GRAINCORP is relying on a steadily expanding trading business in Europe and North America to keep its name in front of global grain buyers, while dry seasons continue to erode its eastern Australian export crop.
Exports from South Australia and Western Australia are also making up for lost market opportunities as competition from domestic grain users and other export rivals gets tougher.
After a one million-tonne decline in country receivals to 6.7m tonnes during the 2014-15 harvest, the grain handler, processor and marketer's half-year statutory net profit in the six months to March 31 almost halved to $30.2 million.
The result could have been much worse if not for the contribution made by its malting, oilseed processing and international trading divisions, which delivered earnings before interest tax, depreciation and amortisation (EBITDA) of $69m and $42m respectively - up about $12m and $6 on the same period last year.
The prospect of another El Nino weather event now threatens to further undermine next year's earnings contribution from its Queensland, Victorian and NSW receival network heartland, although managing director Mark Palmquist told a profit results briefing crop conditions had begun well in the grain belt's eastern half.
After the past half-year's one million-tonne drop in exports to a four-year low of 1.4m tonnes, he reported GrainCorp had "noticeably increased" its marketing origination activity from Western Australia and South Australia via its Hamburg office in Germany, and a relatively new trading base in Calgary, Canada.
Mr Palmquist did not reveal exactly how much was being sourced elsewhere.
"It's very important we keep ourselves relevant to our international customers," he said, noting cheap oil prices had made export freight significantly more competitive in the past six months, which, in turn, emphasised the need to pull out all stops to keep grain buyers loyal to GrainCorp.
Black Sea watch
Another looming competition factor on the horizon was a potentially big Black Sea region crop, although a burst of dry, windy weather across the Russian and Ukrainian steppes often changed that region's yield picture quite quickly.
"Originating grain from outside Australia should not be seen as a negative," he said.
"We try to do as much as we can through our network here, but we think it's very important to have grain available for our customers every day of the year.
"That might mean originating tonnages from elsewhere until supplies are available in Australia."
Mr Palmquist emphasised although it was important to be competitive for customers, it made no sense for GrainCorp to trade North American wheat, barley or canola at the expense of its eastern Australian operations where it had a huge financial commitment tied up in infrastructure staff and services to growers.
Malt, oilseed impacts
Despite US and Canadian currency disadvantages, GrainCorp's malt business contributed about half the company's interim EBITDA result, providing valuable cashflow and reaffirming the past wisdom of diversification initiatives made to offset the impact of leaner conditions in the grain business, Mr Palmquist said.
"We're really seeing this business coming along well," he said.
"Utilisation of capacity is high and efficiency gains are being made with water and energy use."
GrainCorp's edible oils crushing refining division lifted crush volumes and margins and also delivered pleasing cashflow, however the manufacturing division, which produces margarine and vegetable oil products in Melbourne, had lower margins and "has some way to go to return to a higher margin business", including completion of a plant upgrade next year.
Bulk vegetable oil and industrial liquid storage facilities around Australia also increased their capacity utilisation, with an additional 6250 cubic metres of extra capacity now on line at Fremantle in WA and a further 45,000 cubic metres soon to be commissioned in Brisbane.
Meanwhile, GrainCorp had also taken advantage of the favourable debt market to refinance by extending existing term debt facilities with its Australian and international banking partners even though they were not due to mature until July and October next year.
Favourable borrowing conditions on improved terms had extended the average borrowing tenure to 5.3 years, which Mr Palmquist said would support corporate objectives and growth initiatives.
GrainCorp is forecasting a full year profit of $45m to $60m for the full financial year, with the business on track to report an EBITDA of $240m to $270m for the full 2014-15 financial year.
GrainCorp will pay a fully franked interim dividend of 7.5 cents a share, representing a payout ratio of 49 per cent of operating NPAT.