GrainCorp Limited

Thank you for standing by, and welcome to the Grain Corp Limited Fiscal Year 2022 Results Briefing. All participants are in a listen-only mode. There will be a presentation, followed by a question and answer session. If you wish to ask a question, you will need to press the star key, followed by the number one on your telephone keypad. I would now like to hand the conference over to Mr. Robert Furway, Managing Director at DEGO.

Please go ahead. Good morning, everyone. As said, I'm Robert Spurway, Managing Director and CEO of Graincorp, and together with Ian Morris and our Chief Financial Officer, we look forward to taking you through the FY22 results, some commentary on our strategy and our outlook. Before we start, though, I do just want to acknowledge the traditional custodians of the land on which we meet. For those of us here in Sydney, that's the Gadigal people of the Eora Nation. We pay our respects to their Elders past, present and emerging. I also will follow through on the pack for those that are following on screen and refer to the page numbers. Whilst we'll start on page six, I just want to highlight the fact that at the start of the pack, we've got some background slides on About Grain Corp. That's particularly there for the benefit of those of you perhaps joining for the first time. And all of those slides have been shared in previous investor updates. My reflection on those slides would be it really highlights the strength of this business, the quality and integrated nature of our infrastructure assets, our processing division, and the way our people work to produce such strong results as we've seen in financial year 2022. Just turning over to page seven. It is a record result for GrainCorp with outstanding performance and $703 million in EBITDA. We've benefited from the second consecutive bumper crop on the east coast of Australia. We've delivered strong supply chain performance and demonstrated resilience in a year of many challenges for others. In short, we have made the most of the opportunities that have been there and the strong demand for Australian grain around the world. Underpinning the strength of the result is our return on invested capital at a very strong 27.9%. We've seen strong payback on the additional capacity investments we've made in the East Coast of Australia, both recently and historically. We've seen record oil seed and food volumes, and we're seeing growth in our agri-energy area, particularly the used cooking oil part of the business. We are driving our assets harder and doing what we said we would. and that is delivering significant value for shareholders. Dividends of $121 million in total in the 2022 year and that includes a final dividend declared today in total of $0.30 per share. It's in addition to the $50 million share buyback that we completed in July and all the same leaves us with a very strong balance sheet with core cash of $177 million. Again, we're doing what we said we would. We're positioned strongly to invest in growth and continue to deliver returns to shareholders. Just on page eight, it's an opportunity to recap on the numbers, and I think the slide speaks for itself. $703 million in earnings before interest tax depreciation and amortization, up from $331 million in 2021. Net profit after tax, 380 million, up from 139. Return on invested capital at 27.9%, up from 11.1%. In terms of the areas that our teams have contributed to across the business, total grain handled, a very strong 41.1 million tonnes, keeping our supply chain moving throughout the year. We've lifted our oilseed crush volumes to 471,000 tonnes, up from 459,000 the prior year. And as I said earlier, our core cash at balance date is $177 million, up from a core debt of $1 million at the close of the previous year. The business is performing incredibly well. Today, we also launched our sustainability report for financial year 2022. That builds on our sustainability commitment and we're proud of the progress we're making and the commitments we've made into the future. Just in some of the highlights in that report, we have mapped our Scope 3 emissions and we've progressed mapping the roadmap to adopt the TCFD recommendations. That allows us to develop further emission reductions plans across Scope 1, 2 and 3 emissions as we look to rapidly decarbonize by 2030. Importantly, the social aspects in our people are also an area we're performing well in. We've made progress on inclusion in our diversity action plan, and importantly, those people that contribute to the Grancourt results are feeling satisfied and engaged with scores of satisfaction up to 87%. That's important not just in this result, but the confidence we have into the future with those people supporting us. In terms of our integrity, we've underpinned the progress we're making and the commitments we've documented by establishing a governance structure that supports that. We have a new board sustainability committee and we've appointed a new head of sustainability supporting the wide group of people in Graeme Corp that contribute to this area. Just looking at a bit more detail at an important social aspect, our safety performance on page 10. We're pleased to see the improvements in reportable injury frequency rate, particularly through the second half of 22, as we were able to roll out behavioral safety programs and spend more time with our people post-pandemic. Clearly across the board, we've still got some distance to go to achieve our commitment to zero harm, and there are many initiatives in the business every day aiming for that goal and improving our performance. Just on page 11, many of you will have seen this slide before, our strategic priorities to drive higher return on invested capital, something where we've seen great progress this last year. That strategy is deliberately split into two clear areas, what we call strengthening the core, lifting returns, driving existing