GrainCorp Limited

Thank you for standing by and welcome to the Grain Corp Limited FY23 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 Spurway, Managing Director and CEO. Please go ahead.

Thank you and good morning everyone. Welcome back to those that have followed us for some time and welcome to anyone new joining the call for the first time. Before I start, I'll just acknowledge page three where Grain Corp would like 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. We pay our respects to elders past and present. This morning, you'll hear from myself and our Chief Financial Officer, Ian Morrison, as we share the GrainCorp results for financial year 2023. Moving to slide four on the pack, I think the numbers speak for themselves. It was excellent all-round performance and an outstanding result from GrainCorp. EBITDA of $565 million, net profit after tax of $250 million, and a very strong return on invested capital of 18.6%. We again saw strong volumes of grain through our network at over 37 million tonnes, down only slightly on the year prior. Our oilseed crush volumes came in at just under 500,000 tonnes. It's the fifth year in a row that we've increased our throughput through crush volumes. Importantly, and a result we're proud of, very strong balance sheet at $349 million, and that's before the receipt of funds associated with the sale of the United Malt Holding. Ian Morrison will talk to the financial strength of the business shortly. Just looking at some of the key themes on page five that sit below those headline numbers. I've talked about our EBITDA and our grain volumes handled and our record oilseed crush volumes. Earlier in the year, you'll recall that we lifted our, through the cycle, EBITDA to $310 million. So GrainCorp has delivered outstanding performance in financial year 2023. Alongside that, we continue to execute strongly on our strategy. We'll talk about that in a bit more detail around both delivering on what we call strength in the core and identifying and delivering on growth opportunities. Just yesterday, we announced the acquisition of XF Australia and the benefits that will bring to our wider animal nutrition business. We've made good progress in assessing the additional crush capacity, and I'll talk specifically about that in the coming slides. We've continued to broaden our portfolio of digital and ag tech investments by financial technology and capability builds across our business. We are driving shareholder value. That exceptionally strong balance sheet of $349 million in core cash, plus, as I said, the proceeds of $127 million from the sale of UMG received yesterday, put us in an exceptionally strong position. That's allowed the board to declare a $0.30 final dividend, bringing total dividends to the year to $0.54 per share. All of those dividends are fully franked. In addition, today we've announced a buyback of up to $50 million. On page six, I want to reiterate the comments I made at the half-year deadline. and convey our condolences to the friends and family of our colleague fatally injured in a truck accident in April at our Moree site. It's incidents like that that underpin why we will continue to strive for zero harm every day. The slide itself goes into the detail of the other areas that we're investing in in safety and the progress we are making. As I said, we will continue to strive for zero harm every day. As well as announcing our results today, on page seven, we talk about our commitment to sustainability, the fact that it's right throughout our business and right through all the strategic themes. I'm also proud to recommend to you our sustainability report for 2023, which is published on our website today. That goes into details across all areas around the progress we're making and the commitments we've made. Some highlights to call out in that, just in this last 12 months, we've decreased emissions across our processing sites by 11% per tonne of production. We've committed to setting science-based targets through the SBTI initiative for Scope 1, 2 and Scope 3 emissions reductions. We've completed a pilot study with a key customer on sustainable agricultural practices in Australia, and we continue to make additional commitments, including the elimination of grain tarpaulins from landfill by 2027. Alongside that, strong investments in people and our communities. We're proud of the Grain Corp Community Foundation and the support that that foundation has provided to over 140 community groups in the last 12 months. In addition, we've closed our gender pay gap and are well ahead of the national average and continue to make progress in those areas. Reconciliation Australia have endorsed our Reconciliation Action Plan. We're continuing to raise awareness and make progress across all areas of our business. And as I said earlier, the sustainability report makes for a great read and something that we're proud of, acknowledging that alongside those commitments, we've got more to do. For those of you that have followed us for some time, on page nine, you'll recognize our strategy slide. It's consistent and we're delivering against that strategy. It's deliberately split into two parts, what we call strengthening the core, delivering on that commitment of return on invested capital evidenced in our result not just this year but over the last several years and also identifying and delivering targeted growth opportunities. Today I'm going to share a little more detail with you around our progress on agri-energy, animal nutrition and digital and ag tech. But first on strengthening the core, we are driving our existing assets harder. For example, we've seen renewable feedstock exports grow by 6% each year on a compounding basis. In 23, we achieved the highest volumes we've seen in five years. We're seeing sustained growth in our crush volumes, 8% compound annual