GrainCorp Limited (GNC) Earnings Call Transcript & Summary

Well good morning, ladies and gentlemen. It's now 10:00 a.m., and it's time to commence our meeting. I'm Graham Bradley, and as Chair of GrainCorp, I want to welcome you to our 2020 Annual General Meeting. It's our 21st AGM since the company was listed on the ASX. Thank you all for attending today. And our AGM today is being webcast, and I welcome those who are listening online. We have a quorum of shareholders present, so I formally open GrainCorp's AGM for the financial year ending 30th of September 2019. In accordance with our usual practice, cameras and recording devices are not to be used during the meeting. So I'd ask any photographers who have yet to take their photographs to please complete that and let the meeting proceed. Media representatives are here and are welcome to remain in attendance, but as this is a shareholders' meeting, questions during the meeting will only be taken from registered shareholders or proxy holders. There will be an opportunity for the media to ask questions at the conclusion of the meeting. Before we commence the official business of the meeting, I would like to point out the fire exits. In the event of an emergency evacuation, exit signs, these are at the front of the room and here as well and through the main doors where you entered. So please follow any instructions from the hotel staff should we need to evacuate. This morning, I'd like also to respectfully acknowledge the traditional custodians of the land on which we meet, the Gadigal people of the Eora nation, and their elders, past and present. I would now like to introduce my colleagues on the Board who are here present. We're a little slightly longer group than previous years. On my immediate right is, of course, our Chief Executive, Mark Palmquist. And then amongst our nonexecutive directors, first is Peter Richards, who is our Deputy Chair. Then we have Rebecca Dee-Bradbury, Barbara -- no, no, it's Simon Tregoning. I think the order's a bit different from my script. Sorry about that, Simon. And next to Simon is Jane McAloon, who is -- recently joined the Board late last year and attending her first meeting and presenting herself for election at this meeting. Next to her is Dan Mangelsdorf and then followed by Kathy Grigg, who is also a new director and will again be subject of a resolution to elect her later in the meeting. I'm now looking at Peter Housden, a long-standing director of the company who will be familiar with those of you who have been attending these meetings, followed by Barbara Gibson and, last but not least, Donald McGauchie. Good morning, everyone. So our General Counsel and Company Secretary, Stephanie Belton, is here in the -- seated in the front row; along with Alistair Bell, our Chief Financial Officer. And also present from PricewaterhouseCoopers, our external auditors, Ms. Kristin Stubbins and David Ronald over here. Welcome also to the members of our executive team, and there are quite a few present this morning. Also in attendance, representatives of Gilbert + Tobin, our external legal advice; KPMG, our internal audit provider; and Link Market Services, who assisted you on the way into the meeting, our share registry. Turning to the agenda of the meeting, I will deliver my chairman's report, and then CEO Mark Palmquist will present his report on the financial year, an update on our strategic priorities and initiatives and the outlook for the current year. We'll then proceed to consider the resolutions that were set out in the Notice of Meeting, which you've all received. I'll outline the voting arrangements ahead of that section of the meeting. And there will be an opportunity for shareholders to ask questions during all this formal business in relation to the resolutions being considered. And following my report, we will invite -- and Mark's, we will then invite questions on our reports. So I'll now proceed to present my report on the year to 30th of September 2019. Ladies and gentlemen, I think we all appreciate this is an exceptional AGM as it will be the last meeting of shareholders before we seek shareholder approval to demerge our Malt business to create a new listed company, which we have named United Malt Group. The demerger proposal will be put before shareholders for their consideration at an extraordinary general meeting to be held at 10:00 on Monday, the 16th of March, in this very same venue. The details of the proposed scheme of arrangement to demerge the Malt business are set out in a Scheme Booklet, which I assume all shareholders will have either received in this rather weighty hard copy form or electronically, which will be a little bit easier to manage. And it's been distributed last week to shareholders. So this meeting today does not consider the issues related to the demerger. But several of the resolutions before this meeting need to be understood in the context of that proposed demerger. Most shareholders, I think, will be familiar with the events of the past 12 months at GrainCorp, which have involved a comprehensive review of our portfolio of businesses in order to assess a range of strategic options designed to create value for shareholders. This has culminated in the Board's decision that it is in the best interest of shareholders to demerge the Malt business, thereby creating 2 high-quality ASX-listed agribusiness companies. We believe that the demerger has the potential to deliver greater value to GrainCorp shareholders over time than all the alternatives we considered. I invite and encourage shareholders to read the Scheme Booklet and to attend the scheme meeting on 16th of March. If the