United Malt ditches final dividend as profit slumps, hit by drought and higher costs

The world’s fourth-biggest maltster reports a profit slump and skips final dividend payment, but says beer and whisky can be strong even through a recession.

United Malt has cancelled its final dividend as profit fell, due to a poor second half hit by drought conditions for its Canadian barley crop and higher freight costs.

But its shares jumped 4.5 per cent as the company said long-term fundamentals of the beer and Scottish whisky market position it for future growth.

The world’s fourth-biggest maltster has forecast a material increase in earnings for the 2023 financial year, after posting a 20 per cent slump in profit for 2022, with the drivers of an improving profit including improved North American crop conditions, cost-cutting and the completion of the expansion of its Scottish whisky facility.

United Malt, which split off from GrainCorp in March 2020, said on Tuesday it had a number of initiatives designed to ensure a more resilient business and that even through recessions the demand for beer and craft beer has remained strong. Meanwhile, a greater number of whisky distillers were laying down spirits for 10 years and more to create aged whisky.

The group’s revenue rose 13.9 per cent to $1.4bn for the year ended September 30, helped by higher barley prices. However, higher costs and global supply chain disruptions saw profit fall 20 per cent to $11.6m. The profit was slightly better than market expectations.

Annual underlying earnings dropped to $105.9m from $137.9m last year.

In August, United Malt issued a profit warning, saying it expected earnings to come in between $100m and $108m and down sharply from its previous forecast at the upper-end target of $140m, which was issued to the market in May.

Shares in United Malt had slumped 17 per cent on that profit warning and are down 30 per cent since January, as a series of financial missteps and the downgrade dented investor confidence in the maltster. However on Tuesday they jumped 4.5 per cent to $3.26.

The company’s growing debt pile has also been a concern for investors. United Malt said on Tuesday that net debt at September 30 was $453.4m, up from $427.3m at the end of March.

As a result of continued high barley prices, the value of barley and malt inventories and the additional intake of barley in the UK in preparation for commissioning of the company’s expanded Inverness whisky facility, the company’s gearing ratio was 5.03 times and exceeded its target range of 2.0 – 2.5 times.

United Malt announced in September it had received covenant amendments from its banks and believes it will not need to raise additional capital to buttress its balance sheet.

For now however, investors will have to forgo a final dividend. United Malt had declared an interim dividend of 1.5c in May, but in light of the company’s second-half profit performance, the board did not declare a final dividend for 2022. It expects to resume payment of dividends in line with United Malt’s policy to distribute approximately 60 per cent of underlying profit after tax as dividends.

Outgoing United Malt chief executive Mark Palmquist said the fundamentals of the beer and whisky markets — major customers of its maltster operations — were strong and had shown in the past an ability to grow even through recessions.

“Based upon past recessions, beer consumption actually goes up a little bit. I think it’s just because it’s a cheaper form of alcohol quite honestly, but it is also a cheap way to be able to socialise and have a night off, just to have a pint or two of some craft beer and some cheap food and get out of the house.

“Demand for distilling continues to grow with United Malt’s customers laying down spirits for 10+ years for aged whisky.

“And it’s better sales as they (distillers) try to build up their inventory stocks of aged whisky which also means our business that we do with them stays stable through the year and it is easier for us to run our operations. There has been also increases in capacity and distilling in Scotland and so that is just increasing demand, it is a nice market and quite recession proof.”