ASX Announcement

Wellard Ltd (Wellard, ASX:WLD) advises that it recorded its best full year Earnings Before Interest Tax Depreciation and Amortisation (EBITDA) result of $23.3 million in FY2020, as the Company began to realise the benefits of its debt restructure program to record its first full year financial profit since listing on the ASX.

It was a modest Net Profit After Tax (NPAT) of $0.2 million, but combined with almost doubling EBITDA, reducing net debt by around $103m or 92% year on year and still retaining $16.8 million cash at hand at financial year end, the Company is in a vastly superior financial position than it was 12 months ago, Wellard Executive Chairman John Klepec said.

“The changes we have made to Wellard’s debt structure, operating base and business strategy have begun to yield results,” he said.

“While we would have preferred a higher NPAT, it was a good result given the global COVID-19 disruptions during the second half. More importantly it demonstrates a positive trend over the last three years, and we are heading in the right direction. With low net debt, a healthy cash balance, reduced cost base and a reasonable order book of charter activity in the near term, the Company has started FY2021 in a robust financial position.

“We have completed our balance sheet restructure to provide the Company with greater financial resilience, and I’m pleased to say this is the first set of financial results since listing where Wellard is in full compliance with all of its financial covenants.”

Profit and Loss

In line with Company’s move to scale back exporter/trader activity to focus on a livestock vessel charter business, revenue declined from $235.1m to $87.6m.
There was a corresponding reduction in gross profit, but, importantly, Wellard’s gross profit margin almost doubled from 16.5% to 31.8% with the transition in business activity.

Wellard’s key financial metrics continue to move in the right direction, Mr Klepec said.

EBITDA grew from $9.8m in FY2018 to $12m in FY2019 to $23.3m in FY2020. Similarly, NPAT has improved from a $36.4m loss in FY2018, a $48.4m loss in FY2019 to a $0.3m profit in FY2020.

The FY2020 result was aided by a further halving in operational and administration expenses as part of the cost savings that we continue to identify and implement.

“We are getting greater stability into our earnings and with the balance sheet restructure now completed, our interest bill has been reduced considerably. This is already enabling better conversion of revenue into profit for shareholders” Mr Klepec said.

“Our fleet is now right sized for the current market conditions, so although the fleet is smaller the company is more financially resilient with a more robust balance sheet and better fleet utilisation.

This places us in a good position to capture sustainable growth opportunities.”

“Importantly our cost reductions have not come at the expense of animal welfare outcomes and ongoing maintenance of the fleet, with management focussed on both these key success indicators.”

Balance sheet

Wellard continued with asset sales in H2 FY2020 as part of its balance sheet restructure, completing the sale of M/V Ocean Shearer for US$53.0 million.

Combined with the earlier the sale and leaseback of the M/V Ocean Swagman in H1 FY2020, Wellard used the proceeds to pay off both ship debt and corporate noteholders to reduce the Company’s net debt from $111.8 million on 30 June 2019 and $84.5 million on 31 December 2019 to just $8.9 million on 30 June 2020.

Nearly all the debt is now shipping finance and the ship loan to asset book value ratio has improved from 61.9% a year ago to 37.6% at the end of the reporting period.

Wellard is in full compliance of all financial covenants, the first time since listing on the ASX.

Coronavirus impact

COVID-19 has had some impact on the costs side of Wellard’s business, however demand for its vessels has remained largely, but not totally, unaffected.

The biggest impact on the Company’s operations has been the restricted ability to undertake crew changes and longer berth times at each port of call as countries adopted new procedures.

We have only recently been able to divert our vessels to ports where some crew changes could be achieved, increasing ballast voyage sailing times which has both a direct and an opportunity cost to the Company.

Only one voyage experienced a direct demand-related COVID-19 impact, when two charterers on a multi-charter voyage to Indonesia materially reduced the area chartered at late notice due to an importing customer issue related to COVID-19. No other charters have been directly impacted in this manner. Management of all regulatory changes and logistical demands resulting from the COVID-19 pandemic certainly add to the difficulty of negotiating, securing and delivering the
ongoing chartering of our fleet.

Outlook

The current outlook for H1 FY2021 is good with all available tonnage chartered (noting the M/V Ocean Ute has commenced six weeks of planned drydock in August) for the first quarter and a good pipeline of both confirmed charters and opportunities for the second quarter.

Chinese demand for Australian and New Zealand dairy and beef breeding cattle was a large contributor to Wellard’s vessels’ activity in FY2020 and shows no signs of slowing in FY2021. Wellard therefore expects to continue to charter our vessels to service that market.

In addition, the M/V Ocean Swagman is close to completing a successful charter from Chile to China with very good results, so transporting breeding stock from South America to China is a potential new market opportunity.

There is less certainty in FY2021 about Wellard’s two other core markets – Australian feeder cattle to Indonesia and Australian slaughter cattle to Vietnam. Throughout 2019 the prolonged drought in Australia kept supply high and cattle prices competitive with alternative proteins in importing markets.

The underlying demand for beef protein in these destination markets and others in the region remains high, including because African Swine Fever continues to negatively impact pork supply.

In 2020 Australian cattle prices started to rise, and at present are the highest in the world, presenting challenges for exporters servicing the Indonesia and Vietnam markets as they seek to compete with alternative proteins.

The Australian cattle trade to Indonesia and Vietnam remains important to Wellard. Despite expected high cattle prices remaining in FY2021 as the herd rebuild continues after drought, placing downward pressure on the volumes exported, there will still be a volume of cattle shipped albeit at lower volumes than previous years. Wellard has established a strong position in this market and is intent on defending and even growing that position.

The key South America to Turkey trade continues to remain uncertain, with import permits for small shiploads of cattle being released at present. If Turkey starts to release more import permits and for larger numbers, the M/V Ocean Drover could be deployed from its Australian base to that trade.

With this trade currently operating at a trickle, and Australia’s annual northern hemisphere summer live export suspension in force, most large vessels in the global livestock fleet have been at anchor awaiting the issuing of Turkey import permits. Until the idle shipping capacity is utilised in the market there is no likelihood of any improvement on ship charter rates in FY2021.

