Perth-based agribusiness company Wellard (ASX: WLD) has posted its first half-year profit since listing on the ASX.
The first half 2019 report cited a net profit after tax of $2.9 million – representing a $10.3 million improvement on the $7.4 million loss for the 2017 corresponding period.
Wellard also finished the period with net assets of $108.9 million – an increase of $7.4 million from the 2018 financial year-end position of $101.5 million.
Revenue was up 34% to $188.2 million and excluded the sale of local non-core businesses La Bergerie Pre-Export Quarantine facility and local abattoir Beaufort River Meats.
Wellard started negotiations on disposing the businesses in December and expects the transactions to be finalised by March – generating approximately $13 million of free cash flow including working capital realisation.
The proceeds will positively impact earnings and cash flow in the second half of the financial year, but will include a once-off impairment of $3.5 million to the carrying value of the group’s assets in China as well as $600,000 of restructuring costs.
Wellard achieved positive net operating cash flow for the period of $25.8 million and the improvement helped boost cash held to $13.4 million by the end of the reporting period, while reducing debt by $16.4 million.
Executive chairman John Klepec said the profit for the first in Wellard’s history.
“Excellent vessel utilisation, profitable cattle trading from Australia to South East Asia and continued cost savings have been the key drivers for our improved operational and financial results,” he said.
“We are under no illusions that there still is considerable work required to reset the balance sheet, as well as to increase and provide [a repeat] of those results.”
Mr Klepec said the company could potentially be impacted by the temporary closure of cattle exports from South America to Turkey, and pressure on importer and exporter margins in the trade of Australian cattle to Indonesia and Vietnam.
“These are external factors we need to manage very closely in the second half of the financial year,” he said.
“Current weather conditions in Australia, including the Queensland floods, will delay some of our planned voyages but it is not clear how much effect this will have on our full year results.”
In the first six months of the 2019 financial year, Wellard vessels commenced 24 international voyages, compared to 21 in the previous period.
Approximately 69% of these were chartered by third party exporters, and 31% used by Wellard’s trading division.
Three of those charter voyages were scheduled for Turkey. However, a temporary halt imposed by the Turkish Government on livestock imports due to an accumulation of stock, meant those voyages were suspended.
Wellard also exported 95,036 cattle on 12 of its own voyages – a 21,383 head increase on the previous period.
Sheep processing volumes by comparison, were down 6% on the prior period due to restricted supply and high prices.
“Increased northern Australian cattle availability and better trading margins were the key drivers of our increased trading activity,” Mr Klepec said.
“The increase in the number of cattle traded in response to a fall in Australian cattle prices during the period demonstrated the advantages of our flexible trading and chartering model.”
The inability of Asian customers to absorb higher cattle prices due to government regulations and the cost competitiveness of alternative protein sources such as Indian buffalo meat has resulted in Wellard stating it would not export to Indonesia if trading margins rendered the export of cattle commercially unviable.
Consequently, the company did not trade cattle to Indonesia in December, opting instead to ship cattle to Vietnam or charter out its ships.
“Although we have delivered a profitable result for the first six-month period, we remain concerned about the high cost of Australian cattle and the price sensitivity of Indonesian and Vietnamese customers,” Mr Klepec said.
“Where the final retail pricing is controlled by the government, [it has the potential to] impact our full year results.”
At midday, shares in Wellard were up 33.33% to $0.60.