WELLARD has had a tough 12 months but there are signs the tide is turning, according to chairman David Griffiths.
Mr Griffiths addressed the company’s annual general meeting recently at the Crown Convention Centre in Perth, where he highlighted the success of the first shipment to China and other measures undertaken to lift the company out of the doldrums.
“I am pleased to say that progress with the restructuring and ‘costs out’ program is continuing,” Mr Griffiths said.
“We estimate to have reduced overheads at an annualised rate of greater than $10 million (or about 27 per cent on the 2017 financial year), with further savings and efficiencies expected.
“The market environment remains challenging, with the continuation of high cattle prices in northern Australia significantly compressing margins in our key Indonesian and Vietnamese markets.
“However there does appear to be some relief, with slightly lower prices being seen in the southern herd, which is opening up some opportunities in what will be the increasingly important Chinese market.”
He said Wellard was pleased to have successfully completed its first shipment of slaughter cattle to China last month and has had positive feedback from Chinese clients.
“We are encouraged by a level of inquiry that may lead to further shipments this financial year,” Mr Griffiths said.
“We believe that structured properly, the China market represents a massive opportunity for our business and we are increasingly confident that our first pilot shipment will be recognised as the proof-of-concept that started something much bigger.
“We are also encouraged with the level of enquiry we are receiving from well-regarded parties in the Middle East for live sheep export and with the increased demand for the chartering of our two large ships into the South American to Turkey run, which we anticipate will enable Wellard to deploy these ships during much of the Northern Australian wet season at reasonably attractive rates, without having the working capital burden and risks of shipping our own cattle.
“This latter development, together with a restructure of the business engagement model in South America, has enabled the company to reduce its infrastructure in South America and Europe and allows us to build up our experience in these important markets at a much-reduced level of risk.”
In his previous message to shareholders Mr Griffiths outlined in detail some of the financial pressure experienced by the company in the first half of the year and what the company would do to remedy the situation.
“The statutory net loss of $75.3m (which included the $13.1m write down of the MV Ocean Outback prior to its sale) was a great disappointment to shareholders and to the board and one that required immediate action as it became apparent that the conditions which severely compressed margins in our traditional markets in the 2017 financial year were likely to persist into the 2018 financial year,” he said.
Mr Griffiths said the company’s response so far has included “significant restructuring, personnel changes, a rigorous costs-out program, asset sales, capital expenditure deferments, market diversification and a capital raising”.
He said there had been an improvement in earnings before interest, tax, depreciation and amortisation (EBITDA) year-on-year with an unaudited EBITDA for the first four months of the year to October 31, 2017, increasing to $3.4m, which is an improvement of about $7.6m from the same time last year, with about 78pc of this improvement coming from cost savings.
“We expect the December 2017 half year will be a loss and we will continue to require waivers from our financiers,” Mr Griffiths said.
“While a return to profit is still dependent on how market conditions play out over the medium term, the board is confident that Wellard is on a path to improving its capacity to be leaner and better sized to meet the still tough market conditions.
“These factors lead us to have some cautious optimism in the medium term.”
Mr Griffiths said Wellard was one of only two Australian companies to have unconditionally passed an intensive regulatory audit in Vietnam and “we have received no investigations or notices of non-compliance from livestock exported in the past financial year”.
“The community demands that we focus our people, our processes and our assets on good animal welfare outcomes,” he said.
“We recognise that this is a license to operate issue.
“We also recognise that looking after our livestock on land, in our ships and in our customer’s supply chain is good for business.”
“Unlike many of the aging fleet of livestock vessels which operate out of Australia and internationally, our fleet is designed for the safety of our people and the comfort of our animals.”
“So, while we have implemented changes to better ride out market conditions, our high-level strategies remain consistent.”