assets harder, and leveraging our capabilities. That sits alongside our focus on some very targeted growth opportunities, and I'll update you on those over the next couple of slides. On page 12, I think it's important to just reflect on the global trends in the environment in which we operate, to call out four of those, population growth and changing demographics, decarbonisation, disrupted global supply chains, and technology and digital acceleration. In each one of those areas, GrainCorp has thoughtfully considered the areas where we have a right to win and our response and how we'll access those opportunities. Our multi-origin strategy, our leading position in East Coast of Australia, and indeed the proximity of our production areas to the major markets around the world. On decarbonisation, I've touched on the commitments we've made in our sustainability report and the progress we're making there. Importantly, we continue to partner with others, not just to improve our own performance, but to make a meaningful impact on the agricultural sector in general. Whilst many have faced the impact of disrupted global supply chains around the world, GrainCorp has demonstrated incredible resilience. Our end-to-end supply chain has operated well, meaning that we've met our customers' expectations through the year and made the most of the demand opportunities that exist. We're pleased with the platforms we have in the digital space. We're continuing to invest in areas like advanced and data analytics that will drive results and improvement into the future. We've also got our grain corp ventures, which allows us in a very targeted way to partner and invest in opportunities into the future. We are strongly positioned as a food and agricultural business. Over to page 13, just to give you the context of this slide, for those of you that followed our investor presentation back in 2021, about 18 months ago, we committed to a range of activities that would lift our earnings by 40 million through to 23, 24. As we touched on partway through this year, we are well on track to deliver that. In fact, we would say the examples here demonstrate it's been fully delivered. I'm not going to go through all the detail on this slide, but this spells out some of the examples of the sorts of initiatives we spoke about when we launched this program. Our investment in East Coast capacity to leverage the opportunity of bumper crops has certainly returned well. We've upgraded our mobile fleet to make sure that we're servicing the needs of our growers. and improving the efficiency in the way we operate. We're continuing to diversify our assets and in particular our port assets with a new sand contract at Queensland amongst other initiatives that see us handle a range of bulk materials through our ports business. As I touched on earlier, we're controlling the areas we can control, lifting our performance and crush volumes and driving our assets harder with increases in food volumes. We've completed the full end-to-end supply chain in our Canadian business, and we're looking forward to continued improvement in our international business and the delivery from that area of the business. We're building capabilities. I touched on it in the strategic area around advanced analytics, improving the planning outcomes across our large and integrated supply chain. And our customer experience focus will underpin the reliability of those initiatives into the future. ensuring that we're using insights and data to respond and get ahead of the trends that our customers and growers expect from us. In a nutshell, we're doing what we said we would and delivering strongly. Just to expand on page 14 on the pipeline of future growth initiatives that we're exploring. We've touched on these over a number of previous investor presentations, particularly the themes around animal nutrition, alternative protein, agri-energy, digital and ag-tech, and grower services. I think most of you are aware of our investment in the future feed business designed to commercialize asparagopsis and reduce methane emissions from the beef and cattle industries. We've continued to collaborate with CSIRO, V2 Foods, and others from our fats business to ensure that we're providing solutions to those participating in this exciting new market. We're increasingly pleased with our performance in the agri-energy area and indeed the opportunity that presents for growth. We continue to explore areas to take advantage of those growth opportunities and I'll touch on that in a bit more detail on the next slide. We've got partnerships that support decarbonisation of agriculture and growing the connection that we have with our farmer-growers. Just moving to page 15, the agri-energy area is growing strongly and we're seeing really strong interest in renewable fuel feedstocks and the capability that GrainCorp has in that part of the market. On the right-hand side of the page, we're already a leading supplier in used cooking oil across Australia. Our Aus coal business has more than a 50-year history and is upcycling in addition in excess of 22 million litres of used cooking oil per annum. We're seeing great returns from that business. We are Australasia's largest crusher of canola seed, and this year have achieved over 475,000 tonnes of capacity through our plants. And indeed, we collect and consolidate tallow for customers around the world. On the left-hand side of the page, we're looking at opportunities to transform and grow that part of our business. We see strong ongoing demand as demonstrated in the table at the bottom left of the page, and we continue to explore growth opportunities in terms of how we meet that demand, grow our feedstock supply, and increase our capacity. At this point I'm going to hand across to Ian Morris, our CFO. Ian will talk through the financial performance in a bit more detail, and the strong performance we've seen across all segments of the business. Ian.