“There are both opportunities and challenges ahead for Wellard. We are however in the fortunate position that Wellard’s vessels are the ships of choice when exporters and importers need medium or large livestock carriers. Our balance sheet is robust, and our cash position is strong,” Mr Klepec said.

Animal welfare and government regulation

Under Wellard’s charter-focussed business model, the Company continues to ensure that every animal in our care is managed to the highest animal welfare standards. Given our larger than average, largely purpose-built vessels, our expert crew, and our rigorous emphasis on high standards of care, we continue to demonstrate that we can provide superior conditions for the transport of livestock to destination markets.

No reportable mortality voyages or Exporter Supply Chain Assurance System (ESCAS) breaches (from previously exported cattle) were recorded by Wellard during the current reporting period.

Wellard continues to support sensible and sustainable Australian regulations which move the industry away from mortality as the sole indicator of onboard animal welfare to alternative indicators.

Mortality does however remain an important animal welfare indicator and during the current financial year Wellard fleet reported one of the highest success delivery rates in its history:

• Of the 335,250 head of cattle loaded during the period, our vessels delivered 334,882 cattle, recording a success rate of 99.9%; and
• Of the 95,360 sheep loaded during the period, our vessels delivered 95,164 sheep, recording a success rate of 99.8%.

Regulatory and legal update

The Federal Court of Australia recently ruled in favour of class action plaintiffs in legal action against then Federal Agriculture Minister Joe Ludwig’s decision to ban the live export of cattle to Indonesia in 2011.

Wellard is a member of the class and was the largest cattle exporter to Indonesia at the time. At this stage it is unclear what the quantum of damages awarded to the class of plaintiffs might be or when any payments would occur.

Wellard has lodged its defence in response to a class action launched against the Company (see ASX announcement 10 March 2020).

The Company has been asked by a number of shareholders whether it possesses Directors and Officers (D&O) liability insurance. The specific arrangements Wellard has with its insurers are confidential, however, as would be expected of a listed public company, Wellard has various insurances in place to deal with a variety of risks and the Company would be expected to give ongoing consideration to its entitlements under any potentially relevant insurance.

Transition to US$ reporting

The Board of Wellard Ltd has agreed that Wellard will report its future financial results in $US, including its 1H FY2021 accounts.

The completion of Wellard’s strategic move from livestock trading to livestock logistics services and the consequent refocus on the chartering activity of its Singapore-based subsidiaries means nearly all of the Group’s revenue and expenses are conducted in US Dollars.

The Board has therefore decided to change the Group’s presentation currency of its financial information from the Australian Dollar to the United States Dollar with effect from 1 July 2020. This annual report will be the last report presented in Australian Dollars.

The Board believes that the change in the reporting currency will provide shareholders with a more accurate reflection of Wellard Limited’s underlying performance while reducing the impact of currency fluctuations.

At the release of the FY2021 interim and full year financial results, the FY2020 accounts will be restated in USD to provide shareholders with meaningful comparisons with the prior corresponding period.

Wellard’s FY2020 Annual Report including Results for Announcement to the Market; Directors’ Report, Remuneration Report and Audited Financial Statements are also released to ASX on 27 August 2020.

This ASX release was approved by the Wellard Board of Directors.

For further information:

Investors
Wellard Limited
Executive Chairman, John Klepec
Phone: + 61 8 9432 2800

Media
FTI Consulting
Cameron Morse
Phone: + 61 8 9485 8888
Mobile: +61 (0) 433 886 871

ASX Announcement

Wellard Ltd (Wellard, ASX:WLD) advises that it recorded Earnings Before Interest Tax Depreciation and Amortisation (EBITDA) of $10.8 million and a net loss after tax of $2.1 million in the six months to 31 December 2019, as the Company continued to restructure its operations and balance sheet.

Revenue declined from $188.2m to $49.1m reflecting the Company’s shift to chartering activity, which increased from 18.1% to 93.2% of total revenue, as livestock trading activity declined from 81.9% to 6.8% of total revenue.

Importantly, Wellard’s gross profit margin increased by 90.1% with the transition from exporter/trader to charter business. Although EBITDA fell by 53.0% to $10.8 million, the 80.3% increase in the operating profit margin to 22.0% (2018: 12.2%) indicates that a significantly greater portion of revenue is now translating into operating income.

Wellard’s ‘Cost out’ program delivered savings for $6.8 million with operational expenses reduced to $4.1 million (PCP: $10.4 million) and administration expenses reduced to $3.4 million (PCP: $3.9 million), largely due to savings on labour expenses.

Wellard Executive Chairman John Klepec said Wellard’s EBITDA of $10.8m was a significant improvement on the negative EBITDA of $11.0m for 2H FY19 and was due to improved utilisation of
its largest vessels, though the MV Ocean Shearer did not complete a voyage in July or August, which weighed on the Company’s results.

“Importantly, the back to back chartering of all of Wellard’s vessels throughout Q2 looks likely to continue in Q3, albeit with the MV Ocean Swagman undertaking its periodical dry dock for about six weeks, providing the Company with a good operational and financial start to the second half of the financial year,” Mr Klepec said.

“The US$53.0m sale of the MV Ocean Shearer, scheduled to close before the end of March 2020, will complete our balance sheet restructure and, combined with the earlier sale of the MV Ocean Swagman, will see our monthly interest payments reduce from US$0.5m in July 2019 to an expected US$0.1m from April 2020.

“This will provide an improved translation of earnings to profit in the future.”

Balance sheet

Wellard continued with asset sales in H1 FY20 as part of its balance sheet repair task, finalising the sale and leaseback of the MV Ocean Swagman and negotiating the March 2020 sale of the MV Ocean Shearer for US$53.0 million.

Net debt was reduced by $27.3 million or 24.4% to $84.5 million (30 June 2019: $111.8 million). At 31 December 2019 total ship debt represented 57.9% of the book value of the Group’s shipping assets.

Contributing to the change in net debt, a total of $15.4 million (or US$10.8 million) of notes were redeemed in cash during the first six months of FY20. An additional $0.6 million (or US$0.4 million) of notes were also redeemed at the date of this announcement. The residual amount of US$4.3 million will be repaid to the noteholders in the next two months with the last instalment due by the end of April 2020.

