LIVESTOCK exporter Wellard is in the midst of a tough financial year, but there are a few bright spots that can be discerned in its report on the first half of FY 2018.
Net loss after tax for the six months ending 31 December was reported to be $7.5m, which, Wellard points out, is a $10.4m improvement on the same period the previous year.
The company finished the period with assets of $293.1m ($67.5m less than the same period the previous year), and liabilities of $171.1m ($58.6m less than the same period the previous year).
Its results left it in breach of its banking covenants, requiring the company to continue categorising all long-term debt as current liability.
Wellard reported its revenue was down 41.9% to $163m, which it said reflected the higher mix of ship charters in the first half of FY 18 compared to the prior corresponding period.
A small bright spot in Wellard’s half-year report was that the company’s EBITDA (earnings before interest, taxes, depreciation and amortisation) improved to $8.9m – an improvement of $14.2m on the negative $5.3 EBITDA the previous year.
Wellard executive director operations Fred Troncone said that while the company’s financial performance had improved during the first half of FY 18, there were still challenges ahead.
“We improved our gross margin by 167.2% to 15.5% and reduced our operational expenses by 31.3%, which improved our operating cashflow and helped to reduce our debt; however, there’s still more work to do,” he said.
“The biggest change to our operations in the past six months came as a result of the company taking advantage of chartering opportunities for our large, modern vessels onto the South America to Mediterranean route while using small vessels to retain longstanding customers in a very competitive, low margin South East Asian market, with a resultant decrease in market share in the second quarter.”
The company exported 46% fewer cattle overall because its larger vessels were chartered out to third parties for long-haul voyages outside of Australia, and also the company had sold the M/V Ocean Outback in July 2017.
And, as part of the company’s “costs out” program, it reduced its personnel in its South American operations to key management positions, with cattle being sourced through contractors.
The company also closed its office in Brescia Italy.
Mr Troncone said the company exceeded its target of a $10m reduction in overheads as the “costs out” program remains on target.
“With lower administrative cost base and a renewed marketing effort across all main livestock demand centres, Wellard is better positioned to make compelling and more competitively priced offers across shipping charters and livestock trades,” he said.
Mr Troncone said demand for live cattle from countries in the Mediterranean, including Turkey, continues to be strong and he expects that a significant proportion of these to be sourced from South America.
“We are seeing more shipping capacity being diverted into servicing these markets, which creates greater competition, but we are receiving a good level of inquiry for our high quality vessels, which importers recognise produce improved animal welfare and commercial outcomes,” he said.
Mr Troncone went on to say live export from Australia continues to be challenging, but the price of heavy cattle was trending downward.
“The eastern young cattle indicator for January 2018 is about 15% lower than the corresponding period last year,” he said.
“This improvement has opened opportunities for small shipments of heavy cattle to China, which we expect will gradually increase as quarantine and processing infrastructure in coastal China develops, and assuming that Australian livestock prices remain attractive.”
Wellard shipped its first shipment of slaughter cattle to China in November, and it has also secured a contract to supply a shipment of 10,000 breeding cattle to China before the end of the financial year.
“Shipments into Vietnam and Indonesia, which are Wellard’s traditional markets, continue to deliver tight margins,” Mr Troncone said.
“Although the price of heavy (slaughter-ready) cattle has eased, this is particularly offset by the appreciation of the Australian dollar to approximately US$0.80. The supply and price response at the end of the northern Australian wet season will be an important determinant of the profitability and size of our Australian operations for the remainder of the financial year.”