Canada & Australia: United Malt forced to downgrade profit forecast, sees share price plummeting

A harsh Canadian drought has battered United Malt, the world’s fourth-largest supplier of malt to the beer and whisky industry, sending its share price plummeting more than 17 per cent after it was forced to downgrade profit forecasts, The Sydney Morning Herald reported on August 1.

Supply chain complications causing shipment delays to customers, and high energy prices have eaten into United Malt’s profit margins.

However, the global supplier remains optimistic, with the certainty of “a very good crop”, for the year ahead.

Three months ago, the ASX-listed company forecast underlying earnings of A$115 million to A$140 million for the year ending September 30, but in a trading update today lowered expectations to between A$100 million and A$108 million.

United Malt chairman Graham Bradley said the board was disappointed with the company’s performance this year and “external conditions ha[d] deteriorated dramatically”.

“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,” said Bradley.

The Vancouver-based company’s net debt-to-EBITDA ratio will also be double or 2.5 times its target range, and the company has been “in discussions” with its banks regarding its lower-than-expected earnings.

However, it is much more upbeat about prospects for the 2023 financial year, forecasting a rise in underlying earnings in the range of A$140 million to A$160 million.

United Malt CEO Mark Palmquist said the positive outlook was due to the “certainty of the crop production and quality” now emerging from Canada and North America.

Canada’s crop has increased from 6.9 million metric tonnes to 10.2 million metric tonnes, while the US has had a “sizeable increase” of 45 per cent, Palmquist said.

“Knowing that we have that very good crop that is substantially better than what we had in 2022 just absolutely gives us that type of certainty that we’re not going to experience the tremendous cost differences we had in the previous year,” he said.

Palmquist said the company was still seeing “really good demand in the marketplace” for beer and consumption tended to be less sensitive to macroeconomic factors such as inflation and recession risks.

“Beer consumption tends to stay pretty steady and solid, so we’re not seeing concerns on the demand side,” he said.

He also believes the global trend of lower-strength and zero-alcohol beer will not detract from demand, as the production process for these beers often requires more malt than traditional beer.

Australian breweries and distillers largely won’t feel any impact from the poor-quality barley crops from North America, though the reduced supply and stronger demand may lead to “some appreciation” in the price of Australian barley, Palmquist said.

The company will hold an Investor Day on August 3. United Malt closed down 17 per cent on Monday, August 1 at A$3.04.

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