Analysis of Financial Performance and Outlook of GrainCorp Limited

This report presents a financial analysis of GrainCorp Limited, an Australian ASX listed agribusiness firm. It includes an overview of the company, financial outlook, and a detailed analysis of the company based on major financial ratios. The report concludes with recommendations for potential investors.

Analysis of Financial performance and outlook of GrainCorp Limited 1
ANALYSIS OF FINANCIAL PERFORMANCE AND OUTLOOK OF GRAINCORP
LIMITED
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Analysis of Financial performance and outlook of GrainCorp Limited 2
Analysis of GrainCorp Limited Performance and Outlook
Introduction
The report present financial analysis of one of the Australian ASX listed agribusiness firm
financial performance and outlook over the past two years. The report starts with
identification of the company as well as its brief overview. It is followed by presentation of
its financial outlook. Finally, the report concludes with a detailed financial analysis of the
company based on some of the major financial ratios to test its strength and weaknesses over
the last two years. In other words, the report presents both a current financial assessment as
well as financial outlook of the firm over the next one to two years. This is to assist in giving
recommendation on whether whether the company is potentially worth investing.
GrainCorp Overview
GrainCorp Limited is the public listed form on ASX within Australia. Its core operations
include storage and receivable of grains as well as related commodities. The company also
offers logistics as well as markets such commodities. GrainCorp Limited was mostly
established as New South Wales agribusiness company agency in 1917 (GrainCorp Limited
2017). Initially, the company used to transport grains from the local collection areas located
within railways all through grain-producing areas across New South Wales. The company
later changed to Grain Handling Authority and in 1992 it was privatised with most of its
shared transferred to the grain growers (Clark 2018). Nonetheless, in 1998, GrainCorp
Limited was listed on the ASX. Its operations have significantly extended to other Australian
region through amalgamations with the other grain handling firms (GrainCorp Limited 2017).
The company mainly focuses its main events on essential grains of barley, sorghum, wheat
and canola where the firm has relative benefits through technical expertise, nearness to the
growth markets as well as grain origination. The company has main operation in Europe,
North America and Australia, with such regions jointly demonstrating more than 50% of the

Analysis of Financial performance and outlook of GrainCorp Limited 3
universal export trade in canola, barley and wheat. The company has three main operating
segments, oils, grains and malt (GrainCorp Limited 2016). Under the malt segment, the
company provides deep grain expertise as well as tailored relationships with the distilling and
brewing clients across the globe. The oil segment is the leading producer of the edible oils
across Australia. On the other hand, GrainCorp operates and own one of the largest grain
logistic network and storage in the Eastern Australia.
Outlook of GrainCorp Financial Performance
GrainCorp is expected to experience challenging times in 2018 for its grains segment with
significantly lower crop on the Eastern Australia resulting from prolonged dry weather in
2017 winter Clark 2018). This is expected to challenge its Australian competitiveness
especially in the international market by the persistent low grain prices across the world,
global oversupply of the grains as well as cheap ocean freight charges (Investing.com 2018).
Nonetheless, GrainCorp expect constant strong financial performance from the Malt segment,
with full year contribution from expanded malt plant across Pocatello, Idaho.
GrainCorp with its total market capitalization of around A$1.87 billion is considered popular
for its explosive growth. Therefore investors need to be very careful which judging the
company based on the balance sheet on whether the firm could survive the downturn.
Therefore, understanding the organization’s financial performance is very crucial as poor
capital management might mean bankruptcies that take place at relatively higher rate for such
company as GrainCorp. As such, the company debt level is said to have decreased over the
years from A$1,194.5 million in 2016 to A$1,090 million this comprised of both long and
short-term debts. Besides, with this decrease in the total liabilities, cash and the short-run
investment were at A$388.9 million (Clark 2018). Furthermore, over the years, Graincorp is
found to have produced operating cash flows of approximate A$300.5 million which is said
to have resulted in operating cash to the debt ratio of around 27.57%. This implies that