scheme is approved by shareholders, it will proceed to a second court hearing, which is what happens with a scheme of arrangement, on the 20th of March and will become effective on the 23rd of March. Upon the demerger, eligible shareholders, that is, all GrainCorp shareholders at that date, will receive 1 share of United Malt for each share they hold in GrainCorp while retaining their share in GrainCorp. GrainCorp will also retain a minority 10% stake in the United Malt company, which will provide the company GrainCorp with additional balance sheet resources and financial flexibility for the future. Following the demerger, shareholders will be in a position to decide whether they hold or sell their shares, depending on their interest in continuing as investors in either or both of the 2 companies. The main business of this meeting is to report, however, on the results of the company for the financial year to 30th of September 2019. Mark will elaborate in his remarks on how we have responded to what has been a very difficult year for this company and during which much of the grain-growing regions of New South Wales and Queensland have been subject to another year of horrific drought conditions. The past year was an extremely challenging one for GrainCorp and our people and our customers, resulting in a very disappointing financial result for the company, for our people and, of course, for you as our shareholders. Our results were seriously adversely affected by what has been one of the worst drought periods on record in substantial parts of the Eastern Australian grain-growing areas compounded by significant disruptions in the global grain markets. The impact of 2 successive years of drought was severe, and it's starkly illustrated by contrasting the crops and our performance in FY '17, just 2 years ago, compared to FY '19. The East Coast Australia crop in FY '19 came in at 7.7 million tonnes. That compares to 28.2 million tonnes in 2017. The receivables into our supply chain last year were 3.1 million tonnes, which is down from 15 million tonnes just 2 years ago. Our export tonnes last year were a mere 300,000 tonnes, well down, only a 20th, in fact, of the 7.2 million tonnes that we exported in 2017. We did, however, earn some revenue from importing grain into Eastern Australia from Western Australia and South Australia. The disruption in trade flows led to a material decline in commodity values which negatively impacted our grain positions. By contrast, I'm pleased to say our Malt business was relatively unaffected by these factors and continued to perform well with solid demand from our global customer base. As a result of these adverse factors, for the year to 30th of September, GrainCorp reported an underlying earnings before interest, tax and depreciation and amortization, that's our EBITDA, of $69 million, which was down from $269 million the previous year. And we reported an underlying net loss after tax of $82 million. On a statutory basis, GrainCorp reported a net loss after tax of $113 million. Our results were also adversely affected by the costs incurred as a direct result of the proposal we received from Long-Term Asset Partners Pty Limited, which I'll speak of more in a moment, by the restructuring costs arising from our operational streamlining initiatives and by other transaction costs arising from our sale of the Bulk Liquid Terminals and other matters. As a result of the financial performance of the company over the year, the Board determined with great regret that GrainCorp could not pay a dividend for this period. This was a disappointing but necessary outcome given our operating losses. One positive note, during the year, however, was the considerable improvement we -- our management achieved in our safety performance. And I would like to compliment management on these improvements, which were made in our safety systems and processes during the year, which culminated in a record-low recordable injury frequency rate for the year to 30 September. Ladies and gentlemen, a key objective of the company and the Board in recent years has been to improve our ability to manage the year-by-year grain production volatility that we've experienced. Extreme variability in seasonal conditions requires us to continually adapt our operations in order to serve our grower customers well but also profitably. We have done this by streamlining our country receivable and storage network, by investing to improve our efficiency at key sites, reducing our fixed costs and negotiating more flexible rail transport contracts and arrangements. In June, last year, we announced an important development that will help smooth cash flows through the volatility of the grain cycle. Our crop production contract with White Rock Insurance, which is a subsidiary of the Aon group, a large international insurance group, is a significant innovation and will strengthen the long-term sustainability of the company. As announced yesterday, based on the crop production estimates of the Australian Bureau of Agricultural Resource Economics (sic) [Australian Bureau of Agricultural and Resource Economics], the government agency, the winter crop production estimate for Eastern Australia is EUR 11.44 million metric tons, and that was announced yesterday. And as a result, GrainCorp expects to receive under the crop production contract a gross payment of $57.9 million for -- here in this 2020 financial year. Another key priority in recent years has been to improve the return on our capital employed in the business by strengthening our core business and maintaining a disciplined approach to capital management. During 2019, we continued