Wellard loss of $36.4 million is an improved result on last years $75.3 million loss
- By: "Farm Tender" News
- Farm Tender, DelayPay & Farm Inputs
- Aug 22, 2018
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Wellard has delivered an improved financial result in FY2018.
Net Profit After Tax (NPAT) improved by $38.9 million on the $75.3 million loss in FY2017 but was still a loss of $36.4 million for the financial year.
The ‘cost-out’ program we announced in FY2017 targeted a $10 million reduction in year on year operating and administration expenses in FY2018. That program has been very successful with total costs (excluding other gains/losses) reducing by 28.3% in FY2018 (which is on top of a 15.9 reduction in FY2017), so much so that operating, and administration expenses reduced by $18.8 million in FY2018.
While disciplined cost control is important, the Board recognises that revenue growth is ultimately required to drive shareholder returns.
While Wellard’s financial results are an improvement on the disappointing results of FY2017, Wellard is committed to a strategic refocus, to target our livestock and chartering business activities into areas that offer the highest returns for the lowest risk.
On 3 August 2018 it was agreed that a new senior manager should lead its implementation, and the Board announced executive management changes that have resulted in the appointment of Mr John Klepec as interim Executive Chairman.
OPERATIONS REVIEW
The 2018 financial year was a period of significant change for Wellard as the Company worked through difficult trading conditions while preparing itself to seize opportunities as markets recovered. Our back-to-basics approach improved competitiveness through a cost-out program and by refocusing on serving key markets.
The main contributors to the improved earnings in the past year were a reduction in overhead costs, balancing a mix of internally-managed shipments and external charter voyages, and an easing in the price of cattle in Australia in the latter part of the 2018 financial year.
To generate acceptable income while also mitigating trading risks, the Company actively managed its charter levels, chartering a higher percentage of its livestock shipping capacity to external companies. By way of comparison, 70.0% of Wellard’s shipping capacity was chartered to third parties in FY2018, versus 15.6% in FY2017.
Indonesia has been Australia, and Wellard’s, largest market for a decade, however margins have been pressured in the past two years by imported, frozen Indian buffalo meat substituting the sustained higher priced Australian sourced beef. In response, Wellard relocated both the MV Ocean Drover and the MV Ocean Swagman outside of Australia during the Northern Australian wet season. From May 2018 onwards it was evident that trading conditions were becoming more favourable so the MV Ocean Drover has returned to South East Asian routes.
Wellard significantly reduced its permanent operational and administrative footprint in South America in FY2018, however the Company continues to participate in the trade from this location via the chartering of its vessels to other livestock exporters. The Company has also undertaken selected trading voyages from South America.
A falling Australian dollar, the decline in the number of cattle on feed in Indonesia and the return to a profitable trading environment for Indonesian cattle importers did provide import demand and therefore better live export margins in the last quarter of FY2018.
Throughout the first half of FY2018 the market conditions in Vietnam prompted Wellard’s largest importer to reduce inventory, thereby limiting our export opportunities. In the second half of FY2018, increased exports of local Vietnamese cattle to neighbouring countries opened up space in the market for Australian cattle. This was aided by a drought-induced fall in Australian cattle prices and increased supply late in the half, which in turn assisted Wellard’s volumes and trading margin.
Live slaughter and feeder cattle exports to China remain a work in progress. To be commercially sustainable and to provide the- economies of scale required to be competitive, exporters and importers require large-sized cattle shipments. The ability of the Chinese consumer market to absorb big numbers is unquestionable, however to date very strict import protocols are limiting importers’ ability to purchase large-sized cattle consignments.
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