The competition watchdog’s looming decision on whether it will allow a $350 million sale of part of GrainCorp has taken on extra significance after the company plunged to a $113 million loss thanks to one of the “worst droughts on record”.
GrainCorp became the latest ASX-listed agribusiness to reveal the punishing effects of drought, confirming the drought had a $114 million adverse impact on its 2019 full year earnings before interest, tax, depreciation and amortisation (EBITDA).
The bulk grain handler and diversified agribusiness was forced to axe its final dividend; last year it paid a 16 cents final dividend.
GrainCorp is expecting a decision by the Australian Competition and Consumer Commission (ACCC) on November 15 on its proposed deal to sell its bulk liquids terminal business for $350 million.
Morgans analyst Belinda Moore said GrainCorp had a stretched balance sheet and Friday was looming as a big day.
“All eyes are on tomorrow and the ACCC’s decision,” she said.
“They desperately need those funds to restore the balance sheet…GrainCorp clearly needs the $350 million from selling those terminals to pay down debt and have gearing ratios much more conservative than they currently are,” she said.
“After three years of severe east coast drought conditions, its balance sheet is now stretched,” she said.
GrainCorp recorded underlying EBITDA of $69 million, well below last year’s $269 million. In addition to drought the company said “trade disruptions”, including the impact of China’s decision to undertake an anti-dumping investigation into barley imports from Australia, and the US-China trade war had a $65 million adverse impact on its EBITDA.
“It [the drought] is truly catastrophic for most areas of grain production in east coast Australia,” he said.
The company shipped more than 2 million tonnes of grain from other states, including Western Australia, to meet the demand for grain on the east coast, he said.
The amount of grain received by the company in the 2019 financial year more than halved to 3.1 million tonnes, while exports slumped to just 300,000 tonnes, down from 2.7 million tonnes.
GrainCorp is pressing ahead with plans to demerge its malt business from its grain operations, a move that will form two separate ASX-listed agribusinesses. The company said the scheme booklet about the demerger would be sent to shareholders in the first quarter of 2020.
The company’s shares fell in early trade but regained ground to close up 4 per cent at $7.73.
Source – https://www.smh.com.au