY18 based on the current harvest.

Rising energy costs are a challenge

“Rising energy costs continue to be a serious challenge for the long-term sustainability of food and malt processing in Australia and we are evaluating a range of energy efficiency and alternative generation options to mitigate the impact of energy price volatility. This is important to remain internationally competitive,” Mr Palmquist said.

“During the year we continued to improve our safety processes and controls, striving towards our vision of Zero Harm, Safe for Life. However, our Recordable Injury Frequency Rate (RIFR) did increase marginally in FY17 and we continue to work hard to drive sustained performance improvements.”

Smaller 2017 harvest; processing will underpin FY18 outlook

As of Monday, GrainCorp had received about 1.45 million tonnes into its east coast Australia network.

“Overall, we are expecting a substantially smaller crop in eastern Australia, with production skewed to Victoria and southern NSW, and below average exportable surplus. Our focus remains on becoming more versatile across the Grains business and ensuring we are adding value for growers and buyers in these challenging times,” Mr Palmquist said.

He said the GrainCorp’s marketing team would continue to explore opportunities to meet customers’ needs, including the possibility of domestic shipping to meet demand in northern areas (see Grains Central’s earlier report).

Oils would continue to face strong headwinds and margin pressure across the year, however GrainCorp expected the benefits of its Oils division restructure to flow through to the second half of the financial year.

The expansion of the company’s Malt facility in Pocatello, Idaho, US was completed during the fourth quarter and would provide a full year contribution in FY18.

“GrainCorp is in a strong financial position with core debt gearing at 20pc at 30 September (FY16: 29pc),” Mr Palmquist said. “While 2018 will be a challenging year for our Grains business, we have made significant progress in recent years to optimise our network and more closely align operational costs with volumes.”

The company’s processing businesses continued to underpin earnings for the group, and demonstrated the benefits of having a diversified portfolio, he said.

• Click here to access the GrainCorp results presentation.

Source: GrainCorp