Cash on tap: United Malt looks to raise $165m and cuts costs to ride out pub-closure crisis

The recently demerged United Malt Group, the world’s fourth-biggest maltster, will shave costs by up to $15m this year.

With pubs and clubs closed, United Malt Group has been forced to slash costs and tap the market.

The recently demerged United Malt Group, the world’s fourth-biggest maltster, will shave costs by up to $15m this year to better absorb the shock of the coronavirus pandemic that has shut down pubs around the globe and sunk demand for beer.

United Malt chief executive Mark Palmquist told The Australian the forced closures of pubs, clubs, hotels and other ­venues had led to a rise in beer purchases from stores and consumption at home, but that wasn’t enough to counter the massive hole left by the on-premise trade, with demand for beer down 30 per cent in April.

Mr Palmquist also confirmed that craft beer, a key customer for United Malt, had been especially hard hit by COVID-19 restrictions as those producers often had little flexibility or cash to switch production from kegs to wholly packaged beer.

He expected a round of failures and consolidation in the sector.

However, he said United Malt, which this year was spun out from Graincorp, could store excess malt in its warehouse facilities, as it awaited a steady rise in beer ­consumption with the removal of coronavirus regulations.

A $165m equity raising unveiled on Thursday would also buttress its balance sheet.

The company is looking to raise $140m from institutional investors and up to $25m through a share purchase plan. It is also seeking to cut costs by $10m — ­ ­including slicing board and executive remuneration — with another $5m reduction in capital expenditure also targeted for the second half.

Unveiling its equity raising and first-half results, which showed an underlying net profit of $28.5m and revenue up 9 per cent to $664.6m, Mr Palmquist said the company’s warehouse and distribution business that serviced craft brewers had been impacted, while revenue from major brewers was marginally down.

But this would turn as regions around the world eased back on restrictions and licensed venues ­welcomed back customers.

“As we are starting to see some of the restrictions being relaxed in different areas around the world we will look for on-premises growth just starting to increase, but it is going to be a slow growth,’’ he said.

“So if you take Australia, each state is handling it differently. Some are saying 25 per cent ­capacity to begin with, or only 10 or 15 per cent in a hotel, so it will take a while for this to ramp back up again.”

Mr Palmquist feared some craft brewers could disappear in the crisis as they lacked the balance sheet strength to survive through the pubs lockdown.

“A lot of the craft brewers don’t have the capability to package (beer) in any high levels and some don’t have any ability to do that, so they have a problem getting to the marketplace and it has been a lot tougher on the craft brewers than commercial brewers.

“I think it is a possibility (craft brewers failing) if this keeps ­extending out but the craft beer demand will be there. So maybe a change in ownership, you may see some consolidations go on. So it won’t be a demand issue.”

Despite the turmoil, he said, United Malt was pushing on with its growth strategy and would be investing in new facilities.

Its investments included $14.5m of continued progress on the company’s £51m ($96.7m) investment to expand its Scottish distilling arm.

United Malt shares, halted for the raising, last traded at $4.29.