growth since financial year 19. We are doing what we said we would do. Alongside that, it's not an area that we always talk about, but despite the record grain volumes over the last few years, we've continued to grow our bulk materials or non-grain volumes through our ports. That's all part of increasing the quality and the diversification of our earnings. We're leveraging our capabilities. We are commencing a business and systems transformation that will both reduce complexity and improve efficiency. We've integrated our nutrition and energy business to improve efficiency and deliver on customer experience. We've invested in digital and advanced analytics capabilities, and one of the key examples or proof points of that is the ongoing improvement in crush volumes. It's a successful program, and we expect to continue to drive efficiencies across grain ports. Although the overall business is performing exceptionally well, we have called out areas that we would like to see improve. Our Foods New Zealand business and our Grains Connect Canada business are not performing at levels that we're happy with and we are continuing to support and invest in those business to determine the strategic options that will deliver on their capability into the future. Alongside that, we have a continued focus on cost management as we respond to the variable weather that we're faced with and indeed respond very capably and manage effective results in a higher inflationary environment. Grain Corp is performing well and is committed to continuing to do so into the future and that's all underpinned by our confidence in our through the cycle number of $310 million we shared earlier in the year. Just moving to page 11 in the pack. At the half year, we announced our evaluation of new oilseed crush plant capacity. That is going well. We continue to see it as a compelling case and an attractive growth opportunity for Grain Corp. It builds on our existing leading position as a supplier of renewable fuel feedstocks to export markets. It creates the opportunity for satisfying the demand we expect to grow in Australia and the security and sovereign capability that Australia over time will have in renewable fuel and reducing emissions. Our progress to date includes an announcement today that Western Australia is our preferred location for a new crush plant. We expect a new crush plant, if it goes ahead, will be in the order of 750 to a million tonnes capacity. So it is a scale plant that we see the opportunity for, bringing the efficiencies that come with that scale. Just this week, we've announced An initiative with IFM investors who are keen to underpin their investment in aviation by developing out the demand for sustainable aviation fuel and Grain Corp in the agriculture sector can play an important part in that. We're proud to be part of that partnership as we continue to evaluate and build out the feasibility for a future investment in crushed capacity. That work will focus on building the upstream and downstream partnerships on both the supply and the demand side and further feasibility to build out the financial and economic business case. I touched on in the opening in the detail covered in page 12 around our acquisition of performance feed and nutrition services associates in Australia. That acquisition is a $35 million acquisition. The business produced earnings over the last 12 months of $7.6 million. It's complementary to our existing animal nutrition business. It'll build out the capability that we're able to offer to our customers and the geographic footprint we operate in across Australia. We look forward to welcoming the capability and the expertise that that acquisition will will bring to our existing animal nutrition business. That acquisition will be funded out of existing cash reserves, and we would expect it to complete early in 2024 following the completion of customary conditions. Across our GrainCorp Ventures area on page 13, we've continued to make excellent progress this year. You'll be aware of the existing investments that we had in Future Feed and Hone. businesses that we both expect to return financial benefits in the future, but also a part of improving sustainability in the ag sector and delivering benefits to GrainCorp, the value chain, and importantly, to growers and farmers. In addition, over the last 12 months, we've made investments in Zetify, Loam, and Zoom Agri. They're all very much on strategy to deliver those technology benefits and learning and capability to GrainCorp and growers, whether it be through extended Wi-Fi and connectivity for precision farming, such as Zetify, the loam business, which is involved in sequestration of carbon, and importantly, improving productivity of crops, or Zoom Agri, which brings direct benefits to growers in GrainCorp through better assessment and quality understanding of the grains we already handle. In summary, on page 14, we are doing what we said we would do. We're delivering on our strategy and building a stronger and more capable business focused on growth opportunities and doing what we do well. We are driving our existing assets harder to deliver maximized returns. We're simplifying and optimizing our business and building an efficiency and importantly, lifting customer experience. That's an ongoing commitment that we have to growers. We are identifying and enacting opportunities to lift returns right across the portfolio. We're leveraging capabilities to invest in growth and our future. We've demonstrated that through progress in animal nutrition and agri-energy, and that gives us absolute confidence in our ability to deliver through the cycle over time. We are demonstrating that in our results. I'm now going to hand to Ian Morrison that will talk through the segment reporting and the strength that underpins those headline results I've shared. Thank you, Ian.

