GrainCorp Limited

Thank you for standing by and welcome to the Grain Corps Limited FY24 results conference call. 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.

Good morning, everyone, and welcome to the Grain Corp Annual Results for Financial Year 2024. We're presenting to you today from Sydney, and I want to acknowledge the Gadigal people of the Eora Nation, and we pay our respects to Elders past and present. For those of you following online, I'll call out the page numbers as we go, starting with page four. This morning, I'll share with you the results highlights, some comments on strategy and growth, Ian Morrison, our Chief Financial Officer, will then talk through more detail on the financial performance and cover off details of the strength of our balance sheet and our capital management initiatives. And I'll close with some comments on the outlook and recap and conclusion. Moving to page five, highlights for the year include financial results of an underlying EBITDA of $268 million. Pleasingly, we delivered record oilseed crush volumes of 540,000 tonnes. Earlier in the year, we completed and signed an MOU with Ampol and IFM investors as we continue to progress our ambitions in the agri-energy space. We completed our expansion and acquisition of animal nutrition portfolio company XF Australia. That also allowed us to increase our average through the cycle earnings to $320 million. We finished the year with an incredibly strong balance sheet with $337 million in core cash, and that has allowed us over the course of the year to complete capital management initiatives of over $130 million in terms of returns to shareholders, including our buyback and total dividends of $0.48 per share fully dividend. In summary, for the year, we are responding effectively to the evolving market conditions and the volatility and variability we face, and importantly, we're controlling the things that we can control, and we're doing that well. On page six, the numbers speak for themselves. You can read it more quickly than I can. Underlying EBITDA of $268 million for the year. Underlying net profit after tax of $77 million per year. And a core cash position, as I said earlier, of $337 million. Ian will talk about some of the details, but as we announced at half year, grain handled and volume of production in Australia was significantly down in the year relative to prior years. And although up on average, it was certainly a tale of two halves in terms of geography, with very dry and challenging conditions in the north of Australia, offset by good growing conditions in Victoria for last year's crop. Towards the end of the call, I'll talk about the far more positive conditions we're facing in the current harvest. On page seven, starting with health and safety, at GrainCorp, we always strive for zero harm, and we're pleased to report an improvement in our headline results for safety and our frequency rates, as you can see at the top of page seven. Importantly, we work hard every day to achieve that zero harm ambition, managing areas like critical risk, and as many businesses are doing, focusing not just on physical safety, but psychosocial hazards and management of those in our workplace. We've developed bespoke and tailored learning modules across the business. Our safety approach includes contractors as well as employees. And importantly, we've got an ongoing focus on hazard identification and reporting across our business. You'll see more detail on that in the annual report and also in our sustainability report, which as we say on page 8 of the presentation, we're launching today our 2024 sustainability report. That's an online report and I encourage all of you to read it and recommend the content both in terms of our commitments and the progress we're making. To call out some of the highlights through the year, we've seen a 5% reduction in emissions per tonne across our processing sites. We've developed SBTI, or science-based target initiatives, targets, and we'll be updating the market on the progress of that throughout the year ahead. Excitingly, we've launched GrainCorp Next. That's an initiative to demonstrate a low-carbon canola value chain that links growers and customers and ultimately consumers demonstrating what's possible and delivering value for the future. This year, GrainCorp was invited by the federal government to join the Jet Zero Council. It's an important part of the work that we're doing in our agri-energy ambitions, and we're delighted to be representing the feedstock sector on the Jet Zero Council. Earlier in the year, we also announced our gender pay gap through the WGEA reporting, and we were delighted to see that GrainCorp came out with the lowest gap in gender pay of any ASX 200 business. As I said, a number of highlights and many more to read about in our annual sustainability report. If we move through to page 10 now in Grain Corps' vision and strategy, for those that follow us, you'll see that this is a refreshed strategy linked very closely to what we've been working on over the last four or five years, but improving the clarity both of what we're doing, what we're delivering, and what we're focusing on for the future. You'll recall that previously our strategy was in two very deliberate and clear parts. The first part around leveraging capabilities and delivering on the value of our strategic assets. We also called out previously the targeted growth areas we'd be working on. In this refresh strategy, those largely remain the same, but we're being very clear about food, feed and agri-energy as areas for growth and calling out the tools and enablers that help us get there in growth, but also deliver that commitment on our existing assets and capabilities, areas such as technology, digital and future capabilities. Our strategy is, of course, underpinned every day by our values. We stay safe, we do what's right, we care, and we deliver. On page 11, our strategy in action is an example of GrainCorp doing what we said we