Shares in United Malt slump after a poor barley crop in North America and other factors hit earnings

Just as United Malt was seeing some light at the end of the tunnel as people returned to bars and clubs, a poor barley crop will flatten its annual profit.

United Malt’s annual profit will be flattened by a poor barley crop and higher costs ranging from energy, shipping to transport.

United Malt shares tumbled as the group slashed its annual earnings forecasts, bruised by a worsening barley crop, supply chain disruptions, the cost of importing barley and general inflation.

The world’s fourth biggest maltster — which supplies crucial malt ingredients to the beer, craft beer and whisky companies — expects earnings to come in between $100m and $108m for the year ending September 30. That’s down sharply from its previous forecast at the upper-end target of $140m, which was issued to the market in May.

The group’s shares tumbled on the news, closing down 17.2 per cent, or 63c at $3.04.

United Malt said on Monday that it has also held talks with its banks over its growing pile of debt triggered by high barley costs that is affecting the expansion plans for its Scottish whisky facility.

A plague of problems has now beset the maltster, from a spike in energy prices to poor barley supplies, and comes as only a few months ago its chief executive Mark Palmquist recently held out hopes of his sales volumes approaching pre-pandemic levels soon as the end of lockdowns drove demand for beer, craft beer and whisky.

Potentially worrying investors further, United Malt has also revealed that as a result of continued high barley cost and the additional barley intake in the UK in preparation for the expansion of its facility in Inverness, the company’s net debt/EBITDA will temporarily exceed its target range of 2 to 2.5 times.

United Malt said it had been in discussions with its banks regarding options to manage the temporary increase in barley inventories and the short-term reduction in EBITDA, including options to finance a portion of its receivables.

However, based on its 2023 earnings outlook, United Malt believes that it will not need to raise additional capital and will be within its target net debt/EBITDA range at September 30, 2023.

United Malt has warned its annual earnings will down sharply, amid a poor barley crop in North America as well as supply chain disruptions and inflation.

United Malt said following the release of its interim results in May – where it warned of pressures in its business – the company had witnessed a continuation of these negative forces through April and June.

The group warned its earnings for 2022 are now expected to be below the previous guidance as the anticipated improvement in the second half performance of the North American processing segment had been delayed due.

The delay was due to the cost and poor quality of domestically-sourced North American barley supply resulting in increased production costs and reduction in gross margin, the expected improvement in supply chain including sea, rail and road freight not materialising, causing continued delays in customer shipments and higher than expected energy costs.

United Malt now expects annual underlying EBITDA before the costs of a software project to be in the range of $100m to $108m. In conjunction with its interim results in May, the company confirmed previous earnings guidance for underlying EBITDA to be in the range of $115m to 140m.

The underlying earnings for its processing segment is now expected to be $62m to $66m. In May, United Malt reported underlying EBITDA for this segment of its business declined by 12 per cent to $41m, affected by the significant deterioration in the Canadian barley crop quality which reduced yields and increased production costs.

United Malt said it will hold an investor day on Wednesday to outline the company’s actions to build a “more resilient global malting business” and to “unlock value”.

The company is forecasting an improvement in 2023 financial year with underlying earnings expected to be $140m to $160m, driven by an improvement in North American barley crop conditions, improved pricing and commercial terms as customer contracts are renewed that will reflect the inflationary environment and the completion of its facilities in Scotland that will provide 79,000 tonnes of new capacity to serve the whisky distilling market.

United Malt chairman Graham Bradley said the board was disappointed with the company’s current year performance and outlook.

“While external conditions have deteriorated dramatically during 2022, including the significant Canadian drought, the pace of change in the business needs a material reset to ensure we meet the expectations of our customers and of our shareholders.

“Higher energy prices and supply chain issues are likely to remain challenging for the foreseeable future as will the impacts of climate on our business. We are building a more resilient global malting business to better navigate these challenges and take full advantage of our potential to unlock greater value for shareholders.”

In December, high profile investor John Wylie emerged with a substantial stake in United Malt, with his Tanarra Capital buying a 5.44 per cent interest in the company. It is unknown what his plans are for the stake.