Thanks, Robert, and good morning, everyone. I'll now move on to slide 17 to summarize the financial performance for FY22. It's pleasing to report record earnings across all parts of our business, and I'll touch more on the details of the agribusiness and processing segments shortly. Just firstly, on the corporate segment, We've included here on this slide just a specific line highlighting the impact of the loss of 24 million on the UMG investment, and that's really just to aid compatibility of the corporate results. The underlying corporate cost is tracking slightly higher than the long-term run rate spoken about previously, and that's mainly due to the impact of increased investment in some of the pipeline of growth initiatives. and also the impact from higher incentives off the back of record results this year. Also on this slide, note that depreciation and amortization increased year-on-year, and that's largely due to the impact from some shorter life assets, and that's associated with the large harvests with items such as tarpaulins and mobile equipment. And lastly on this slide, we also saw an increase in interest, and that's off the back of higher commodity inventory holdings along with those higher commodity values and also, of course, interest rates. I'll now move on to slide 18 to provide some further detail on the agribusiness segment, starting off with our East Coast Australia business. FY22 saw a retro crop reduction of over 33 million tonnes on the East Coast. And combined with the high carry-in from last year's bumper crop, this led to an increase in grain tons handled through our supply chain, up to 41.1 million tons this year. Outstanding execution by our teams saw our ports operating at close to full capacity in exporting 9.2 million tons of grain. And that's our largest year of exports in the last decade. We've also seen very strong domestic outload, especially in the second half, with customers turning to our network as they seek reliable supply of grain. Another feature of the result is the exceptional margins for our East Coast business, particularly in the first half, demonstrating the value of our supply chain assets. Finally, for ECA, it was also pleasing to deliver strong returns from the investments we made over the last year in additional capacity to handle the large crop. Now turning to slide 19. An international business delivered a strong result this year off the back of good margins from Western Australia following their large crop. An international business continues to play a key role in connecting both West Coast and East Coast grain to global demand. And this customer focus saw Grain Corp as the largest exporter to a number of key destination markets, including Vietnam, Japan and China. Turning to Canada, although our Grains Connect Canada joint venture was impacted by drought in FY22, we look forward to improved volumes and margins as production normalizes in that region. As Robert touched on before, we now have the full end-to-end supply chain completed following the opening of Fraser Grain Terminal earlier this year. Now just touching on feeds, fats, and oils business, on the fats and oils side, we've seen continued strong results. from ongoing demand for renewable fuel feedstocks, and that has more than offset the lower demand for liquid feeds across East Coast Australia. Now moving on to our processing segment, starting with oilseeds. As you can see in the graph on the right-hand side of this slide, FY22 has seen that continued trend of improved crush volumes with an ongoing focus on operational efficiency and maximising utilisation of our assets. We also saw excellent crush margins in oilseeds continue into the second half of FY22, and that's led to a record result for our oilseeds business. The supply of canola seed in the east coast of Australia, as well as the increasing demand globally for vegetable oils, that's what underpinned those strong margins. Turning to our foods business, we saw an increase in sales volumes of 11% year-on-year, with good demand for refined vegetable oils. We're also really pleased to see the innovation pipeline in our foods business delivering strong results with our customer base. I'll now turn to slide 21 and through the cycle earnings. Before moving on to the balance sheet, I did just want to spend a few minutes talking about through the cycle earnings. As a reminder, this was a concept we introduced at our investor day back in March 2021. through the cycle represents a view of earnings in a theoretical average year of grain production with typical conditions and margins. Based on those assumptions, we forecast EBITDA in a theoretical through the cycle year being in the order of 240 million. And as Robert noted earlier, we're confident we've delivered on the initiatives that underpin that 240 million by FY23-24. On the graph, the TTC year of 240 million is represented by the blue line, and you can see how this compares to the last three years of earnings since Demerja. You can see that GrainCorp has significant operating leverage in large ECA crop years, as demonstrated in FY21 and FY22. We're also confident we've protected the business on the downside by variable, variabilizing costs, and through the crop reduction contract. And you can see that from the severe drought year in FY20. The key message from this slide is that the ability to deliver substantially higher earnings in large ECA crop years from that operating leverage supports longer term average earnings being greater than through the cycle year. Now moving on to the balance sheet on slide 23. We finished the year in a very strong position with a core cash balance of $177 million. We've also seen a decrease in net debt year-on-year with a closing net debt of $540 million. And just noting that this does remain above our longer-term average at year-end due to the elevated working capital and commodity inventory balances with the ongoing export program. Overall, our balance sheet is in a very strong position, which provides significant flexibility. Moving on to slide four and capital expenditure. Similar to FY21, we saw higher CapEx, mainly to support additional capacity increases across our network to handle the large harvest. And we're delighted with the returns from those investments. On the right-hand side, On DNA, as I noted earlier, we did see an increase as a result of those shorter acid life CapEx associated with harvest. We expect to see FY23 at similar levels to FY22 before DNA continues to reduce over time. Now turning to slide 25, and the key message here is we're delivering significant value back to shareholders. The strength of our balance sheet current performance and confidence in the future enabled the Board today to declare a final dividend of 30 cents per share fully franked. That comprises a 14 cents per share ordinary dividend and a 16 cents per share special dividend. The increase in the ordinary dividend to 14 cents per share reflects the Board's confidence in average earnings being greater than those stated through the cycle earnings I touched on before. We also completed a 50 million on-market share buyback in the second half of FY22. And along with the interim dividend of 24 cents per share, that equates to total capital return to shareholders of 171 million through FY22. This demonstrates our commitment to both investing in the business and delivering returns to shareholders. Further capital management will continue to be assessed in FY23 against growth opportunities and as ranking credits accumulate.