would do. Across our pillars in the strategy of enhance, expand, and evolve, over the next few slides, I'll pull out some examples of that and the progress we're making. But just in brief, As I said earlier, we've delivered record oilseed crush volumes across our crush facilities around Australia. We've progressed our port strategy and continue to improve the utilisation, diversification and importantly margin that the bulk materials and non-grain products provide through those strategic assets. Last year, we talked about the underperforming New Zealand foods business. Following a completion of that review, we've commenced closure of the underperforming asset at East Tamaki. Ian Morrison will talk in more detail about that in the financial section of this presentation. We completed the acquisition of XF Australia. We've signed an MOU with IFM Investors and Ampol in the agri-energy space. And we're investing in people and systems to improve the efficiency of our business and reduce complexity and make ourselves future fit. Just expanding on that and moving to page 12, I touched on the diversification of earnings through our port assets. It's an initiative we've been talking about now for the last four or five years, and we've shared some of the headlines of that. And today, we wanted to share a little more detail around the numbers and the progress that we're making and the achievements that are apparent. If you look to the right-hand side of the page, you can see that over the last four years, contribution margin has grown from $26 million to $36 million. This is when we're using the latent capacity in our ports, diversifying by handling products like wood chips, fertiliser, cement, sand and meal. It's not just about growing the volume, but it's also about renegotiating the contracts to leverage the value of those assets and grow margin at the same time. Our priorities in 2025 will see us continue to expand and importantly improve the margins across that portfolio of products. On animal nutrition, on page 13 in the deck, we've talked about the completion of the acquisition of XF Australia back in April of this year. At the time, we spoke about that business contributing roughly $10 million annually. I'm pleased to report in the six months through acquisition, it achieved $6.5 million, and so is very much on track with the guidance we gave and the increase in our through-the-cycle earnings to $320 million. On the right-hand side of the page, I want to just stress the reason that we're focused on animal nutrition in our portfolio. You can see 3% growth, very healthy over a more than 20-year period. But importantly, in the last 10 years, that's accelerated and growth in terms of cattle on feedlot in Australia has of 4.3% per annum. It's an exciting space to be in, and the technological capability that GrainCorp's existing and new businesses have in that space set us up well for future growth. In terms of our progress on the oilseed crush expansion on page 14, the top of the page there we talk about the progress we've made through financial year 2024. The first few points on the page we've covered through announcements earlier in the year, and we're pleased to have the MOU with Ampol and IFM investors as we partner to bring across and bring together a complex value chain that has some very compelling fundamentals into the future. Pleasingly, as I touched on earlier, we were invited to join the Jet Zero Council and through H2 we've attended that forum and we're representing the feedstock sector more generally. It's an important part of our priorities in financial year 2025, not just to develop the investment and business case alongside our partners, but also to drive and influence government strategy to create certainty in the future for for investment, not just for Grain Corp and the ag sector, but for the whole of the value chain and the important opportunity for Australia, particularly in sustainable aviation fuel. Project timing is something we regularly get asked about. We would expect to target a feed phase in 2026. I would say that we're moving as fast as industry will allow. It's important that we develop the demand signal across the sector so that we're building a business case and ultimately investing at the same time that demand from refiners and fuel processes is coming online in Australia. Supporting government policy to develop opportunities for mandates in an appropriate environment will certainly help accelerate those timelines. and provide certainty for investment into the future. On page 15, we spoke at the half year at a high level about our business transformation program. It's a program to unlock efficiencies and drive returns across our very valuable integrated value chain. It's also an opportunity to address an end of life version of SAP, which modernizes our systems for the future. We're pleased to call out today the financial benefits we expect from that program of 20 to 30 million, which will ultimately roll into our through the cycle average earnings forecast. The reasons for the savings or the value behind the savings sits in reduced costs, areas like procurement and simplification across the business. Over on page 16, we talk about the phasing of the program and the phased approach we're taking to target completion by financial year 26. In the year just gone, we invested about $25 million in the program. We completed the planning and design phase, and we're now into the release one version of the program through nutrition and energy. And we would expect to start later this year, release two across our agribusiness and corporate areas. The reason we're phasing the program is to maximize the benefits we can achieve, but also manage the risk across our business. As I said, we expect to deliver in in earnings of $20 to $30 million as a result of this program as it completes. I'm now going to hand across to Chief Financial Officer Ian Morrison to talk through the financial performance and segment reporting. Thanks, Ian.