Net assets changed little, shifting from $57.8m in the PCP to $55.8m at the end of the half. The funds to be received from the sale of the MV Ocean Shearer will enable the discharge and retirement of the vessel finance debt owed to Intesa Sanpaolo bank (“Intesa”). Following the full payout of the Company’s noteholders and Intesa, Wellard anticipates being in full compliance with the covenants on all remaining financing arrangements.

As with previous reporting periods the ongoing breach of covenants with the above financiers at 31 December 2019 resulted in the reclassification of $14.6 million of debt from non-current to current.

It is important to note that the Group made all payments due under its working capital facility and ship financing facilities during the reporting period, and reached a standstill and revised repayment agreement with noteholders which has been fully complied with. Despite the breach of financial covenants, the Group continues to maintain a good working relationship with all financiers.

Outlook

The current outlook for Q3 FY2020 is very good with all available tonnage chartered, in comparison with the poor ship utilisation rates in Q3 of the previous two years.

There is less clarity with respect to Q4 FY2020. Although recent rains across the top end of Australia are certainly welcome, and will assist in the long term with greater numbers of cattle being bred and therefore sold, any further increases in cattle prices for our exporter customers will place considerable pressure on exporter margins and therefore their ability to win new orders and charter vessels to Indonesia and Vietnam.

The key South America to Turkey trade remains uncertain. If Turkey starts to release more import permits as expected in the quarter, the MV Ocean Drover could be deployed to that trade.
The decision in November 2019 by then Agriculture Minister Bridget McKenzie to grant exemptions to double-tiered vessels from improved livestock vessel regulations was a retrograde step. Should  such exemptions continue to be granted, the improved demand for the MV Ocean Drover from sheep exporters to the Middle East that was previously expected will be unlikely to occur in the short term. Chinese demand for dairy and breeding cattle remains strong and we will continue to charter our vessels to service that market.

Although the Novel Coronavirus (now renamed COVID19) is beginning to have a significant impact on international trade, and in particular the movement of goods and people into and out of China, there has been no impact on bookings of Wellard vessels to date. The situation does however, remain fluid, and Wellard is unable to predict the full impact, if any, on its business, or the business of its charter customers. The Company has several customers who have regularly booked Wellard ships that have continued to deliver Australian breeding cattle to various Chinese ports.

Animal welfare

No reportable mortality voyages or Exporter Supply Chain Assurance System (ESCAS) breaches (from previously exported cattle) were recorded by Wellard during the current reporting period.
Under our charter-only business model, Wellard continues to ensure that every animal in our care is managed to the highest animal welfare standards. Given our larger than average, purpose-built
vessels, our expert crew, and our rigorous emphasis on high standards of care, we continue to demonstrate that we can provide superior conditions for the transport of livestock to destination markets.

Wellard continues to support sensible and sustainable Australian regulations which move the industry away from mortality as the sole indicator of onboard animal welfare to alternative indicators.
Mortality does remain an important animal welfare indicator and of the 222,068 head of cattle transported during the period, our vessels recorded a mortality rate of 0.12% or 257 head.

This ASX release was approved by the Wellard Board of Directors.

For further information:
Investors
Executive Chairman, John Klepec
Phone: + 61 8 9432 2800

Media
FTI Consulting, Cameron Morse
Phone: + 61 8 9231 8533
Mobile: +61 (0) 433 886 871

ASX Announcement

Wellard Ltd (Wellard, ASX:WLD) advises that it retained positive EBITDA and cashflow for FY2019, however poor trading conditions in the second half of the financial year (H2 FY2019), vessel
impairments and financing costs contributed to a net loss after tax of $48.4 million (FY2018: $36.4 million).

Improved EBITDA of $12.0 million (FY2018: $9.8 million), operating cashflow before interest of $29.8 million (FY2018: $7.7 million) and a $33.9 million reduction in net debt – which will  reduce further post June 30 with the sale of the MV Ocean Swagman – were the highlights of a financial year that started off with significant promise but was curtailed in the second half with limited chartering of the Company’s two larger vessels due to the closure of Turkey live cattle imports for almost all of H2 FY2019.

A $22.4 million impairment created by the sale of the MV Ocean Swagman, the reduction in carrying values of another vessel in the fleet and the sale of the Wellao feedlot development had a significant impact on the $48.4 million reported loss.

Wellard Executive Chairman John Klepec said, “Vessel utilisation fell, with the MV Ocean Shearer spending the second half of FY2019 without a charter and the MV Ocean Drover also  significantly underutilised during that period.”

“Both are now chartered through to early November 2019, so are back generating revenue again.”

“We continue to work hard on restructuring Wellard’s balance sheet as these results are further evidence that our earnings volatility cannot support the Company’s existing debt levels, particularly
when there are major trade interruptions.”

“The post balance sheet sale of the MV Ocean Swagman, with associated future reduction in liabilities to shipping financiers and noteholders will be of considerable help in this area.”

Wellard’s $235.1 million revenue for FY2019 was similar to FY2018, and gross profit improved 18.3% from $32.8 million (FY2018) to $38.8 million (FY2019).

Wellard was able to strip another $2.2 million from its operational and administration expenses ($24.6 million in FY2019 v $26.8 million in FY2018), but an increase in financing costs to $11.2 million and impairment expenses to $22.4 million impacted on its profit result.

Balance sheet

Wellard completed a number of asset sales in FY2019 as part of its balance sheet repair task.

This included the Company’s Beaufort River Meats abattoir, Wellard Feeds feed mill and La Bergerie Pre-Export Quarantine business.

This contributed to the reduction in total liabilities from $194.3 million to $142.5 million, with only a marginal reduction in earnings contribution.

In addition, agreements have been signed for the sale and leaseback of the MV Ocean Swagman for US$22million in a FY2020 transaction.

Despite the improvement in a number of areas, Wellard was in breach of banking covenants at 30 June 2019. As a consequence, all of Wellard’s long-term debt was required to be classified as being current. As in prior years, the Company is in discussions with respect to waivers of covenant breaches on its debt facilities. Wellard is working closely with its financiers and to date has
maintained a good relationship while engaging with them to obtain the necessary waivers.

