Significant improvement expected in North American barley crop

Potential takeover target United Malt says it won’t need to raise more capital after tweaking short-term debt arrangements with bankers.

United Malt has been in talks with its banks over its growing debt pile linked to high barley costs. Picture: AFP PHOTO/ Andy Buchanan

Potential takeover target United Malt, which faced angry investors last month after a profit downgrade, remains confident it won’t need to raise more capital after tweaking short-term debt arrangements with bankers to manage high barley inventory costs and volumes needed for its Inverness facility in Scotland.

It comes amid a positive crop outlook across its barley sourcing regions.

Among the four largest malt businesses in the world, United Malt has been in talks with its banks over its growing debt pile linked to high barley costs.

The new arrangements with banks will see its debt rise above its target net debt/earnings range of 2.0 – 2.5 times, but the company says it “maintains a clear pathway” to reaching it by the end of September next year.

Chief executive and managing director Mark Palmquist says the agreement with the banks “reflects the strong relationship” with lenders and their understanding of the short-term impact on the business of higher inventory costs and volumes required for the start-up of the Inverness.

“As we outlined at the Investor Day on 3 August, based on our FY23 earnings outlook, the significant step down in capital spending commitments in FY23 and the continued support from our banks, we remain confident that United Malt will not need to raise additional capital.”

Working capital facilities are on track to be renewed in November and there are no “significant near-term refinancing requirements” in relation to its long-term debt facilities which mature in November 2024.

The group also says a significant improvement is expected in the volume and quality of the North American barley crop compared to last year.

The Canadian and US barley crop harvest is progressing in line with United Malt’s expectations regarding supply and quality with the latest Canadian barley production outlook projected to be 10.2 million tonnes, 47 per cent more than 2021.

New season barley has already been received and malted in the company’s North American facilities and is producing quality malt.

England’s malting barley harvest has finished and Scotland’s is 80 per cent completed, with both demonstrating good quality and yields.

In Australia, rain across all major growing regions and moderate temperatures are creating favourable barley growing conditions.

Shares in the $1bn listed group last traded at $3.40.