GrainCorp Limited

Good morning, everyone, and thanks for joining us here at the Graeme Corp Half Year Results Call. For those of you following the investor deck online, I will refer to the page numbers as we go through the pack. And just starting with page three, as we begin, I do want to acknowledge the traditional owners of the land on which we meet. For those of us here in Sydney, that's the Gadigal people of the Eora Nation. I pay my respects to their elders past and present. If we flick over the page to page four, before we deliver our half-year result, I do want to start by talking about safety at Grain Corp and acknowledging the tragic loss of a colleague in a fatal truck accident at our Moree site in April. Philip Burns worked at Grain Corp for three years and was a valued member of our team. I pass my sincere condolences to his family and friends and to his many workmates in the Moree community. The safety of all employees at Grain Corp remains our highest priority, and I don't propose to spend any time on our other safety headlines other than to say that accidents such as the one I've just highlighted are why we remain committed to achieving and maintaining our goal of zero harm. If we return to the first half of financial year 2023, it was an outstanding performance EBITDA of 383 million, with growth in our processing volumes and margins. Today, we're upgrading our earnings guidance and outlook, moving our guidance up to between 500 and 560 million. We're also updating our average EBITDA through the cycle to 310 million. I'll talk about both of those factors later in the presentation. We have a very strong balance sheet with $200 million in core cash. United malt stake is valued at $121 million at the half year, and as many of you will know, that business is subject to a takeover offer. Our working capital, furthermore, is expected to unwind, ensuring strong cash flows into the future. We are driving shareholder value. The board is delighted to be able to declare a 24 cent fully franked interim dividend. We're also providing a strategy update today confirming that we're evaluating new oil seed crush capacity and the plant. I look forward to taking you through the details of that over the next number of slides. Just looking at the highlights on page six, this is the slide I like to refer to where the numbers do the talking. $383 million EBITDA at the first half, net profit after tax of $200 million. I think really underpinning the strength of those numbers is the return on invested capital at 22.7%. Our tonnes handled were $34.8 million. That is down slightly, of course, on the very strong crops we've had over the last couple of years. We are especially pleased, though, about the oilseed crush volumes. That's something that our teams work hard to do to drive our assets harder every day. 256,000 tonnes processed in the first half. And as I touched on before, the balance sheet, exceptionally strong position with $200 million in core cash. And Ian Morrison will talk to a number of those factors shortly. Moving over to page seven, we've been very pleased with our the feedback we've had on our sustainability report over the last couple of years. And the half year is an opportunity to provide an update on the ongoing progress we make across all areas in the ESG space. For those following on the slide, I'm not going to go through every bullet point, but just to call out a couple. We're pleased with the work our teams are doing to connect with growers across the regions where we operate, talking about nature, climate and sustainable agriculture, getting their input and ensuring that we can be part of improving the performance of the whole sector and creating opportunities for growers. We have secured a recycling partner for the tarpaulins that we use on our grain bunkers, doing our bit to improve our environmental footprint. We're delighted with the opportunity we have to give back to the communities we operate in through the Community Foundation. We've had strong interest in the grants we provide, and it's great to be able to support infrastructure projects, social services and wellbeing programs across those communities. Finally, it covers many aspects of our people, including the fact that we've submitted our Reconciliation Action Plan through the HART. In summary, we're making good progress on all areas of ESG and we look forward to further updating you in our next sustainability report at year end in November. On slide eight, our strategic priorities are driving higher return on invested capital. This is a slide that we've shared many times over the last 18 months and it supports the that our vision and purpose underpin a strategy that's aligned to global trends and delivering results for our stakeholders and shareholders. In particular, strengthening the core is delivering results now as evidenced in the past and the recent financial years, and it will continue to deliver results into the future as we strengthen our core business. We're also delighted with the focus we have on targeted growth opportunities, opportunities where we know we have a right to win. And it's in that light that I'm delighted today to provide the update on page nine that we are evaluating a new oilseed crush plant. This is an opportunity to build on Grain Corp's position as a leading supplier of renewable fuel feedstocks. It builds out on our belief that particularly in oilseeds, but across the grain sector generally, there's strong demand for feeds, foods and fuels. Assessing the options for the new crush capacity will create opportunities to build on this leading position. It will create additional local source of ongoing demand for Australian oil seeds, many of which are currently exported without further processing. And ultimately, it's an opportunity for Grain Corp to play a part in Australia's long-term energy security through renewable fuel feed stocks. Given the strength of our processing result, this is a logical next step, and we're looking forward to keeping you updated in the next few months. I'm going to hand across to Ian Morrison, now our Chief Financial Officer, who will talk you through some of the segment results and the strength of our balance sheet. Thanks, Ian.

