United Malt swings to a loss and has scrapped its dividend as beer sales slide

The world’s fourth-largest maltster has swung to a loss and scrapped its interim dividend as falling beer sales and one-off costs dent its bottom line.

United Malt Group has swung to a half-year loss and scrapped its dividend as beer sales fall and demand for its malt retreats. Picture: Andy Buchanan/AFP

United Malt Group, the world’s fourth-largest maltster in the midst of a $1.5bn takeover, has swung to an interim net loss of $13.8m and scrapped its dividend amid weak beer consumption.

Sliding beer consumption across its key regions pushed down volumes for its flagship malt processing arm, although United Malt held out hope that its beer and craft beer brewers would soon begin to build up malt inventories in preparation for the Northern Hemisphere summer.

Net debt has also blown out by almost $200m, mainly as a result of higher barley prices and the value of barley and malt inventories, but the company has received covenant amendments from its banks to accommodate the temporarily higher debt to earnings ratio.

The malt company, which attracted a $1.5bn takeover offer from French malt giant Malteries Soufflet in March, has put an optimistic spin on the disappointing first half performance, saying that while the first quarter remained challenging its financial performance had shown improvements during the second quarter.

Poor sales volumes experienced last year had been driven by brewers reporting the potential risk of softer demand and down-trading as consumers responded to inflation and recessionary concerns, and this crunched volumes for United Malt.

Lower volumes were partially offset by better commercial terms and passing higher costs onto its brewing and distilling customers. But the damage to United Malt’s bottom line was done from the pullback in malt orders from major brewers as beer drinkers around the world were tipped to pull back in the face of cost of living pressures and fears of a looming recession.

United Malt on Wednesday while revenue rose 16 per cent to $756.6m for the half ended March 31, it had fallen into the red with a net loss of $13.8m against an interim profit of $6m in the previous year. The half-year dividend was also scrapped.

The maltster reported underlying earnings of $52.7m before technology costs and other one-off items, which was slightly better than guidance provided in April when it issued a profit warning and said it expected around $51m in underlying earnings.

Its half-year accounts were tarnished by one-off costs not included in underlying EBITDA. These included $5.6m from closing out ineffective currency hedges and from movements in exchange rates during the period. In addition, one-off restructuring costs of $2m were incurred related to the amalgamation of the company’s North American processing and warehouse and distribution sales teams.

Its continued technology investment around software as a service costs for the period were $6.8m and were higher than previously anticipated due to the increased use of external resources.

United Malt ended the half with net debt of $639,2m, up from $453.4m, pushing its net debt to earnings ratio to 9.8 times. The company believes it will not need to raise additional capital.

At United Malt’s processing segment, revenue increased by 23 per cent to $612.7m, primarily reflecting the pass through of significantly higher barley prices and improved commercial terms progressively taking effect.

Sales volumes were 3 per cent above the prior corresponding period, however sales volumes in the first quarter were 6-8 per cent lower than anticipated, reflecting lower beer demand consistent with the sales results of brewers.

Volume began recovering towards the end of the second quarter, reflecting the expected seasonal increase in malt demand as customers build inventory for the Northern Hemisphere summer.

United Malt is hopeful the coming northern hemisphere summer will see a return to strong beer sales and drive demand from brewers for its malt.

United Malt chief executive Mark Palmquist said the company’s financial performance had improved markedly during the second quarter.

“As we indicated previously, our gross margins have also improved from the progressive implementation of enhanced pricing and commercial terms with our customers, which came into effect from 1 January.

“We expect this rate of financial improvement to continue into the second half as our contracts better reflect our improved commercial terms. These contracts include more frequent freight price re-sets, with inflation cost escalation more appropriately reflected in our processing fee.”

United Malt has maintained earnings guidance for fiscal 2023 of underlying earnings to be in the range of $140m to $160m.

On March 28, United Malt announced it has entered into a process and exclusivity deed with Malteries Soufflet following it submitting a conditional, non-binding and indicative proposal to acquire all of the ordinary shares on issue in United Malt for $5 a share in cash consideration. The French suitor is currently undertaking its due diligence.

The takeover offer came three years after the group was spun-off from GrainCorp.