Strategy and Outlook

The current outlook has improved on what was a very challenging H2 FY2019 but does not have the same level of certainty as this time last year, when Wellard released its FY2018 financial results and was looking out to H1 FY2019.

All vessels are currently on charter, positively impacting utilisation rates, however those charters are short term. Until the Company’s balance sheet restructure is completed, Wellard will exclusively focus on the chartering of its ships.

Wellard is confident those charters will be repeated due to a resuming cattle trade between South America and Turkey, recommencement of the Australian live sheep trade to the Middle East, and continued strength in the live cattle trade from Australia to Indonesia and Vietnam – all of which will provide chartering opportunities for Wellard vessels.

Mr Klepec said the superior performance of Wellard’s vessels had contributed to the finalisation of recent chartering agreements.

“Feedback from importers and exporters is that they know they will achieve superior weight gains and voyage success rates on our vessels. This places Wellard in a good position to capitalise on future charter opportunities,” he said.

“The live cattle trade between South America and Turkey is resuming and this is creating demand for shipping capacity. Volumes of cattle shipped from Townsville and Darwin to Indonesia are 30% higher than year ago levels and volumes to Vietnam are 16% higher.”

In January 2020, the Australian Maritime Safety Authority (AMSA) will ban the use of double tiered vessels on voyages commencing from Australia, a decision based on animal welfare grounds. It also removes grandfathering provisions on ventilation. Wellard’s vessels are unaffected by the new AMSA regulations, however it is considered likely that three large competitor vessels will be unable to meet the new requirements so will be prohibited from transporting sheep and cattle from Australia.

Also, in January 2020, a new International Maritime Organisation (IMO) regulation will reduce the cap on sulphur content in marine fuels from 3.5% to 0.5%.

Marine fuel oil is the second largest operational cost in the livestock export industry, behind livestock procurement. Low sulphur fuel oil is now and is expected to remain more expensive than the high sulphur fuel oil currently in use.

The fuel consumption of Wellard’s vessels measured on the basis of tonnes of fuel consumed per square metre of pen space per nautical mile is at the efficient end of the cost curve.

“Put simply, our vessels can carry more livestock in a quicker time period for a particular voyage while consuming less fuel than competitor vessels,” Mr Klepec said. “This is expected to either
reduce our operating costs compared to our competitors or foster additional charter demand for our vessels.”

For further information:

Investors
Executive Chairman, John Klepec
Phone: + 61 8 9432 2800

Media
FTI Consulting, Cameron Morse
Phone: + 61 8 9321 8533
Mobile: +61 (0) 433 886 871

ASX Announcement

Wellard Ltd (Wellard, ASX:WLD) has reported a significantly improved financial performance for the 2017/18 financial year as it continues towards a return to positive reported earnings.

Wellard achieved an EBITDA1 of $9.9 million in FY2018, which was a $32.2 million improvement on the EBITDA loss of $22.3 million in FY2017. Net Loss After Tax was $36.4 million, a $38.9 million improvement on the $75.3 million loss in FY2017.

Wellard Executive Chairman John Klepec said the trend was better, but reporting a loss was unacceptable.

“The Board, staff and management are committed to returning Wellard to profitability. We are heading in the right direction, but there is still more work to be done,” Mr Klepec said.

Two significant factors impacted on Wellard’s financial performance during the year.

Firstly the ‘cost out’ program announced by Wellard in 2017 targeted a $10 million reduction in year on year operating and administration expenses in FY2018. That program has been very successful with expenses reducing by 24.1% in 2018, a saving of $17.3 million in FY2018.

Secondly, vessel utilisation, which is an important contributor to the Company’s financial performance, was below budget. This was due to the default of a long-term charter of three long-haul voyages on the MV Ocean Shearer in the third quarter and overall sustained difficult market trading conditions.

Total revenue booked by the Company was $291.1 million, a 41.5% reduction on the $497.9 million revenue recorded in FY2017. This was largely driven by the increase in chartering activity, which in turn reduced the number of cattle and sheep bought and sold by the Company, and therefore the revenue it records.

Of the Company’s shipping capacity, 70.0% was utilised on external charter voyages in FY2018, compared to just 15.6% in FY2017.

This contributed to a 44.9% increase in gross profit from $27.6 million in FY2017 to $40.0 million in FY2018.

Wellard’s operating cashflows before interest improved from an outflow of $10.7 million in FY2017 to operating cash inflows of $7.7 million in FY2018.

Balance Sheet

Wellard improved a number of key balance sheet metrics in FY2018. Net debt reduced  from

$143.3 million to $136.6 million, interest cover ratio improved from (2.2):1 to 1:1 and its total loan to total asset book value decreased from 76.4% to 70.1%.

However, FY2018 net assets reduced from $131.2 million to $101.5 million, with the impairment of the Company’s previous MV Ocean Kelpie progress payments contributing to approximately half of that change.

Despite the improvement in a number of areas, Wellard was in breach of banking covenants at 30 June 2018. As a consequence, all of Wellard’s long-term debt was required to be classified as being current. As in prior years, the Company is in discussions with respect to waivers of covenant breaches on its debt facilities. Wellard is working closely with its financiers and to date has maintained a good relationship while engaging with them to obtain the necessary waivers.

The Company therefore does not expect all of its debt will be payable in the current financial year but rather as per the original maturity terms of the relevant agreements.

Improving Wellard’s balance sheet and working capital requirements are two principal areas of board focus.

Strategy and Outlook

The improved trading results the Company had achieved in the fourth quarter of FY2018 are expected to flow through to the first quarter of FY2019.

Consistent with its refocused strategy, Wellard has already contracted a significant percentage of its fleet out to third party charterers, which provides the company with greater earnings visibility and security.

As the year progresses, the team will place emphasis on securing contracts for the remainder of the year, with the objective of reducing risks on the bulk of the Company’s voyages.

Climatic conditions across northern Australia will have a large bearing on cattle supply and trading margins available to exporters in various markets, and therefore on Wellard’s ratio of exporter/charter voyages.

At the same time, it is important to note that Wellard has developed a loyal customer base in South East Asia, which the Company will continue to service.

