Wellard reports second consecutive full-year profit
Livestock owner and charterer Wellard Limited reported a second consecutive full-year profit.
In announcing its 2021 results to ASX today, Wellard also revealed its intention to design and develop a new vessel.
Profitable result was marked by EBITDA of US $ 11.6 million (AU $ 16.07 million) and net profit after tax (NPAT) of US $ 1.9 million (US $ 2.63 million). Australian).
This despite a 26.2% drop in revenues to US $ 18.2 million (A $ 25.21 million).
The reduction in income has been attributed to problems with the extension of the dry dock of the M / V Ocean Ute, the sudden suspension of live cattle trade from New Zealand due to the tragic sinking of the Gulf Livestock 1, down 30% in northern Australia. livestock export trade to Southeast Asia from FY2020 levels, and additional crew change costs caused by COVID_19 restrictions.
A significant increase in demand for its vessels to transport breeding cattle to China, from Australia, New Zealand and South America has helped the company offset these impacts.
In fiscal 2021, Wellard ships made 15 voyages to China, transporting breeding cattle from New Zealand, Australia and South America.
This compared to nine trips the previous year.
Executive chairman Jean Klepec said demand for these routes is expected to remain strong in fiscal year 2022 “with many charter trips”.
“As the price of breeding cattle of Australian origin has increased due to supply constraints, quality alternative sources such as Uruguay have been used by exporters,” he said in his annual report. to shareholders.
“The M / V Ocean Drover is ideally suited for the route from South America to North Asia because its large deck area offers economies of scale for charterers, its high cruising rate reduces the time in sea and therefore costs, and he achieves excellent travel success rates despite the long distances involved (99.94% on one of his more recent trips from South America to North Asia).
Mr Klepec said the increase in maritime activity to North Asia has helped keep vessel utilization rates high amid a drop in exports of feeder cattle and cattle. slaughter from Australia to Southeast Asia, which fell 30%.
“The decline in herds was caused by the reduction in the supply of cattle marketed by Australian producers who are in a herd rebuilding phase after a prolonged drought, and consequently the high prices of Australian cattle making imports financially problematic Australian cattle for their overseas buyers. .
“Australian cattle prices remain the highest in the world at the time of writing. “
Mr Klepec said the price dynamics of Australian beef were causing considerable problems in the traditional markets of Indonesia and Vietnam, which are price driven, with alternative sources continuing to gain significant market share.
“Only when the volume of Australian beef increases, as will be the case when the rebuilding of the local herd is complete and there is excess stock on hand, will we know if the loss of market share is Southeast Asia is rooted.
“We do not expect this to happen until fiscal 2023.”
Commenting on Wellard’s second consecutive annual profit, Mr Klepec said the result was attributable to “effective business contingency plans, good containment of underlying costs and excellent use of Wellard’s vessels throughout the second. semester of the year “.
The positive financial result came despite the fact that the company’s largest cattle vessel, the M / V Ocean Drover, spent five weeks in dry dock scheduled for February-March 2021.
He said the result demonstrated that last year’s profit was not a “one-time event” and reflected previous changes in debt structure, operating cost base and business strategy. by Wellard.
The company’s three vessels had been chartered from the start of fiscal 2021 until mid-November and early December 2021.
“With a good investigation beyond this period, we are entering the new fiscal year with positive operational and financial dynamics,” he said.
“As a result, we now turn our attention to opportunities for growth and renewal, particularly with the Wellard livestock fleet, and carefully consider how these opportunities can be funded without stressing Wellard’s balance sheet.
“It is essential that there are continued investments in the livestock fleet so that innovative and modern vessels with cutting edge technology deliver the best animal welfare outcomes for the livestock in our care. “
Plans for the new ship
In its statement to ASX, the company said it has started the process of identifying a replacement vessel for the M / V Ocean Ute and has commissioned a first technical study on the design and vessel specifications.
As part of this process, he identified that the optimal enclosure area for a new build vessel is a new size for the market – “larger than the M / V Ocean Swagman and smaller than the M / V Ocean Drover ”.
The new build would likely be powered by alternative fuels or a combination of fuels, and would be capable of sailing over 17 knots.
The recent shift of the global marine industry from heavy fuel oil to ultra low sulfur fuel oil has significantly reduced emissions from the shipping industry, and Wellard’s planned shift to alternative fuels would further reduce the environmental footprint of the Society.
At present, alternative fuels were not widely available and were unlikely to be available in some of Wellard’s loading or destination ports, so a dual fuel system was required.
Rather than go into heavy debt to finance a new ship, Wellard said he would seek “off-balance sheet financing alternatives” for building a new ship.
Other developments listed in the statement include:
- The extension of the bareboat charter of the M / V Ocean Swagman until June 2023.
- The M / V Ocean Drover lease term extension from December 2021 with a lump sum payment of US $ 4.3 million, to December 2022 with payments amortized over the lease term.
- Wellard’s ship loan to asset value ratio ended the year at 25.5%, a further decline from the ratio of 37.6% a year earlier.
- Despite the reduction in total liabilities, net debt increased by $ 1.2 million or 19.7% to $ 7.3 million as at June 30, 2021 due to the decrease of $ 4.8 million US cash and cash equivalents following M / V Ocean Ute and M / V Ocean Drover dry docking expenses.
COVID-19 complicates crew changes
Wellard said COVID-19 continued to increase Wellard’s operating costs, but had little impact on demand for its ships.
The most significant impact on the Company’s operations remains the limited ability to undertake crew changes.
Wellard’s crews come mainly from the Philippines.
Prior to COVID-19, crews joining or leaving ships were transported to and from convenient international ports to meet the ship or return home.
From now on, its ships must pass through Manila during their ballast voyages to effect crew changes.
“This increases ballast navigation times, which has both a direct cost and an opportunity cost for the company.
“There are also longer docking times at each port of call to comply with COVID-19 procedures. “
Wellard expects the trend of low Australian cattle supply and high Australian cattle prices, which has driven down transport activity from Australia to Indonesia and Vietnam, to continue. until 2023.
He noted that Meat & Livestock Australia forecast that the number of cattle exported live from Australia will increase by 30 percent in FY2022 and an additional 13 percent in FY2023, which would be ” a positive development ”.
“Wellard is approaching fiscal 2022 with considerable positive momentum and the short and medium term horizons are promising,” said Mr. Klepec.
Wellard said that in fiscal 2021, its fleet matched its performance numbers for fiscal 2020, once again registering one of the highest success rates in its history, reaching a rate of 99.9% success for the 186,985 head of cattle loaded during the period.