Wellard signs first China beef export deal amid uncertain future

Struggling livestock exporter Wellard has agreed to terms on a long-delayed shipment of 2000 head of cattle to China — but it’s still not clear when the shipment will happen.

Wellard (ASX:WLD) flagged the deal in December last year and expected to be exporting beef cattle for slaughter to China in the first half of the year.

It did not provide a date for when this first shipment would leave from south east Australia, saying the sale contract with Rongcheng HCMH Trade and Service Co is subject to conditions such as receiving a deposit.

The news sent Wellard’s share up 20 per cent to 15c, finally lifting it out of the doldrums of its 52-week trading range of 10c to 32c.

Wellard chief Mauro Balzarini said today he was confident Wellard’s first cattle shipment to China was the start of a continuing relationship.

“This will benefit Wellard’s stakeholders and also producers in Australia as China will import cattle with different specifications to Vietnam and Indonesia,” he said.

Doubts over future

China as an alternative market to Vietnam and Indonesia is critical for Wellard.

Its full year results unveiled a 231 per cent blow out in its net loss to $83 million.

Record high prices for Australian livestock, as drought conditions forced farmers to cut herd numbers, slashed demand in Vietnam and Indonesia.

The company admits “a material uncertainty exists that may cast significant doubt as to whether Wellard will be able to continue as a going concern”.

The livestock exporter listed in December 2015 but within six months had breached an undertaking in a loan it had taken to provide working capital.

It said this year that “entities within the group breached financial covenants and undertakings on the working capital facility and ship financing facilities” on four separate occasions between September 2016 and June 2017.

In most cases Wellard has either fixed the problem or received waivers from its creditors to buy time to do so, but said some remained outstanding.

The net debt to capital ratio rose from 55 per cent in 2017 compared to 47 per cent in 2016, on the back of that reduced demand for Aussie livestock in Asia, and because of asset write-offs and impairments.

Wellard had to sell one of its vessels, the MV Ocean Outback, as part of a cost cutting measure. It sold for $US26 million ($32.6 million), which meant the company had to take a $US9.9 million ($13.1 million) impairment charge, or loss, on the asset.

“The sale of the mid-sized vessel, which was built in 2010, is part of Wellard’s ongoing review of its fleet to match its shipping capacity to current market conditions and future fleet additions,” it said.