Wellard’s slow boat to recovery

Wellard live export losses held at $7.5m as new markets help recovery


Live cattle shipment numbers have almost halved for big livestock exporting business, Wellard.


Sheep exports are gaining more momentum but live cattle shipment numbers have almost halved for Australia’s biggest livestock exporting business, Wellard.

However, despite improving gross profit numbers and a big focus on cost cutting, the financially stretched West Australian company has posted another after-tax loss for the first half of 2017-18.

Wellard also foresees more challenging market conditions ahead for the rest of the financial year despite new demand for slaughter and breeding cattle opening up in China and inquiries for sheep for Arabian Gulf markets.

The shipping and meat processing company’s net loss was $7.5m –  a solid improvement from the $17.9m loss in the same period a year ago.

Earnings before interest, tax, depreciation and amortisation climbed back into the black to $8.9m, up from last year’s first half loss of $5.3m.

Total revenue was down by 42pc to $163.7m, reflecting a more complex mix of shipping charters arrangements for 20 voyages in the first six months of 2017-18.

“We are pleased with what the company has been able to achieve with the reductionof overheads and expect to be able to exceed our target of a $10m reduction in overheads for 2017-18,” said Wellard operations executive director, Fred Troncone.

We are using small vessels to retain longstanding customers in a very competitive, low margin South East Asian market - Fred Troncone, Wellard

“With a lower administrative cost base and a renewed marketing effort across all main

livestock demand centres, Wellard is better positioned to make compelling and more

competitively priced offers across shipping charters and livestock trades.”

Costs cutting efforts included trimming staff ranks in South America to key management roles and outsourcing cattle via contractors and closing the Italian office in Brescia.

New shipping routes

Mr Troncone said the biggest change to the live export business’ operations in the past six months involved switching to chartering opportunities for its large, modern vessels between South America and Mediterranean ports.

“We are using small vessels to retain longstanding customers in a very competitive, low margin South East Asian market,” he said.

This had resulted in a drop in market share in the export trade from Australia in the later part of 2017.

Indonesia and Vietnam continued to deliver “very tight margins”.

Overall cattle numbers exported fell 46pc as the company’s two larger vessels were contracted to third parties for long haul voyages and the MV Ocean Outback was sold in July.

Wellard operations executive director, Fred Troncone.

Wellard operations executive director, Fred Troncone.

“Wellard’s financial performance has improved during the first half of financial year but there are still challenges ahead,” Mr Troncone said.

Challenges ahead

Increasing competition in the South American market, the Australian dollar’s US80 cent highs in January and last spring, and overall live export market costs from Australia were among those challenges.

“It was pleasing that a higher proportion of voyages in the first half delivered a positive margin.

“The key now is getting our overall costs right, so the positive margin voyages translate into cash generation for the business and make our vessels more competitive in the external charter market.

“When the time is right we also need to return to higher margin trading contracts, which deliver a trading margin as well as transport margin.”

The past six months had been notable for Wellard sending its first shipment of 2000 beef steers for processing to China.

It was “positively received” and inquiry for further shipments followed.

Wellard has also secured a contract to supply a large 10,000-head shipment of breeding cattle to China by June.

It also recently shipped a second consignment of dairy heifers, from Portland, Victoria, to Sri Lanka.

Market growth areas

"Demand for live cattle from countries in the Mediterranean, including Turkey, continues to be strong,” Mr Troncone said.

“We expect that a significant proportion of these will continue to be sourced from South America.

“We receive a good level of inquiry for our high quality vessels which importers recognise produce improved animal welfare and commercial outcomes.”

He said live sheep inquiry from Middle Eastern markets was also rising.

Recent marketing efforts in the Middle East had resulted in a charter deal being signed in January for a large vessel from Australia into the Arabian Gulf.

Further inquiries for other voyages into the region had also been received.

But in the cattle trade some early signs of minor improvements in selected markets were accompanied by strong competitive pressures which continued to require “sustained effort to claw back market share”.

Live exports from Australia continued to be “challenging”, however heavy cattle purchase costs were trending downward and the eastern young cattle indicator for January 2018 was 15pc lower a year ago.

“This improvement has opened opportunities for small shipments of heavy cattle to China, which we expect will gradually increase as quarantine and processing infrastructure in coastal China develops, assuming Australian livestock prices remain attractive,” he said.

In WA ,Wellard’s sheep processing volumes at the company’s Beaufort River Meats abattoir were down 27pc due to restricted supply and high prices.

However that trend eased leading to improved profitability in November and December.

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The story Wellard’s slow boat to recovery first appeared on Farm Online.


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