A small crop outlook will mean existing take-or-pay rail contracts will challenge GrainCorp over the next 12 months, the company said.
The grain transport and storage firm, which reports on a 12-month cycle ending September 30 each year, raised its earnings guidance for FY18 thanks to strong figures for its malt business.
GrainCorp on September 6 raised underlying net profit guidance to $60-$75 million, up from prior guidance of $50-$70 million.
It raised underlying EBITDA guidance from $240-$265 million, to $255-270 million.
But the company warned it anticipates volumes will plummet over the next 12 months in eastern Australia as drought grips key growing regions.
“We expect a considerable decline in grain production in eastern Australia in FY19 with production again skewed to Victoria and southern New South Wales,” chief executive Mark Palmquist said.
“We continue to respond to the deteriorating outlook by adapting the network to better match the size and location of the crop and keeping a strong focus on operating cost control, asset utilisation and disciplined capex allocation.
“It is an extremely challenging time for our grower customers. Many of our own people live and farm in these communities and we keenly feel the difficulties they are going through.”
GrainCorp said lower anticipated volumes would mean take-or-pay rail contracts will present “a significant challenge”.
Current rail commitments expire at the end of FY19, and GrainCorp says the new contracts – which come into effect from FY20 – will provide “greater flexibility to manage transportation costs through the crop cycle”.