Thanks, Robert. I'll now move on to slide 16 and summarize the FY23 financial performance. It's pleasing to report record earnings this year for our processing segment, and that's alongside another strong result for our agribusiness segment. I'll cover the various details on this slide as we get into the various segment details in the coming slides. And the only item I'll touch on in a bit more detail here is the increase in net interest this year. This just comes from increased interest rates on our commodity inventory funding. And as we've previously highlighted, we're able to pass on these additional interest costs from commodity inventory funding into the prevailing commodities that we sell. And so that's an area that we have a good protection against in a rising interest rate environment. I'll now move on to slide 17 and the agribusiness segment. FY23 saw another strong year of crop production across the east coast of Australia. That saw 29.5 million tonnes of winter grain production and a further 2.5 million tonnes of sorghum from the summer crop. The large carrying of 4.9 million tonnes from the prior year, along with that large crop, saw us handle total grain of 37.4 million metric tonnes, so another large volume year. Although we did see a decline in overall supply chain margins from the record highs experienced last year, margins still did remain robust and above historical averages. And that largely comes off the back of that strong surplus of grain across the East Coast. A couple of highlights to point out. It was really pleasing to see the benefits from the investments we've made in capabilities across our network in recent years. And we saw a 7.5% improvement in truck turnaround times. And that's a really important metric for us and our GORA customers at Harvest. We also saw NPS improve to plus 22 in FY23, which is really pleasing. Just one comment on the East Coast Australia results. This result does include the $70 million payout under the crop production contract, and that's in addition to the $6 million annual premium and also a $6 million fair value loss on that contract. So overall, there's a negative impact of $82 million in the overall results from the CPC. And last thing just to touch on for ECA, a really pleasing highlight in the result was the increase in bulk material volumes from 2.5 million tons in the prior year to 3.3 million tons this year. That continues to build on our strategy to improve the utilization of our assets through the cycle. Now moving on to slide 18. Our international business delivered a strong result this year, and that largely was off the back of good margins from WA in delivering that large crop to our customers right across Asia and beyond. We continue to see strong demand for Australian grain, and our international business played a key role in connecting both West Coast and East Coast Australian grain to that global demand. As Robert touched on before, our Grains Connect Canada joint venture did have a challenging year in FY23, with that region still recovering from drought. That saw margins and volumes impacted. We are, however, pleased with the operational performance and capability of that acid base and look forward to seeing improvements in its performance. Now on to our feeds, fats, and oils business and what was our record year in FY23. We saw strong performance across all the parts of that business. Our feeds business benefited from the large herd size and continued strong demand for supplementary feeds. And on the agri-energy side, our fats and oils business also delivered a strong result as demand continues for renewable fuel feedstocks. I'll now move on to slide 19 and our processing segment. As you can see in the graph on the right-hand side of this slide, FY23 has seen a fifth year of consecutive growth in our crush volumes. And that's off the back of us driving those continued operational improvements that Robert touched on earlier. This year we delivered an advanced analytic program across our crush plants and that saw us achieve nearly 500,000 tons of crush volumes this year. We also saw excellent crush margins continue this year. The second half did see those margins moderate from the record highs we saw in the first half. But overall, that supply of canola seed in the east coast of Australia, as well as the increasing demand for vegetable oils, underpins that ongoing positive margin. Turning to our foods business, we saw softening market conditions across that part of the portfolio. And in New Zealand in particular, this saw us take a $19 million non-cash impairment charge in the year. Now turning to slide 20 and the corporate segment. So firstly, total corporate costs increased 10 million year-on-year, and the majority of this increase came from growth and transformation projects as we continue to pursue strategic opportunities across the portfolio. This included costs relating to the crush feasibility work we've been doing and also some early work on looking at systems modernization. On this slide, we've also split out the UMG fair value gain of 46 million, and that sits in the corporate segment in our annual report. Note that this fair value gain is based on the closing share price of 30 September of $4.94, compared to the final sale value of $5. We've received gross proceeds of 127 million this week from the sale of UMG, with net proceeds after tax of 104 million. And one item just to note is the guidance we provided back in May had already assumed a fair value gain of 39 million from that UMG holding, so we've seen an additional 15 million since then in the fair value gain in the year. I'll now move on to slide 22 and talk about the balance sheet. We finished the year in a very strong position with a core cash balance of $349 million. FY23 saw really strong operating cash flows with some of that working capital unwind we've talked about previously, and that's coming off the peak we saw last year. We've also seen a decrease in net debt year-on-year with closing net debt of $373 million. Note that that reported core cash position of $349 million, that doesn't include the cash proceeds received from the UMG sale, as that is only completed this month in FY24. So overall, in summary, our balance sheet is in a very strong position, and that provides us really good flexibility to continue to deliver strong returns and also invest in our strategy. Moving on to slide 23, and capital expenditure. Similar to FY22 and 21, we've seen slightly higher CapEx against our through the cycle range. That's largely been to support additional capability and capacity across the East Coast network in particular to handle the large harvest we've seen in recent years. We're really pleased with the benefits coming through from those investments and the quick paybacks we've been able to see. Investment capital in the year of $26 million includes two main items, $14 million of equity into our Green Connect joint venture as part of a recapitalization of that business, and it also includes $12 million across our portfolio of digital and ag tech investments that Robert covered earlier. I'll now move to slide 24 and touch on dividends and capital management. The board today declared a final dividend of 30 cents per share fully franked. That's made up of a 14 cents per share ordinary dividend and a 16 cents per share special dividend. This brings total dividends for the year to 54 cents per share. And in total, this is dividends of nearly 3 million having been paid and declared since the merger. In addition to those dividends, the board also announced a share buyback of up to $50 million today. Those announcements today demonstrate an ongoing commitment to continuing to deliver strong returns back to shareholders. On that note, I'll now hand back to Robert.