Wellard issues second profit downgrade this month

Shares take another hit as company predicts a potential third profit warning before the end of this month

Wellard issues second profit downgrade this month
Wellard has margin issues.


After a brief trading halt last week, Western Australia-based livestock exporter Wellard downgraded its potential net profit after tax in the 2016 financial year (FY2016) for the second time in June, this time predicting a fall closer to $23.5 million.

It has been a challenging six months for Wellard whose shares opened at 42.5 cents today after an initial public listing of $1.39 per share in December last year.

The news comes as another WA based maritime company, MMA Offshore, saw its share price drop this month as a result of a profit warning for FY2017 owing to slow business across all sectors.

Last week, Wellard’s shares dropped to $59.5 cents after the company lowered its net profit in fiscal 2016 to a $23.5-$30 million range from its earlier forecast of $42.5 million.

Wellard CEO Mauro Balzarini says the forecast result is lower than anticipated.

The company attributes its woes to a combined effect of unforsseen high cattle prices, repair costs due to engine failures on two of its livestock carriers and the delay in construction of a new ship being built in China.

Heavy rains in northern Australia have increased the price of cattle by 80-100 cents per kilogram than the previous corresponding period, which has affected the company’s trading margins, Balzarini says.

"There has been strong customer resistance to those high prices and trading margins have been impacted as a result," he says.

With a large shipment due for departure in the next few days, the company says the date of its departure will further influence the profit forecast, potentially below the previous range.

"Due to the proximity of the end of the financial year, outcomes of some of the remaining shipments may still influence the forecast," he says.

"A further change to the forecast is therefore possible, particularly given one of these shipments is a large shipment."

While the company expects the existing pressure on shipping and trading margins will continue in the short to medium term, it remains hopeful of the future.

"Wellard remains profitable despite this margin pressure and our outlook remains positive," Balzarini says.

"We have strong and consistent management and liquidity, and a global customer base demonstrated by our volumes of cattle."

The company is increasing focus on South America, having diverted its recently launched ship, the Ocean Shearer, to Brazil.

"The margin pressure we encountered trading and shipping cattle from Australia to South East Asia supports our decision to increase our focus in countries like Brazil, which has a cattle population of more than 220 million head and strong trading margins," he says.

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