Analysis of Financial performance and outlook of GrainCorp Limited 4
GrainCorp debt was roughly covered by its operating cash. In addition, the ratio could be
used in measuring efficiency as alternative to the ROA. Therefore, the figures means that the
company could generate 0.28 times cash from the debt capital.
It sales over the last three years has been experiencing an increasing trend moving from 4,086
million in 2015 to 4,576 million in 2017 (GrainCorp Limited 2017). Such increase is
projected in the next three years till 2020. Its operating profit before interest and tax also
increased over the same period moving from 99.1 million in 2015 to 244 million in 2017.
This trend is projected to remain in the next three years till 2020. For instance, the operating
profit is projected to be 96.2 million in 2018 which is estimated to increase to 191 million by
2020. Its net income over the years increased from 32.1 million in 2015 to 125 million by
2017. Similar trend is projected in future where by the net income is projected to move from
58.3 million by 2018 to around 115 million by 2017 (GrainCorp Limited 2017).
Financial Ratio analysis of GrainCorp
Revenue Sources
Profitability Ratios
Table 1: Profitability Ratios
Profitability Ratios 2015 2016 2017
Gross Margin % 19.2 17.9 19.7
Earnings Per Share AUD 0.14 0.14 0.55
Return on Equity % 1.8 1.73 6.95
Return on Assets % 0.92 0.85 3.49
Source: Morningstar (2018)
Profit margin ratios
Based on Table 1 above, it is evident that GrainCorp gross profit margin increased from
19.2% in 2015 to 19.7%. This is evident despite the decrease that was recorded in 2016.

Analysis of Financial performance and outlook of GrainCorp Limited 5
Therefore, it is evident that the company was profitable or efficient in generating profit
through its sales.
Return on assets
As from the Table 1 above, it can be stated that GrainCorp ROA increased over the last two
years with a greater margin being recorded in 2017. For instance, the ROA increased from
0.92 to 3.49 in 2017. This is a clear sign that the company has been efficient enough in
utilizing its assets to produce net income.
Return on equity
The company ROE over the last three years is said to have experienced a significant increase.
This is evidenced by the movement of the company’s ROE from 1.8 in 2015 to 6.95 in 2017.
The increase in the company’s ROE is a clear sign that the company management has been
utilizing its shareholders’ equity to produce income.
Earnings per share
Based on Table 1 above, it is clear that GrainCorp’s EPS increased from 0.14 in 2015 to 0.55.
The increase is as a result of increased net income over the same period. The company is said
to have recorded increased sales in 2017 which could have been translated to increased net
income.
Major Strengths
Based on the profitability ratios analysis, it is evident that GrainCorp is financially stronger
both in managing its resources such as assets and shareholders’ equity in producing income.
Furthermore, given that the company is experiencing increased profit margin and EPS, it is
evident that the company is financially healthy and is effective in utilizing its resources to
generate better income.
Liquidity and Financial Stability Analysis
Liquidity Ratios

Analysis of Financial performance and outlook of GrainCorp Limited 6
Table 2: Liquidity ratios
Liquidity 2015 2016 2017
Current Ratio 1.72 1.56 1.87
Quick Ratio 0.93 0.84 1
Source: Morningstar (2018)
Current ratio
Based on Table 2 above, it can be stated that Graincorp experienced an increased current
ratio. The company current ratio increased from 1.72 in 2015 to 1.87.
Quick ratio
It is also evident that the company’s quick ratio increased from 0.93 to 1 in 2017. This
increasing trend is a clear sign that the company is increasing its efficiency in managing its
financing issues.
Levels of indebtedness
Table 3: Indebtedness ratios
2015 2016 2017
Debt ratio 2.02 2.05 1.94
Interest Coverage 2.01 2.07 5.43
Source: Morningstar (2018)
Debt ratios,
Based on Table 3 above, it can be stated that the company debt ratio decreased from 2.02 to
1.94. This means that the company is improving in its financing over time.
Times interest earned
The result shows that interest coverage increased over the last three years moving from 2.01
in 2015 to 5.43 in 2016. The increase is a crease a clear sign that the company is not
struggling in settling its debts through increased cash flow generation.

Analysis of Financial performance and outlook of GrainCorp Limited 7
Major strengths and areas of concern
GrainCorp high interest coverage implies that even though the debt levels are relatively high
over time, the firm is capable of using its debts effectively in generating cash flows.
Therefore, since there are no concerns on its liquidity ratios, this might be an optimal capital
structure within the period.
Investor Analysis
Table 4: Dividend and earnings ratios
2015 2016 2017
Dividends per share 10 11 30
Dividend yield 1.10% 1.4% 3.68%
Source: Morningstar (2018)
From the Table 4 above, dividend per share for GrainCorp increased over the last three years
with a significant margin. This is evidenced by the fact that the company’s dividend per share
moved from 10 in 2015 to 30 by 2017. Furthermore, from the analysis, it is evident that the
company’s dividend yield increased of the last three years moving from 1.1% in 2015 to
3.68% in 2017.
Historical share price performance for GrainCorp tracked against the All Ords Index
Based on Figure 1 below, it can be concluded that GrainCorp share price over the last twelve
months experienced a decreasing trend. Despite, the company registering relatively high
share price by end of June 2017, the price has been decreasing over the year with February
being the worst period for the company where the price was at its lowest (Marker Index
2018).
Figure 1: Historical stock price for GrainCorp tracked against All Ords Index