to improve the efficiency of our network of storage sites across Australia across the Eastern grain belt through targeted investments and improved supply chain processes. Internationally, we expanded our trading network by opening a small trading office in India to manage the importation of Australian pulses into that large market. We also progressed our supply chain infrastructure in Western Canada by starting construction on a new port facility in Vancouver, British Columbia, with our -- through our 50-50 joint venture GrainsConnect Canada. GrainCorp Malt continued to focus on high-value growth markets driven by demand for premium beer, craft beer and also scotch whiskey. The planned expansion of our malting capacity in Scotland to serve the growing distilling industry there is targeted to -- for completion in calendar 2021. I'll now briefly mention the LTAP proposal. As I believe all investors will know, in early December of 2018, we received a nonbinding indicative and incomplete proposal from a recently formed company called Long-Term Asset Partners Pty Limited to acquire 100% of the shares of GrainCorp. The proposal was unusual in that the company was highly geared and involved a complex capital structure. The company engaged extensively with LTAP over the following 5 months at not inconsiderable costs and absorption of management time to assist LTAP to undertake the due diligence they needed to see whether they could develop a binding offer capable of consideration by your Board and a recommendation to shareholders. Given the unusual nature of the proposal, however, LTAP was, after 5 months, unable to come forward with a formal offer and withdrew its proposal in May of 2019. While engaging with LTAP, the Board and management continued our work, which had begun in early 2018, to undertake a comprehensive review of the company's portfolio of assets to assess a range of strategies to create improved value for shareholders. As one outcome of this review, in March last year, we announced the sale of our Australian Bulk Liquid Terminal assets. And following the ACCC's approval last October, it took almost 6 months for them to approve this transaction, all of our terminals except Port Kembla were sold for an enterprise value in total of $333 million, a price we considered to be highly satisfactory. And this transaction was completed on the 31st of December 2019, unlocking significant value for shareholders and releasing capital to strengthen our balance sheet and enable us, among other things, to reduce debt. In April, last year, we announced that as a further outcome of the portfolio review, we would integrate our Grains and Oils businesses into a single business unit. And of course, we announced that subject to shareholder and other approvals, we would demerge the Malt business. I confirm that the Grains and Oils integration is now substantially complete. And of course, the demerger process is now well advanced. Turning now to Board and management matters. During the year, we announced several Board and management changes, some that will take effect subject to the approval of the proposed demerger next month. I'd like to outline those changes and the implications of the potential demerger because they provide an important context to the resolutions that we'll be considering shortly in our meeting. Two new directors were appointed to the GrainCorp Board in the closing months of 2019, Jane McAloon and Kathy Grigg. I'm really delighted that both talented individuals have agreed to join us as directors. If successfully elected at this meeting, it's proposed that Ms. McAloon will transition to the United Malt Board post demerger and will not continue as a Director of GrainCorp. However, Ms. Grigg will continue as a GrainCorp Director after the demerger. And it's proposed that following this AGM, she will assume the Chair of the company's Audit and Risk Committee, following, of course, the retirement of Peter Housden, who retires at this meeting and has served the Board with dedication over the past 11 years and, throughout that time, has been chair of the company's Audit Committee. Post demerger, GrainCorp proposes to amalgamate the roles of its current Audit Committee and Business Risk Committees into a single Audit and Risk Committee as one of our streamlining initiatives. Each of our new directors will introduce themselves later in the meeting. Following the demerger, I will step down as Chairman of GrainCorp, and I will assume the role of Chairman of United Malt. I'll be joined on the Board of United Malt by Barbara Gibson and Simon Tregoning, who offers himself for reelection at this AGM. We'll also be joined by a new director following the demerger, Mr. Terry Williamson, who's here today. And Terry is not currently a director of GrainCorp and is not proposed for election at this meeting, but he will be the future chair of the Audit and Risk Committee after the demerger. Our CEO, Mark Palmquist, stepped down as a Director of GrainCorp in April of last year. He did that to ensure appropriate probity and to avoid any potential conflict of interest during the period leading up to the demerger while he continued, of course, to lead the company as our Chief Executive Officer. He will assume the CEO role at United Malt following the demerger. Mr. Palmquist has done a fine job as our CEO over the past 5-some years, and on behalf of all shareholders, I want to thank him for his commitment and dedication through this period. He's a U.S. citizen and has significant experience in the malt industry, not only during his time as CEO of GrainCorp but previously as a director of Rahr Malting, a leading U.S.