GrainCorp sees drought hit logistics and first half

Takeover target no longer as LTAP ducks out ‘following due-diligence’

GrainCorp sees drought hit logistics and first half
The drought has hurt GrainCorp’s grain operations


Facing the ongoing effects of deep eastern-state drought conditions and in the midst of a restructuring, GrainCorp has seen its first half net profits turn into a $59 million loss.

The bad news comes hard on the heels of prospective suitor Long-Term Asset Partners (LTAP) withdrawing its $10.42 per share takeover tilt, valued recently at $3.3 billion, saying its due-diligence process failed to support its "operational assumptions".

After a period of softness at the end of last month, GrainCorp’s share price fell to $7.97 from $8.94 at the start of the month.

Read how the LTAP takeover bid for GrainCorp surfaced, here

Explaining the loss compared with last year’s first half profit of $36 million, CEO Mark Palmquist points to the "challenging" agricultural conditions as a source of the company’s poor financial showing.

"East coast Australian grain production was the lowest in over a decade and this has had a significant unfavourable impact on both out grains and oilseeds businesses," Palmquist says.

What the company dubs its portfolio review has been ongoing and the company confirms this includes such initiatives as:

  • the proposed demerger of its Malt business
  • the proposed combination of the Grains and Oils businesses and associated simplification and cost reduction benefits
  • the March agreement to sell its Australian Bulk Liquid Terminals business to ANZ Terminals
  • initiatives to increase through-the-cycle gross earnings  in its Grains business
  • investment in the Fraser Grain Terminal in Vancouver, Canada.

The Oils segment covers its bulk liquid port terminals, storage, packaging, transport and logistics operations.

While the Grains arm saw a loss before tax of $90.8 million, Oils kept its head above red ink with a $3.7 million before tax profit, albeit down from $11.9 million in the previous first half, partly due to freight costs affected by low oilseed supply.

Of grain transport, the firms says in a presentation that the "utilisation of rail take-or-pay contracts was again a burden with low grain volumes".

The Malt arm suffered the least, with a gross profit of $73 million, down just $2 million on the previous first half.


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