Thanks, Robert. I'll now move on to slide 11 in the slides, and I'll summarize the financial performance for the half year. It's pleasing to report another strong result from our agribusiness segment and record earnings for processing. I'll touch more on the details behind both of those shortly. In terms of the corporate segment, we have broken out on the slide the UMG investment. And as you can see, the half year result includes a fair value gain of 41 million. And that's based on the closing UMG share price of $4.75 at the balance date of 31st of March. The underlying corporate cost in the first half is slightly higher than the prior corresponding period last year, and also slightly above the long-term runway we'd expect, and that's mainly due to the impact of increased investment in growth initiatives. We also saw an increase in net interest in the half, and that's largely off the back of higher interest rates impacting on commodity inventory funding. As we've spoken about previously, this interest cost on commodity inventory funding, it relates directly to the grain and oilseed that we do fund. And the interest is built into grain pricing and recovered through our margins in EBITDA. I'll now move on to the agribusiness segment on slide 12. And I'll start off with providing some additional details on our East Coast Australia business. We saw another well above average crop production of over 30 million tons this year. And combined with the higher carry-in from last year's bumper crop, this led to total grain handles of just under 35 million tons in the half. Our East Coast business has continued to see good supply chain margins, albeit at lower levels than what we saw in the corresponding half last year. The margins this year were partially impacted by higher costs we saw from a delayed and wet harvest. Another update we're pleased to provide for our East Coast Australia business is that we recently extended our Pacific National Rail contract for a further five years across New South Wales and Victoria, and this is a really pleasing outcome. Also, just to note that the results for the HAP does include the impact of the crop production contract. It includes the 70 million payment, and overall is a total expense of 82 million in the half. Lastly, just on East Coast, it's pleasing to see continued increases in our bulk material volumes, and that's driving increased utilization of our port assets. I'll now move on to slide 13 and the other businesses within the agribusiness segment. Firstly, our international business delivered a strong first half result. And that's largely off the back of good margins from Western Australia following their large crop. And international business also continues to play a key role in connecting not just West Coast Australian grain to global demand, but also East Coast Australian grain as well. And that's part of our multi-origin strategy. And just turning to Canada, our grains connect supply chain is performing well operationally after the completion of the port at Vancouver last year. However, we have seen margins continue to be impacted by the lower exportable surplus as that region does still recover from the recent drought. Now on to feeds, fats, and oils. Our liquid feeds business performed well in the half, and that's despite the typical countercyclical nature of that business to East Coast cropping conditions. This result was supported by a larger national herd size and also higher demand for animal proteins. On the fat and oil side, we've seen continued strong results off the back of demand for renewable fuel feedstocks. Now turning to slide 14 and our processing segment. It's been an outstanding half for our processing business and, in particular, our oilseeds division. As you can see in the graph on the right-hand side of this slide, we've seen a continued trend of increasing crush volumes with an ongoing focus on delivering operational efficiencies at our plants. This has seen the business deliver a 10% increase in crush volumes in the half relative to the corresponding period last year. As Robert had touched on earlier, we also saw excellent crush margins continue in oilseeds. The supply of canola seed in the East Coast, as well as the increasing demand for vegetable oils underpin those strong margins. And just to briefly touch on our foods business, it also continues to perform well with volumes remaining strong. I'll now move on to slide 16 and touch on the balance sheet. We've continued to generate positive cash flows, continuing a trend of strengthening of the balance sheet over recent years. We finished the half year in a very strong position with a core cash balance of 200 million. We've also seen a reduced net debt relative to the prior half year with a closing position of the half of 1.4 billion, noting that this does still remain below the long-term average. We also hold the additional flexibility of the UMG stake, and that was valued at 121 million at the half-year balance date. Overall, our balance sheet is in a very strong position, and that provides us with significant flexibility. Now moving on to slide 17, and I'll just touch briefly on some additional detail on working capital. As you can see from the graphs on this slide, our working capital continues to be at elevated levels, and that's largely off the back of the high volumes associated with the recent large harvests and the ongoing export program. As volumes do normalize, we'd anticipate a release of that networking capital, and that provides ongoing confidence and strong cash flow generation into the future. Now moving on to capital expenditure on slide 18. We've continued to invest more in CapEx to support additional capacity and maximize the opportunity from the recent large harvests. For the full year in FY23, we'd anticipate sustaining CapEx to be broadly compatible to what we saw in FY22. Alongside the increase through the cycle earnings that Robert touched on earlier and we'll provide more detail on shortly, we have updated our target sustaining CapEx to a range of 40 to 50 million. That's in part to accommodate an increased focus on sustainability initiatives. On the right-hand side of this slide, in relation to depreciation and amortization, we'd expect to see full year DNA at similar levels to FY22 before continuing to reduce over time. And just lastly for this section on slide 19 and touching on dividends, the strength of our balance sheet alongside current performance and a positive outlook enabled the board today to declare an interim dividend of 24 cents per share fully franked. That's made up of a 14 cents per share ordinary dividend and a 10 cents per share special dividend. Maintaining the ordinary dividend and 14 cents per share reflects the board's confidence in through the cycle earnings. On that note, I'll now hand back to Robert.

