Live Export

Cold Turkey trade steers Wellard to $48.3m loss

James Nason, August 29, 2019

UNTIL recently Australia’s largest livestock exporter, Wellard Limited has confirmed it is not currently trading livestock at all and focusing exclusively on chartering its ships, as it reports a significant net loss for a fourth successive financial year.

Wellard Limited released its FY2019 financial results to the Australian Stock Exchange this morning, headlined by a net loss after tax of  $48.4 million.

The result follows net losses of $36.4 million in FY 2018, $75.3m in FY 2017 and $23.3m in 2016 since the company floated in December 2015 (see below table).

Earlier this year results were looking much better for Wellard when it reported a breakthrough maiden net profit after tax of $2.9m for the first six months of FY 2019 in February.

At the time the company warned it was facing potential challenges in the second half of the financial year, due to the ongoing shutdown of the major live export market to Turkey and challenging trading conditions in key markets such as Indonesia due to competition from lower-priced frozen boxed meat imports.

MV Ocean Shearer was launched in 2016.

The warnings proved well founded. The MV Ocean Shearer spent the entire second half of FY2019 without a charter and the MV Ocean Drover was also significantly underutilised during the period, largely due to the closure of Turkey live cattle import market for most of the period, executive chair John Klepec said in today’s Wellard statement. The sale of the Wellao feedlot development also had a significant impact on the $48.4m reported loss, he said.

The result was also affected by the write down of the book value Wellard’s vessels following the recently confirmed sale of the MV Ocean Swagman to major shareholder Heytesbury for $US22m.

Mr Klepec said Wellard was able to strip another $2.2 million from its operational and administration expenses ($24.6 million in FY2019 v $26.8 million in FY2018), but an increase in financing costs to $11.2 million and impairment expenses to $22.4 million impacted on its profit result.

FY 2016 FY 2017 FY 2018 FY 2019
Revenue $573.8m $497.9m $237.0m $235.1m
Gross Profit $88.9m $27.6m $32.8m $38.8m
EBITDA $2.1m ($22.3m) $9.8m $12.0m
NPAT ($23.3m) ($75.3m) ($36.4m) ($44.8m)

Annual results since Wellard Limited’s ASX listing in December 2015

Searching for positives the company pointed to improved EBITDA of $12.0 million (FY2018: $9.8 million), operating cashflow before interest of $29.8 million (FY2018: $7.7 million) and a $33.9 million reduction in net debt – which will reduce further post June 30 with the sale of the MV Ocean Swagman – as highlights in its annual results.

Mr Klepec said both the Swagman and the Drover are currently chartered through to early November so were now back generating revenue again.

“We continue to work hard on restructuring Wellard’s balance sheet as these results are further evidence that our earnings volatility cannot support the Company’s existing debt levels, particularly when there are major trade interruptions.”

The MV Ocean Swagman

“The post balance sheet sale of the MV Ocean Swagman, with associated future reduction in liabilities to shipping financiers and noteholders will be of considerable help in this area.”

Asset sales in FY2019 including the Beaufort River Meats abattoir, Wellard Feeds feed mill and La Bergerie Pre-Export Quarantine business contributed to the reduction in total liabilities from $194.3 million to $142.5 million, with only a marginal reduction in earnings contribution.

Wellard was again in breach of banking covenants at 30 June 2019, and, as a consequence, all of its long-term debt was required to be classified as being current.

“As in prior years, the company is in discussions with respect to waivers of covenant breaches on its debt facilities. Wellard is working closely with its financiers and to date has maintained a good relationship while engaging with them to obtain the necessary waivers,” the statement said.

Wellard has told the market it will now exclusively focus on the chartering of its ships, until its balance sheet restructure is completed.

This in effect removes what was until recently one of Australia’s largest buyers of export livestock from the competitive landscape, which has seen other exporters grow market share, in some cases using Wellard vessels.

The Wellard statement said all of its vessels are currently on charter, positively impacting utilisation rates, however those charters are short term.

It said it does expect existing charters to be repeated though, because a range of market trends were creating new chartering opportunities for Wellard’s vessels, including a resuming cattle trade between South America and Turkey, the recommencement of the Australian live sheep trade to the Middle East, and continued strength in the live cattle trade from Australia to Indonesia and Vietnam.

It also expects regulatory changes to improve the competitive environment for the chartering of its vessels from next year. The Australian Maritime Safety Authority has announced that from January 2020 it will ban the use of double-tiered vessels from voyages commencing from Australia and remove grandfathering provisions on ventilation.

Wellard’s statement said that while its vessels will be unaffected by the new AMSA regulations, it is likely three large competitor vessels will be unable to meet the new requirements and will be prohibited from transporting sheep and cattle from Australia.

A new International Maritime Organisation (IMO) regulation to be introduced in January 2020 will reduce the cap on sulphur content in marine fuels from 3.5 percent to 0.5 percent.

Marine fuel oil is the second largest operational cost in the livestock export industry, behind livestock procurement.

Low sulphur fuel oil is now and is expected to remain more expensive than the high sulphur fuel oil currently in use.

Wellard said the fuel consumption of its vessels measured on the basis of tonnes of fuel consumed per square metre of pen space per nautical mile is at the efficient end of the cost curve.

“Put simply, our vessels can carry more livestock in a quicker time period for a particular voyage while consuming less fuel than competitor vessels,” Mr Klepec said.

“This is expected to either reduce our operating costs compared to our competitors or foster additional charter demand for our vessels.”


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