With rice crop prospects evaporating in Australia, SunRice is extending its overseas grain sourcing efforts further in Asia and from South America to drought-proof earnings and retain markets.
Drought has, however, cut the national rice marketing and processing business' profits about 10 per cent for the first half of 2019-20.
Riverina-based SunRice Group posted a $12.5 million net profit after tax for the six months to October 31, with revenue of $543m down almost 7pc.
Managing director, Rob Gordon, said despite last autumn's drought-depleted harvest being more than 91pc down on 2018 crop results and drastically reducing the volume of Australian-grown grain available for milling, the global SunRice business had achieved a comparatively strong result.
The solid profit figure demonstrated the SunRice business model's resilience.
Given the seasonal conditions in Australia, this result is further proof of the resilience of our ability to deliver through the cycle of seasonal variability
In the wake of the success of its Vietnamese milling investment in 2018 and recent stockfeed processing acquisitions, SunRice would use its healthy balance sheet to support more strategic merger and acquisition opportunities.
The grower-controlled company will also start buying back its tradeable B-Class shares, using cash and untapped debt facilities to pay for its purchases.
Directors believed the current flagging share price on the Australian Securities Exchange - down more than 55pc since April when shares began trading on the ASX - did not truly reflect the SunRice business's value or future growth prospects.
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Mr Gordon, said the company's proud result in extraordinarily tough drought conditions was largely due to its international supply sourcing capability.
This grain buying program ensured growing global demand for the SunRice brand was being maintained in key markets.
Global model works well
"Given the seasonal conditions in Australia, this result is further proof of the resilience of our business model's ability to deliver through the cycle of seasonal variability," he said.
"SunRice has been focused on continuing to build our international supply sources and integrated supply chains, and to further diversify our earnings base.
"An example of which is the group's new Lap Vo Mill in Vietnam acquired in 2018-19, which achieved profitability in its first year of operation.
"Throughput volumes are expected to increase through the second half of 2019-20 and into FY2021."
The company had continued integrating acquisitions into its Riviana and CopRice businesses, and a key focus remained on leveraging the Group's strong balance sheet to pursue further strategic merger and acquisitions.
"SunRice Group is committed to delivering on our 2022 Growth Strategy and our strong balance sheet will enable us to continue to invest for growth in parallel with a disciplined return of capital through the buyback," he said.
Share buyback reaction
News of the profit result and the planned on-market share buyback, which will depend on prevailing share price and market conditions, sent SunRice shares jumping almost 17pc on Wednesday to a $4.20 high, after starting the day at $3.80 a share.
The company believed the buyback may provide enough market liquidity to facilitate a rise in B-Class share value over time.
Mr Gordon said the impact of a reduced local crop earnings was being partially offset by earnings from stockfeed business CopRice, the Riviana Foods business and international rice marketing segments which would contribute more strongly to profits in the next six months.
The company's Singapore trading division had contributed strongly to first half results utilising SunRice's international supply sources and integrated supply chain.
Traders had also activated new supply sources in Asia and were now expanding their origination activities into South America.
SunRice expects full-year revenue to be materially in line with last financial year, however there was a risk of further deterioration of trading conditions in Papua New Guinea.
After absorbing reconfiguration costs the second half net profit after tax was forecast to be lower than the first six months.
The company expected to maintain a fully franked dividend similar to prior years.
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The story Drought trims SunRice profit 10pc, but share price lifts first appeared on Farm Online.