I want to pick up at slide 21. It's obviously opportune at the half year to review what the rest of the year looks like and today we're delighted to share with you an upgrade to our earnings guidance for financial year 2023. We are now forecasting a guidance of EBITDA of between 500 and 560 million. which translates to a net profit of between $220 and $260 million. The drivers behind that are our continuing full export program that we expect to continue throughout the remainder of this year. The supply chain is moving well and performing efficiently. We are still seeing strong global demand for Australian grain and oilseeds. and there's been good rainfall in most areas in the lead up to the East Coast planting period. It's probably timely to acknowledge that many growers are in the middle of that planting at the moment, and we're obviously wishing them well for a strong and productive cropping season ahead. If you look at the longer-term fundamentals that we've talked about for some time now, it's evidenced in this result and our outlook. We see food security remaining a key priority for countries globally. That's underpinning strong demand. We are seeing rising demand for vegetable oils and for food and renewable oils. I touched on it before. There's strong demand across all aspects of the uses of our products. We're also seeing ongoing growth in East Coast Australia grain production as farming practices and technology improves. I've shared with many of you before that as you look through the cycles you can see that underlying productivity through the practices that growers in Australia employ. Moving over to page 22, the other aspect of our update today is of course the lifting of our average through the cycle earnings from 240 to 310 million. We do have a slide in the appendix that bridges and provides some additional detail, but I'll work through some of the key factors now. As I touched on earlier, we've already seen an increase in our oilseed crush volumes over successive periods, now comfortably achieving 500,000 tonnes annually. Alongside that extra volume, we are seeing a sustained or structural increase in the oilseed crush margins. That's driven by that higher demand that we're seeing and the demand for new uses such as renewable fuels. It's also reflected in the margins and the performance of the other parts of that supply chain that we operate in, including used cooking oil. We're seeing significant operating leverage in our East Coast business. That's clearly evidenced in the very strong results we've produced over the last couple of financial years. That's despite the fact that within those years we've paid away the maximum under our crop production contract. We're yet though to see the significant benefits that that contract would provide in a drought year. Again, demonstrating the leverage as to the opportunity we can achieve in big years and the protection we've provided in drought years through that insurance product. Finally, we have also seen an increase in interest commodity funding, but that clearly flows through to higher earnings in grain corp in terms of our ability to pass that on in the way commodities are priced. As I said, slide 29 in the appendix provides more detail, but I think in summary, we do have a strong business. We're demonstrating strong and efficient performance and the significant operating leverage that large East Coast crops in Australia provide for grain corp. Just moving to the last slide that I'm going to talk to before we open for questions is slide 23. Today we've shared with you an outstanding first half 23 performance result. We have an exceptionally strong balance sheet, giving the company significant flexibility to continue to return value to shareholders and to invest in the business and our future growth strategy. We are progressing our strategy, evaluating a new oilseed crush plant and looking forward to keeping you updated on that evaluation. We are upgrading our financial year 23 guidance to between 500 and 560 million and we're lifting our average earnings through the cycle to 310 million. We are delivering strong financial results, and I do want to finish by just acknowledging and thanking the team that I work with right across GrainCorp. It's been a busy time for our operating divisions and people. That's a great position to be in. The efficiency, the value, the capability that they bring every day is returning value to our shareholders. Thank you for taking the time as we worked through that presentation. I'll hand back to the moderator to open up for any questions there might be.