LIVE exporter Wellard has announced that the company had sold its Beaufort River Meats (BRM) abattoir to Iranian investors International Meats for about $8 million cash (including assets and working capital).
Wellard chairman John Klepec said the abattoir was “identified as a non-core asset, sitting off to the side of our larger trading and shipping business”.
Mr Klepec said the offer was “reasonable” enough to proceed with the sale which was “expected to be completed in February 2019, contingent on finalising the contract, and on standard consents, approvals and licence transferrals for transactions of this nature”.
He said the decision to divest BRM was consistent with the company’s strategy to focus on its core activities – livestock vessel chartering; export of feeder and slaughter cattle to Asia; and export of breeding and dairy cattle.
“The sale will allow management to focus solely on the shipping and trading divisions, which are the big drivers of Wellard’s revenue and earnings,” Mr Klepec said.
He said Wellard had also recently entered into a Memorandum of Understanding with Elders Rural Services Australia Ltd for the procurement of Australian cattle commencing in 2019 that would provide “greater certainty for our suppliers, our customers and our company”.
The Ocean Drover has also been officially taken off the market.
Mr Klepec made the announcements at Wellard’s annual general meeting at the Quest hotel in Fremantle to a small group of shareholders and media recently.
He said while the company’s financial results were an improvement on last year, they were still not acceptable and the company was focusing and working to achieve a return to profit.
Mr Klepec said the biggest change to the company’s operations was how its shipping and trading divisions operated.
“One division doesn’t exist solely for the other and each is fully accountable for its own financial performance,” he said.
“Our shipping division now treats our trading division as another export customer.
“It has a clear business mandate to pursue the most profitable charters, whether they are to Wellard or another exporter.”
Mr Klepec said while it sounded simple it was beginning to show “good results”.
He said Wellard’s trading focus had narrowed solely to Australian-sourced feeder and slaughter cattle for South East Asia, although its breeding and dairy trading team continued to complete trades across the globe.
“It is important to recognise that the market for northern Australian cattle has very limited alternatives other than live export, and as such it is the live export traders who effectively set the pricing as the link between processors and producers,” Mr Klepec said.
“As with all commodity markets, prices often stay higher and lower for longer than the fundamentals support.”
He said Wellard possessed a distinct competitive advantage in the livestock vessel charter market due to its investment in its modern purpose-built livestock carriers.
“Our vessels have developed a well-deserved reputation for performance and good animal welfare outcomes on long-haul routes, which creates demand from charterers,” he said.
“As a result of our change in strategy, 70 per cent of Wellard’s shipping capacity was chartered to third parties in 2018, versus 15.6pc in 2017.”
Mr Klepec said Wellard was active in seeking higher regulatory standards to improve animal welfare outcomes across the industry, as well as working with research organisations such as universities on R&D projects and providing training in-market to its customers’ staff.
Animal welfare was also an important component of its new staff induction process.
“Maintaining our social licence to operate is the single highest risk we have in our Australian operations,” Mr Klepec said.
“As a company that invests in modern vessels, additional comforts for the animals on board and greater selectivity about who we do business with in-market, we are challenged by a higher cost base.
“However, if producers insist on making their selling decisions on price alone, without any reference to an exporter’s substantial investment in superior quality shipping infrastructure and ESCAS records, then there is no reward to the exporter for that investment.
“In fact, it can easily be argued that the producers are complicit in undermining the long-term sustainability of the live export trade by preferencing short-term and often minimal gains.”
Mr Klepec said the company’s view was that to make Australian live exports sustainable into the future, producers would need to take a longer-term view of their pricing, and help shoulder the real costs of good animal welfare outcomes.
In terms of financing, Wellard was reducing its debt, though still continuously breaching covenants, which required time and effort to gain waivers from finance providers.
Mr Klepec said the Commonwealth Bank (CBA) had extended its trading facility to February 2019 and would not be renewed.
“We are in the advanced stages of negotiation on a series of opportunities with alternative specialist financiers to provide agribusiness-focussed trading facilities which will replace CBA thereafter,” he said.
“Wellard’s financial performance in the first four months of this financial year has been consistent with the outlook that we provided in our annual report at the end of August.”
“In the financial year to date, every one of our vessels has been utilised either on charter or with our traded cattle, which provides more consistent and visible earnings for our company and shareholders.
“We successfully completed three consecutive voyages of the MV Ocean Drover into Indonesia consisting of 57,722 traded cattle in total, capitalising on the availability and pricing out of Townsville.
“The Drover will now likely operate for the rest of the financial year as a charter vessel only.
“This reflects the new way we are running our business.”