“The Company is adopting a more opportunistic approach to trading cattle to South East Asia,” Mr Klepec said. “When market conditions in Australia and our customer markets enable a trading margin which is superior to the charter of our vessels, then our ratio of exports will increase.”

¹ EBITDA equals loss from continuing operations before income tax, less depreciation and amortisation expenses, less net finance costs, less other gains/(losses) arising from other activities, less impairment expense.

For further information:

Investors
Executive Chairman, John Klepec
Phone: + 61 8 9432 2800

Media
FTI Consulting, Cameron Morse
Phone: + 61 8 9485 8888
Mobile: +61 (0) 433 886 871

ASX Announcement

Highlights

• Operating EBITDA positive at $8.9 million, a $14.2 million turnaround
• Net loss after tax of $7.5 million, a $10.4 million improvement on 1HFY17
• ‘Costs Out’ program achieves $7.9 million reduction in total operational expenses and is ongoing
• Increased demand for charter vessels out of South America, but competition increasing
• Focus on converting lower administrative costs and revitalised marketing effort into a compelling customer proposition

Wellard Ltd (ASX:WLD) (Wellard or the Company) advises that improved vessel utilisation and a successful costs out program has enabled the Company to book a positive operating EBITDA of $8.9 million for the first half of FY18 (1HFY18), a $14.2 million turnaround on the negative $5.3 million operating EBITDA1 in the prior corresponding period.

The Company recorded a net loss after tax of $7.5 million for 1HFY18, a $10.4 million improvement on the $17.9 million loss for the prior corresponding period. EBITDA2 was $8.0 million.

Revenue was down by 41.9% to $163.7 million, reflecting the higher mix of ship charters in 1HFY18 compared to the prior corresponding period.

“Wellard’s financial performance has improved during the first half of financial year 18 but there are still challenges ahead” said Wellard Executive Director Operations, Fred Troncone.

“We improved our gross margin by 167.2% to 15.5% and reduced our operational expenses by 31.3%, which improved our operating cashflow and helped to reduce our debt. However, there is still more work to do.

“The biggest change to our operations in the past six months came as a result of the
Company taking advantage of chartering opportunities for our large, modern vessels onto the South America to Mediterranean route while using small vessels to retain longstanding customers in a very competitive, low margin South East Asian market, with a resultant decrease in market share in the second quarter.

“Our costs out program delivered savings of $7.9 million in the first half of the year and we are expecting to exceed our full year target of $10 million in annual overhead savings.

“It was pleasing that a higher proportion of voyages in the first half delivered a positive margin. The key now is getting our overall costs right, so the positive margin voyages translate into cash generation for the business and make our vessels more competitive in the external charter market.

“When the time is right we also need to return to higher margin trading contracts, which deliver a trading margin as well as transport margin.”

“Our costs out program delivered savings of $7.9 million in the first half of the year and we are expecting to exceed our full year target of $10 million in annual overhead savings.

“It was pleasing that a higher proportion of voyages in the first half delivered a positive margin. The key now is getting our overall costs right, so the positive margin voyages translate into cash generation for the business and make our vessels more competitive in the external charter market.

“When the time is right we also need to return to higher margin trading contracts, which deliver a trading margin as well as transport margin.”

Key elements of the 1HFY18 results relative to 1HFY17 results are as follows:

1HFY18 Prior Period*

* Prior period is 1HFY17, except for net assets and net cash which is 30 June 2017.

Operations

During the first six months of FY18 Wellard completed its first shipment of beef steers for processing to China. The shipment of approximately 2,000 cattle performed well and was positively received by the customer.

Wellard also shipped a second consignment of dairy heifers, from Portland, Victoria, to Sri Lanka, as part of the Company’s long-term contract with the Sri Lankan Government’s Ministry of Rural Economy.

In total, Wellard vessels performed 20 voyages in the first six months of FY18.

The number of cattle exported by the company fell by 46% as both of the Company’s larger vessels were chartered out to third parties for long haul voyages outside of Australia. Also, and in line with the Company’s strategic decision to match shipping capacity to market demands, the size of the Wellard fleet was reduced by the sale of the M/V Ocean Outback in July 2017.

Sheep processing volumes in the Company’s abattoir were down 27% on the prior corresponding period due to restricted supply and high prices, however that trend eased later in the half, leading to improved profitability in the final two months of the calendar year.

As part of Wellard’s ‘Costs Out’ program, the number of full time staff in the Company’s South American operations was reduced to key management positions, and cattle will be sourced through contractors who can provide a buying and aggregation service more cost-effectively. These changes have also enabled the closure of the Brescia (Italy) office and a further reduction in full time staff numbers.

Balance Sheet

Wellard finished 1HFY18 with assets of $293.1 million (FY17: $360.6 million) and liabilities of $171.1 million (FY17: $229.7 million).

The reported financial results caused breaches of Wellard’s banking covenants and the terms of its convertible notes on 31 December 2017, requiring the Company to continue categorising all long-term debt as a current liability, regardless of tenure. Loans and borrowings of $123.2 million in the absence of these breaches would have otherwise been classified as non-current liabilities as they are due to mature beyond 12 months from balance date. As in the past, the Company has requested and expects to receive waivers for all covenant breaches that occurred on or up to 31 December 2017. The Group made all payments due under its working capital facility and ship financing facilities during the period.

Cashflow

Cash as at 31 December 2017 reduced by $20.9 million to a balance of $12.2 million. This was primarily due to debt repayments, with net debt reducing by $22.6 million to $136.6 million.

Outlook

Mr Troncone said that while it was pleasing that Wellard was able to post improved results in the first half compared to the prior corresponding period, market conditions remain challenging for the second half of the financial year. While there are some early signs of minor improvements in selected markets, strong competitive pressures will continue to require sustained effort to claw back market share in the Company’s traditional markets and profitability.

“Demand for live cattle from countries in the Mediterranean, including Turkey, continues to be strong and we expect that a significant proportion of these will continue to be sourced from South America. We are seeing more shipping capacity being diverted into servicing these markets which creates greater competition, but we are receiving a good level of inquiry for our high quality vessels which importers recognise produce improved animal welfare and commercial outcomes.