Analysis of Financial performance and outlook of GrainCorp Limited 8
Source: Marker Index (2018).
Historical Dividend Performance
As from the Table 5 below it is evident that GrainCorp dividends over the last few years has
been experiencing asymmetric trend. This is evident by the fact that dividends payables
decreased from 0.075 to 0.025 by 15th December 2015 (4 Traders 2018). This amount later
increased to 0.075 by July 2016 by December 14th 2016, dividend payable decreased to 0.035.
By July 17th 2017, dividend payable increased to 0.150 which has remained constant over the
year (Marker Index 2018).
Table 5: Dividend History
Amount Payable
$0.150 14/12/2017
$0.150 17/07/2017
$0.035 14/12/2016
$0.075 15/07/2016
$0.025 15/12/2015
$0.075 17/07/2015

Analysis of Financial performance and outlook of GrainCorp Limited 9
Amount Payable
$0.050 16/12/2014
$0.150 18/07/2014
$0.200 16/12/2013
$0.250 19/07/2013
Source: Marker Index (2018).
Conclusion and Recommendations
In conclusion, the high debt ratios should not at any point scare away investors. The
company operating cash flows is sufficient enough in settling its debt commitments which
implies that its debts are place in good use. Moreover, the firm displays capacity to settle its
short-run debts should an adverse event takes place. To build the conviction in stock, one
needs to further assets the firms’ tract record. Given that the company is doing well
financially which is evidenced by relatively attractive profitability, efficiency and liquidity
ratios, the company seems to be worth to be considered for purchase or investment. In other
words, GrainCorp is a good business for investment generating relatively good returns with
reasonable prospects for the growth. Furthermore, given that GrainCorp had relatively high
interest coverage it can be stated that that even though the debt levels are relatively high over
time, GrainCorp is capable of using its debts effectively in generating cash flows. Therefore,
since there are no concerns on its liquidity ratios, this might be an optimal capital structure
within the period. Hence, any potential investor willing to invest in the company should do
so. If I was to invest in this firm, the main concerns would be the high and increasing level in
the company indebtedness level. This is based on the fact that the high indebtedness level
represented by increased debt ratio means that the company is overlying on debt finance
which is putting the company at risk.

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Analysis of Financial performance and outlook of GrainCorp Limited 11
References
4 Traders (2018), GrainCorp Limited (GNC): Available from:
http://www.4-traders.com/GRAINCORP-LTD-6492522/charts-sector/ [Accessed at 25th May
2018]
Clark, S (2018), What does GrainCorp Limited’s (ASX:GNC) Balance Sheet Tell Us Abouts
Its Future?: Available from:
https://simplywall.st/stocks/au/food-beverage-tobacco/asx-gnc/graincorp-shares/news/what-
does-graincorp-limiteds-asxgnc-balance-sheet-tell-us-abouts-its-future/ [Accessed at 25th May
2018]
GrainCorp Limited (2016), GrainCorp Limited 2016 annual report: Available from:
http://www.graincorp.com.au/_literature_222196/2016_Annual_Report [Accessed at 25th
May 2018]
GrainCorp Limited (2017), GrainCorp Limited 2017 annual report: Available from:
http://www.graincorp.com.au/_literature_235571/2017_Annual_Report [Accessed at 25th
May 2018]
Investing.com (2018), GrainCorp Ltd (GNC): Available from:
https://www.investing.com/equities/graincorp-advanced-chart [Accessed at 25th May 2018]
Marker Index (2018), GrainCorp Limited class A: Available from:
https://www.marketindex.com.au/asx/gnc [Accessed at 25th May 2018]

Analysis of Financial performance and outlook of GrainCorp Limited 12
Morningstar (2018), GrainCorp Ltd Class A (GNC): Available from:
http://financials.morningstar.com/ratios/r.html?t=GNC&region=aus&culture=en-US
[Accessed at 25th May 2018]