Like ABB Grain earlier in the week, GrainCorp has done a bit better than you would believe, given the undeniable impact of the drought and the downturn in grain availability.
ABB found earnings growth from other areas, such as international trading and its Joe White Maltings business; GrainCorp similarly found its extra earnings and revenue from flour milling and its trading business.
GrainCorp (GNC) has cut its forecast for a full-year loss by more than 20 per cent after those higher contributions from flour milling and trading.
It said yesterday it now expects a loss of $20 million to $23 million this year, down from the previous forecast of a loss in the range of $20 million to $30 million.
GNC said its first-half net profit fell 71 per cent to just $5.6 million, but that had been well flagged to the market. Earnings before interest, tax, depreciation and amortization in the first half from grain marketing more than quadrupled, while those from flour milling more than tripled.
It said earnings should rebound "considerably'' in 2008 on expectations wheat and canola output may double this year. But that, like so many other forecasts in the rural sector at the moment, is predicated on a recovery in rainfall and water supplies.
GNC shares rose as much as 15 cents to $10.65.
GrainCorp managing director Tom Keene said the season was off to an "excellent start" in Victoria and NSW with recent rains, and the bulk of crops now planted in these areas.
"Whilst the 2007 financial year is impacted by drought, the business is on track against the three year strategic plan and the early outlook for the 2007-08 season is good," Mr Keen said.
Grain receivals in the half had plummeted to 2.2 million tonnes from 10.4 million tonnes in the previous corresponding half.
Losses from this fall were offset by revenue from imported grain and increasing non-grain products.
Mr Keene said GrainCorp's investment in Allied Mills generated $7.9 million in equity profit and interest for the half, reflecting strong margin and cost management, plus improved market conditions.
He said the company's grain marketing business again performed strongly in domestic and international markets, with $12.6 million EBITDA, up considerably on the 2006 half year result.
"We saw good growth in non-traditional markets including Western Australia and South Australia, which also had strong uptake of new finance products. This demonstrates that growers want competition for their grain and GrainCorp is happy to provide this. "I also see South Australia as a great opportunity for GrainCorp this year with export barley, especially given our presence in this market and the needs of our existing international customers," said Mr Keene. (That will put GNC into a head to head joust with ABB which dominates the barley market in South Australia.)
GrainCorp's second-half profit would be lower than the first-half because most of summer and winter crops in Australia are harvested in the first-half (the same as at ABB) and the drought had slashed the amount of grain in storage and available to be sold.
First half revenue fell two per cent to $447.1 million; EBIDTA of $39.7 million was down 39 per cent.
GrainCorp will pay an interim dividend of 10 cents per share, fully franked
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Earlier this week ABB Grain said that while earnings were hit from the drought, its Joe White Maltings subsidiary and international trading business offset the lower level of activity in the traditional grains and barley handling area.
Joe White was the major profit driver in the half, thanks to a new plant in Perth and strong world prices for malt. It made $7.3 million after tax while the international grain trading business made more than $6 million in net earnings.
Overall net after tax profit more than halved to $18.8 million from $44.8 million in the opening half of 2006.
The company said it remained on track to record an annual profit of $16 million to $19 million.
ABB shares ended 2c up at $8.66 yesterday, recovering from the post-announcement fall earlier in the week.
ABB managing director, Michael Iwaniw, said that while the results were lower than the previous corresponding period, they were consistent with the company's full year profit forecast.
ABB will pay $7.4 million in interim dividends, with B-class shareholders receiving an interim dividend of 5c per share.