“The number of inquiries for live sheep delivered to Middle Eastern markets is also increasing, which is also suited to Wellard’s fleet profile. In the December quarter the company renewed its marketing efforts in the Middle East which resulted in a charter being signed in January for a large vessel from Australia into the Arabian Gulf. The Company has since received further inquiries for other voyages into the region.

“Live export from Australia continues to be challenging, however, the price of heavy cattle is trending downward. The eastern young cattle indicator for January 2018 is about 15% lower than the corresponding period last year. This improvement has opened opportunities for small shipments of heavy cattle to China, which we expect will gradually increase as quarantine and processing infrastructure in coastal China develops, and assuming that Australian livestock prices remain attractive. We were pleased with our first shipment of slaughter cattle to China in November 2017 and we have since received inquiry for further shipments. Negotiations commenced in the December quarter have resulted in Wellard securing a contract to supply a large shipment of 10,000 breeding cattle to China before financial year end.

“Shipments into Vietnam and Indonesia which are Wellard’s traditional markets continue to deliver tight margins. Although the price of heavy (slaughter-ready) cattle has eased, this is partly offset by the appreciation of the Australian dollar to approximately US80c. The supply and price response at the end of the northern Australian wet season will be an important determinant of the profitability and size of our Australian operations for the remainder of the financial year.”

The Company’s ‘Costs Out’ program continues and remains on target.

“We are pleased with what the Company has been able to achieve with the reduction of overheads and expect to be able to exceed our target of a $10 million reduction in overheads in the financial year.” Mr Troncone said.

“With a lower administrative cost base and a renewed marketing effort across all main livestock demand centres, Wellard is better positioned to make compelling and more competitively priced offers across shipping charters and livestock trades.”

To view the full HY18 Results Presentation please click here.

For further information:

Investors
Executive Director Operations, Fred Troncone
Phone: + 61 8 9432 2800

Media
FTI Consulting, Cameron Morse
Phone: + 61 8 9485 8888
Mobile: +61 (0) 433 886 871

ASX Announcement

Wellard Ltd (ASX:WLD) (Wellard) advises that the Company’s preliminary financial results for the year ended 30 June 2017 released today show revenue of $497.9m, Gross Profit of $27.6m and a Net Loss After Tax of $77.3m.

The Company’s loss before tax, excluding impairments on vessels, was $61.4m, which is in line with the $55m-$65m range provided by Wellard to the ASX in its announcement dated 18 July 2017. The anticipated additional non-cash write-down on the sale of the MV Ocean Outback totalled $13.1m as previously disclosed, which formed part of the $19.8m in asset impairments and write-offs set out the preliminary final accounts.

Wellard finished FY2017 with an improved net cash position of $33.0m, largely due to the capital raise completed by the Company in May 2017. An amount of $17.3m, being the net proceeds from the sale of the $34.9m MV Ocean Outback, was received subsequent to the financial year end.

Key elements of the FY17 results relative to the FY16 results are as follows:

Wellard CEO and Managing Director, Mauro Balzarini, said he and the Wellard management team were extremely disappointed by the financial results –

“Management and staff continued to work hard to manage the impact of historically high Australian cattle prices, which are impacting the Company’s volumes and margins, and therefore financial results,” Mr Balzarini said.

“The number of cattle we shipped for the financial year fell by 29 per cent. In addition, the high purchase price of cattle in Australia combined with price resistance in South East Asian markets reduced our margins.

“Persistently high Australian cattle prices have allowed frozen Indian buffalo meat to obtain a foothold in the Indonesian market, which is likely to have an ongoing impact on demand for Australian cattle. Whilst a segment of the Indonesian market continues to prefer Australian cattle there is a risk that volumes will not return to historical highs. High prices have similarly impacted demand from Vietnam.

“The lower demand for livestock from South East Asian markets during the period also resulted in excess shipping capacity, which forced freight rates lower, thereby reducing our shipping margins.”

These market conditions led the Company to accelerate expansion in the South America market. Whilst utilising excess shipping capacity, dealing with new suppliers and less familiar customers produced variable results. The Company is re-shaping its operations in this region to address these challenges.

It has also been actively managing its costs, its fleet utilisation and its cashflow.

“In response to market conditions we have commenced a cost out program, limited capital expenditure, reduced our head count, reinvigorated our sales effort and reviewed the size of our shipping fleet,” Mr Balzarini said.

“We sold the MV Ocean Outback in July 2017 and deferred the delivery date of the MV Ocean Kelpie until 30 November 2019, including the majority of related financial commitments, which have been pushed back by 12 months. These initiatives will improve the utilisation of the Company’s remaining shipping assets and have improved our balance sheet with extra cash from the sale. We have also contracted out ships for external charters when this was more profitable than exporting and shipping.”

Net debt was reduced by approximately $8.1m as at 30 June 2017 and was further reduced by $15.6m post-balance date due to the retirement of debt owed on the MV Ocean Outback.

Wellard finished the 2017 financial year with net assets of $129.3m (FY16: $188.8m). This consisted of total assets of $359.0m (FY16: $474.7m) and total liabilities of $229.7m (FY16: $286m).

The financial results caused several breaches of banking covenants on 30 June 2017 that required Wellard to categorise all long-term debt as a current liability, regardless of its tenure. Loans and borrowings of $138.0m would have otherwise been classified as non-current liabilities as they are due to mature beyond 12 months from balance date. As in the past, the Company has either received or expects to receive waivers for all covenant breaches that occurred on or up to 30 June 2017. The Group made all payments due under its working capital facility and ship financing facilities during the period.

Wellard has maintained a strong focus on animal welfare throughout the year without any major events recorded. Our purpose-built ships, dedicated animal welfare officers and an ongoing R&D program ensured that our success rates continued to be higher than industry averages.

Wellard will lodge its annual report, including its audited accounts, Directors’ Report and Remuneration Report, by 30 September 2017.

Outlook

The Company’s performance is sensitive to Australian cattle prices and foreign exchange rates. Pricing for some categories such as heavy slaughter cattle suited for Vietnam have eased. Prices for other categories remain at or close to historical highs, notably the lighter steers that are exported to Indonesia, Wellard’s largest market.

