Agribusiness

UMG results reflect tough Canadian season

Grain Central, November 17, 2022

A crop of malting barley in Scotland. Photo: Bairds Malt

RESULTS released this week for the year ended September 30 show 2021-22 has been a tough year for the world’s fourth-largest commercial maltster, United Malt Group Limited (UMG).

The company has around 1.25 million tonnes of production capacity spread across Australia, North America and the United Kingdom, and is the parent of the Canada and Great Western malting companies, Barrett Burston and Bairds.

While group revenue rose 14 per cent to $1406.7 million, primarily reflecting higher barley prices, its underlying earnings before interest, taxation, depreciation and amortisation were $105.9M, down 23 per cent on FY21.

Statutory net profit after tax also took a tumble, falling 20pc from $14.5M in FY21 to $11.6M.

In a statement issued on Wednesday, UMG said its financial results were adversely affected by market conditions, including the impact of the severe drought on the Canadian barley crop, significant disruption to ocean and rail supply chains, and increased freight costs.

Additional intake of barley in the UK has occurred in preparation for commissioning of UMG’s expanded Inverness facility.

Capital expenditure for the year was $91.2M, down from $103.3M for FY21.

Major growth initiatives included $50.2 million relating to the expansion of the Scottish facilities to service the distilling market.

In total this project will add 79,000 tonnes to capacity at both the Arbroath and Inverness sites, with the Inverness site to add 57,000t of capacity to service the distilling market.

The facility at Inverness is expected to be producing commercial quality malt in the first quarter of calendar 2023.

Other growth projects included sustainability and efficiency programs, including the new specialty ingredient-processing plant in Calgary and the Optisteep water reduction technology installation at the Pocatello plant in Idaho, US.

Underlying segment EBITDA declined by 31pc to $70.1M, impacted by the significant deterioration in the Canadian barley crop which reduced yields and increased production costs.

The reduced Canadian crop resulted in UMG also incurring additional logistics costs to import barley into processing plants in Canada from Denmark and Australia.

The combined impact of additional barley required to address reduced quality and yield and additional logistics costs for importing barley was $51.7 million for the year.

The segment was also impacted by disruption to supply chains including sea, rail and road freight which caused continued delays in customer shipments, and higher-than-expected energy costs which were not able to be fully passed through to customers.

Revenue in the Warehouse & Distribution segment increased by 8pc to $356.6M, benefiting from the business optimisation initiatives implemented over the past two years.

UMG managing director and CEO Mark Palmquist said FY22 was a challenging year for UMG.

“In response we have enacted a more proactive approach to risk allocation, with changed pricing and commercial terms to better capture the true cost-to-serve our customers,” Mr Palmquist said.

“This includes barley pricing with customers with more certainty on crop quality and price and a more disciplined approach to managing customers’ volume commitments.

“Our contracts will also include more frequent freight price resets and inflation cost escalation more appropriately reflected in the processing fee.

“These initiatives are designed to ensure a more resilient business which is better equipped to manage external volatility.”

Mr Palmquist said fundamentals of the global malting industry remained positive over the longer term.

“Beer consumption has not typically been significantly impacted in periods of recession, while demand for craft beer and ancillary products continues to grow.”

Mr Palmquist said demand for distilling continues to grow, with UMG’s customers laying down spirits for 10-plus years for aged whisky.

“We continue to implement our strategy to leverage these positive market fundamentals, whilst strengthening our internal capabilities.

“In the UK, we remain well positioned to service the Scottish whisky market, which requires malt to meet the long-term requirements of distillers to produce aged whisky.

“This strategic addition of capacity has been underpinned by expanded contracts with customers with the new capacity already largely contracted.

“Meanwhile, we are progressing our new specialty ingredient processing plant in Calgary which is supporting growing demand for new products in craft beer and food applications.

UMG continues to expect a material increase in earnings in FY23.

The expected drivers of the earnings increase include improved North American crop conditions, pricing and commercial discipline, completion of the Scottish expansion project, efficiencies gained from the transformation program and implementation of a new technology platform.

Source: UMG

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