Thanks, Robert. I'll now move on to slide 18 and summarize financial performance for FY24. Overall, we've delivered underlying EBITDA of $268 million, and this slide shows the segment breakdown of the full year results. I'll just start briefly by noting the change in segments that we covered off at the half year, and that was our previous processing segment being renamed Nutrition and Energy. Nutrition and Energy now includes what we previously referred to as Feeds, Fats, and Oils. We've included further detail in the appendices on this restatement of segments. Also, just to touch on this slide, for the corporate segment, we've broken out the gain following the liquidation of our UMG holding, and we've also separated out the business transformation costs that Robert just touched on. I'll now move on to slide 19 and provide further detail on the agribusiness segment, starting off with our East Coast Australia business. Winter grain production in FY24 was 23.5 million tonnes, and that's compared to 29.9 million tonnes in FY23. Overall, we saw lower production and grain handle volumes relative to recent record crops across the East Coast. A key feature of the FY24 year crop was that north-south split, with drier conditions across Queensland and northern New South Wales, offset by above average conditions in southern New South Wales and Victoria. The lower production volumes across the East Coast as well as global factors contributed to a softening of margins from recent years. On the grower side, selling pace was slower this year. And then on the demand side, we have seen customers less concerned about supply and disruptions in supply chains. And that's partly off the back of improved global production conditions. And despite these impacts, we've continued to manage the factors in our control with a strong focus on cost management. It's also pleasing to see a 2% increase in site satisfaction scores compared to the prior year's harvest. Another couple of notes to just touch on. The results in agribusiness includes the impact of the crop production contract with a 59.7 million payment from the FY24 year. This brings net cumulative payments over the five years of the crop production contract to 212 million against a cumulative cap of 270 million. Based on the ABARES forecast for the FY25 crop, we're expecting to reach that cap in the year ahead. Finally, as Robert touched on earlier, bulk materials handling through our ports made a strong contribution to the ECA result this year, and we're pleased with how that strategy is progressing. Now turning to slide 20 and our international business. Similar to ECA, our international business saw lower volumes and margins with the Western Australian crop in particular, well below average in FY24. Also, those improved production conditions in key international growing regions had an impact on margins. We did, however, continue to diversify and build on relationships with key international customers And that's a key driver of long-term value from our multi-origination strategy. Just turning to Canada, we've seen some improvement in earnings from our Grains Connect joint venture, and it continues to perform well operationally. However, the environment does remain challenging, and we continue to be focused on the performance of that business. I'll now just move to cover off our nutrition and energy segments on slide 21. It's pleasing to report that strong improvement in crush volumes that Robert covered earlier, with 540,000 tons of crush being a 9% increase on the prior year. This is another example of the ongoing focus we have on delivering operational efficiencies across that assets. As expected and in line with global conditions, we have seen crush margins reduce in the second half of FY24. The lower supply of canola seeds in the east coast of Australia relative to recent years, as well as lower global vegetable oil values off the back of improved global supply, have been the key drivers in that moderation of margins. Now, just to provide a couple of updates on items we touched on at our half-year results. We ended up recording a small impact to earnings from unplanned maintenance at our West Footscray site, with minimal disruption overall to our customers. As Robert touched on, we've also completed the strategic review of our foods processing plant at East Tamaki, New Zealand, where we took the decision to cease manufacturing. Overall, this had an impact of approximately $10 million on this year's nutrition and energy earnings from a combination of operating losses and one-off costs. Now moving to slide 22, our animal nutrition volumes benefited from the acquisition of XFA in the second half. and pleasing to see the integration of that business progressing well, and also the second half contribution of 6.5 million contributing well to the overall earnings in that business. Also on agri-energy, we reported a good increase in sales volumes, mainly driven by increased tallow due to high slaughter rates in the domestic cattle industry. I'll now move to the corporate segment on slide 23. Overall, corporate costs were down compared to FY23, and that's mainly driven by lower spend on growth projects. Underlying corporate costs are largely in line with FY23. And just one item to touch on here, an effective tax rate this year of 21% is lower than what we typically expect. And that's primarily off the back of recognition of tax losses crystallized following the strategic review of our facility at East Tamaki. I'll now move on to balance sheet and capital management. On slide 25, you can see our balance sheet remains in a really strong position with a core cash balance of $337 million. A couple of items to note in the year. We received gross proceeds of $127 million from the sale of the UMG stake, and that's translated to just over $100 million net after-tax. Also to note in the second half, we had the payment for the acquisition of XF Australia of approximately $39 million. We've included more detail on cash flow movements in the year in the appendices. Also to note on the table on the right-hand side of this slide, we've seen net debt reduce relative to prior year with a low closing net debt balance of $99 million, and that's largely as a result of lower commodity inventory at balance date. Overall, our balance sheet is in a very strong position, and that provides us strong flexibility to pursue growth opportunities across our strategy into the future, whilst also continuing that trend of strong returns back to shareholders. I'll now move on to CapEx on slide 26. Following a period of higher investment in sustaining capital across the business to capitalise on those large harvests on the east coast of Australia, we've seen a moderation in sustaining capital spend in the year to within our target range. The increased spend you see here on growth and investments is largely off the back of that acquisition of XFA that we just covered. I'll now move on to slide 27 and capital management. The continued strength of our balance sheet, as well as confidence in the future, enabled the board today to declare a final dividend of 24 cents per share, and that's fully franked. And that's made up of a 14 cents ordinary dividend and a 10 cents special dividend. And that brings our dividends for FY24 overall to 48 cents per share, fully franked. The dividends declared today are in addition to the 27 million we've returned through the share buyback we completed this year. We are pleased to continue that trend of strong returns to shareholders, and we've overall delivered 465 million back to shareholders across a combination of dividends and share buybacks over the last four years. So on that note, I'll now hand back to Robert.