“We are beginning to see increased interest for shipping capacity to China and the Middle East and have recently signed a number of external charters to third parties. The recent fall in prices for heavy cattle is also increasing the viability of shipments to markets such as Vietnam,” Mr Balzarini said.

“Whilst conditions remain subdued this is helping to improve our financial performance in the first few months of the new financial year, but until we see if price reductions are sustained through the upcoming wet season and into 2018, it remains unclear what impact that will have on Wellard’s overall FY2018 results.

“We continue to view exports of slaughter and feeder cattle to China as a real opportunity for the business when delivered Australian cattle prices reach a level that is competitive against the Chinese domestic supply.

“In the meantime, we continue to actively manage the business through the current challenging trading conditions so that we can leverage the benefits of our strategic assets when the spread between our purchase price and selling price normalises.”

The Company remains the largest exporter of cattle from Australia, with market leading positions in Indonesia and Vietnam. It has reduced overheads by 21%, has an improved cash position, and owns and operates one of the largest and the most modern livestock transport fleet in the world.

For further information:

Investors
Managing Director, Mauro Balzarini
Phone: + 61 8 9432 2800

Media
FTI Consulting, Cameron Morse
Phone: + 61 8 9485 8888
Mobile: + 61 (0) 433 886 871

ASX Announcement

Summary

• Record high cattle prices in H1FY17 impacted margins and therefore financial results
• Streamlining operations and pursuing opportunities to improve working capital in preparation for a market recovery
• Establishing platform to capitalise on China live export trade
• Market leadership position in most important live cattle export markets

Wellard Ltd (ASX:WLD) has today reported its financial results for the six months ended 31 December 2016, an underlying EBITDA* loss of $1.3 million (pcp: $26.9 million profit) and a statutory net loss of $17.9 million (pcp: $23.9 million loss).

Although revenue increased 2% to $281.9 million (pcp: $275.5 million) due to commissioning of a new vessel, record high cattle prices in Australia impacted on cost of sales which increased 18% to $265.6 million (pcp: $225.9 million) resulting in a 67% decrease in gross profit to $16.3 million (pcp: $49.6 million).

Net assets at the end of the period were $172.7 million (30 June 2016: $188.7 million). Net debt increased $17.2 million to $188.8 million (30 June 2016: $171.6 million) due to an increase in working capital debt plus reduced cash and cash equivalents, but was partially offset by a reduction in ship and other asset debt. The drawn balance of ship and other asset debt facilities decreased $7.0 million to
$179.0 million (30 June 2016: $186.0 million). Cash and cash equivalents as at 31 December 2016 were $15.0 million (pcp: $30.9 million). Undrawn working capital debt facilities secured against inventories and accounts receivables as at 31 December 2016 were $44.1 million (pcp: $51.3 million).

As with its FY2016 results, breach of covenants on 31 December 2016 required Wellard to categorise all debt as current. Loans and borrowings of $150.6 million in the normal course are due to mature beyond 12 months until 2026, despite their classification as current liabilities (30 June 2016: $168.9 million).

The Company has remedied all bank undertakings and has either received or expects to receive waivers for all covenant breaches that occurred on 31 December 2016.

“As previously indicated, Wellard continues to be impacted by the scarcity of cattle available for sale in Australia which has resulted in record high cattle prices and historically low trading margins as the increase in cattle purchase prices was unable to be fully passed on to customers. Wellard paid 76%

more per kg for its cattle in the first half of FY2017 than it paid in the first half of FY2015.” said Wellard
CEO Mauro Balzarini.

“Wellard is actively seeking to strengthen its working capital position through negotiating improved trading terms with suppliers as well as assessing options including the possible sale of asset values and/or raising additional debt and/or equity,” Mr Balzarini said.

Outlook

Trading conditions currently remain difficult and working capital requires strict management. Cattle supply numbers from Northern Australia are expected to remain low and therefore cattle purchase prices to remain high during the third quarter of this financial year. This is in line with normal seasonal trends. However, as more cattle become available during the dry season, an increase in cattle is expected to be matched by an increase in customer demand resulting in a return to profitable trading for the group in the fourth quarter of this financial year. Given the herd rebuilding underway in Northern Australia matched with an expected growth in demand from China, we expect to return to full year profitability in the 2018 financial year.

The new market for slaughter cattle in China is yet to generate material volumes, however we expect to undertake our first shipment to Chinese customers before the end of this financial year. As the China market grows we expect to see an increase in demand for our specialised vessels, resulting in increases in margins.

Cattle purchase prices in South America are below current Australian prices and this provides a diversity of supply to the traditional Australian sources. Although, normal export markets including to the middle east have been volatile, we expect trading conditions to improve as stability returns to the region. We are currently restructuring our South American operations to better reflect the market volatility and opportunities.

“Trading conditions remain tough in the current quarter but market signs lead us to expect conditions to improve in the final quarter of this financial year as cattle supplies return to more normal conditions. In the meantime, we are focussing on improving our market presence, as others reduce their exposure to the sector, pulling costs out of our business and improve our working capital position. We expect to return to full year profit in FY2018.” Mr Balzarini said.

**Prior corresponding period – pcp
*Underlying EBITDA excludes non-recurring costs. For further information, refer to the “Other Financial Matters” section in the Directors Report.

For further information:

Investors
Managing Director, Mauro Balzarini
Phone: + 61 8 9432 2800

Media
Cameron Morse, FTI Consulting
Phone: + 61 8 9485 8888
Mobile: +61 (0) 433 886 871

ASX Announcement

Wellard Ltd (Wellard) (ASX:WLD) has released its audited financial results for the year ended 30 June 2016 (FY2016).

The audited accounts confirm a pro forma* Net Profit After Tax of $14.8 million and Gross Profit of $88.9 million, the same financial results contained in the Company’s preliminary final report which was released on 31 August 2016.

*Pro forma FY2016 excludes all one-off IPO related costs, normalisation of interest expenses to reflect post IPO capital structure, and tax expense increase to reflect the appropriate company tax rate after removal of one-off IPO related costs.

Please click here to view the full report.

For further information:

Investors
Managing Director, Mauro Balzarini
Phone: + 61 8 9432 2800

Media
FTI Consulting, Cameron Morse
Phone: + 61 8 9485 8888
Mobile: +61 (0) 433 886 871

ASX Announcement

Wellard Ltd (Wellard) (ASX:WLD) has released its preliminary final report for the year ended 30 June 2016 (FY2016)(Appendix 4E), recording a pro forma* Net Profit After Tax (NPAT) of $14.8 million and Gross Profit of $88.9 million.

Wellard is an agribusiness that connects primary producers of cattle, sheep and other livestock to customers globally through a vertically integrated supply chain.

Wellard is the largest exporter of live cattle from Australia and a significant seaborne livestock marketer and exporter globally.

Key elements of the pro forma* actual FY2016 results relative to the prospectus FY2016 forecast are as follows:

Wellard Managing Director Mauro Balzarini said Wellard and its shareholders had endured a tough start to listed life, which meant the Company did not achieve its prospectus forecasts. “A sharp reduction in cattle supply in Australia, combined with resultant record high cattle prices, significantly impacted the Company’s trading margins. When combined with two vessel breakdowns and the delayed delivery of the M/V Ocean Shearer it weighed heavily on our financial results,” Mr Balzarini said.

“Importantly, despite these tough trading conditions we still achieved a pro forma NPAT of $14.8 million. We are now focussed managing the business through the current challenging livestock market landscape so that we are positioned to take advantage of the opportunities that will present themselves to Wellard when livestock prices invariably return to their normal trading range.

“That will be helped by entry of the M/V Ocean Shearer to Wellard’s fleet which occurred in late FY2016 and the development of our South American operations.”

Given the significant variance in profit from that contemplated in the prospectus, and the continued margin compression caused by a shortage of cattle in Australia resulting in record high cattle prices, the Board of Directors have decided not to pay a dividend for FY2016.

Wellard will lodge its audited accounts by 30 September 2016.

Executive and board changes

Ms Sharon Warburton, resigned as a Non-Executive Director of Wellard on Friday, 26 August 2016. Non-Executive Director Philip Clausius, a current member of Wellard’s Audit Risk and Compliance
Committee, has taken over as Chair of the Committee.

The Wellard Board will appoint a replacement Non-Executive Director in due course.

Ms Yasmin Broughton, General Counsel and Company Secretary, has also tendered her resignation and has agreed to stand down from her roles at the completion of her three-month notice period. The Company will commence an executive search process to identify a suitable replacement during that period.

Wellard acknowledges the contributions of Ms Warburton and Ms Broughton to the Company and wishes them well in their future endeavours.

*Pro forma FY2016 excludes all one-off IPO related costs, normalisation of interest expenses to reflect post IPO capital structure, and tax expense increase to reflect the appropriate company tax rate after removal of one-off IPO related costs.

For further information:

Investors
Managing Director, Mauro Balzarini
Phone: + 61 8 9432 2800

Media
FTI Consulting, Cameron Morse
Phone: + 61 8 9485 8888
Mobile: +61 (0) 433 886 871

ASX Announcement

Key highlights

• Strategic initiatives being executed to drive growth:
  • Construction of the MV Ocean Shearer nearing completion with commencement of operations expected by the end of April
  • Strong progress on the Wellao JV in China – supply agreement signed and facility design completed
  • MV Ocean Outback and Swagman expected to become fully operational again during March 2016
• Robust financial position with conservative gearing of 37% (net debt / net debt + equity)
• Continued strength in industry backdrop:
  • Strong metrics from Asian live export markets
  • Upcoming religious festival period in Q416 will further support demand
  • Low fuel price environment

Wellard Ltd (ASX:WLD) has today reported its financial results for the six months ended 31 December 2015. The results are Wellard’s first since successfully completing its IPO in December 2015. The statutory results include significant one-off items associated with the IPO and restructuring from a private to public company. Wellard has therefore also presented the six months to 31 December 2015 on a pro forma basis to support comparison to the prospectus financials and ensure consistency moving forward.

On a pro forma basis for the six months ended 31 December 2015, Wellard reported revenue of $275.5 million, EBITDA of $26.9 million and NPAT of $13.5 million. The statutory net loss after tax for the period, after taking into account the restructuring and IPO related costs, was $23.9 million. A reconciliation of the statutory result to the pro forma result is included in the investor presentation separately lodged with ASX today.

Wellard expects the forecast pro-forma FY 2016 NPAT* to be $42.5m, being an 8.4% reduction to the Prospectus forecast of $46.4m, after factoring in the combined impact of:

• a delay in commissioning of the MV Ocean Shearer
• repair period and associated costs for the MV Ocean Swagman and MV Ocean Outback
• FX impact on Interest and Depreciation due to lower AUD

Wellard has a conservative gearing ratio of 37% with cash and undrawn banking facilities of $76.5 million.

“We have had a landmark half successfully raising almost $300 million via our IPO and transitioning from a private company structure through to an ASX listed public company,” Wellard Managing Director and CEO Mauro Balzarini said.

“Our pro-forma numbers provide a clearer picture of operating performance as our statutory result was skewed by the one-off corporate restructuring costs associated with the IPO process. We look forward to normalising our fleet in March and bringing additional shipping capacity, the MV Ocean Shearer, into service in April. It will be the fifth custom-designed and built vessel in Wellard’s fleet.

“Wellard typically experiences a seasonal bias in its earnings towards financial year Q4 with an increase in livestock export volumes driven by Asian religious festival periods. We expect that to be the case again this year so the MV Ocean Shearer’s addition to our fleet will be perfectly timed”.

*Pro forma NPAT is Net Profit After Tax, and excludes all one-off IPO related costs totalling A$33.8m and normalisation of Interest expenses of A$8.2m to reflect post IPO capital structure and tax expense increase of A$4.5m to reflect appropriate company tax rate after removal of one-off IPO related costs.

Please click here to view the full ASX Announcement and Appendix 4D.

For further information:

Investors
Managing Director, Mauro Balzarini
Greg Wheeler, Finance Director
Phone: + 61 8 9432 2800

Media
Cameron Morse, FTI Consulting
Phone: + 61 8 9485 8888
Mobile: +61 (0) 433 886 871