-based maltster. And of course, he has an extensive experience in the grains and agricultural business in the United States. And the Board is delighted that Mr. Palmquist will assume the new role. He will be relocating to Vancouver, Washington state on the West Coast of the United States, which will be the operational headquarters of United Malt, although the company will remain an ASX-listed public company. For my part and following consultation with my Board colleagues, I believe that I can best make -- make my best contribution to the future success of our demerged companies by chairing the United Malt Group. I have significant international experience, having chaired ASX-listed companies with international-based operations over the past decade or so, and I believe that I can bring that experience to United Malt to assist it in establishing itself as an independent and successful listed Australian company. Following the demerger, Peter Richards, who is our Deputy Chairman and a 5 or 6-year veteran on the Board, will take on the role as Chair of GrainCorp. As shareholders will know, Peter is an experienced public company director. He's chaired numerous ASX-listed companies and also led major companies in executive leadership roles in recent years. He will be joined on the future GrainCorp Board by Dan Mangelsdorf, by Donald McGauchie and, subject to her election today, by Kathy Grigg. As shareholders will be aware, following an extensive local and international search, we recently announced the appointment of Robert Spurway as the post-demerger Managing Director and CEO of GrainCorp. The Board is delighted to have secured Robert for this position. He has more than 25 years' experience in the food and food processing industries, including a long period as Chief Operating Officer of Global Operations for Fonterra Co-operative Group, which is Australia -- New Zealand's largest company, certainly one of the largest dairy companies in the world. He has a deep understanding of both the Australian and New Zealand agricultural industries, which will serve GrainCorp well as the business continues to evolve its strategy and deliver services to its customers. It's proposed that the Boards of the 2 demerged companies will be smaller in terms of number of directors than the current GrainCorp Board, which will reflect the smaller market capitalization of each company. However, each Board will continue to manage its membership and monitor and develop the range of expertise and skills available on its Board to facilitate both an orderly succession on those Boards but also to ensure they have the skills necessary to meet the challenges of each company. At this point, I'd like to pay special tribute to our 2 directors who are retiring at this AGM today: Rebecca Dee-Bradbury and Peter Housden. First, Rebecca. Rebecca has served on the Board for the past 6 years and has done an outstanding job both as a director of the company and Chair of our People, Remunerations and Nominations Committee. This has been a particularly challenging task in the preparation of the demerger scheme of arrangement. And I want to thank her on all of our behalves for her contribution. Peter also deserves our thanks and appreciation, of all shareholders. He's done a truly outstanding job during the past 11 years, including assisting the company by chairing the Audit Committee with great effectiveness and ensuring that our internal controls, our finance and accounting policies were best practice. In conclusion, I'd like to most sincerely thank all of our people. Our executives and all of the team at GrainCorp for the enormous commitment they made during this very challenging period for the company. I wish to thank also our customers and our shareholders for their continued support. I'd like to conclude with a special word of thanks to my Board colleagues. The Board met formally and informally more than 30 times during the past 12 months, often with meetings called on very short notice to consider the multiplicity of issues that arose during the portfolio review and in the lead-up to both the bulk terminal sale and also the demerger proposal, not to mention the LTAP proposal. Directors have also been heavily involved in the due diligence process and in the preparation of this not insubstantial Scheme Booklet of 385 or 386 pages, which I'm sure you will find very interesting. But I can assure you, it's been very, very carefully prepared and vetted. Our directors made an extraordinary contribution through all of these matters over the past year, and I sincerely thank each and every one of them on behalf of the shareholders. Ladies and gentlemen, that concludes my report. Thank you. I will now ask Mark Palmquist to present his report.

Thanks, Graham. Morning, everyone. I'd like to start off with one of the highest priorities within our organization, and that's the health and safety of our people, what we can do to keep our employees safe, our contractors safe and our customers safe. Our key safety metrics, which Graham had alluded to, improved considerably in fiscal year 2019. Our recordable injury frequency rate dropped down to 7.7, and our lost time injury frequency rate dropped to 2.2. This is a great outcome for our teams and the result of intense focus on critical risk management, injury reduction and process safety management. We're really proud of what our employees have accomplished. On the environmental side, we continue to manage our energy and water usage while also exploring options to reduce our carbon intensity. More information is on our environmental and safety performance, which can be found on the 2019 Sustainability Report, which is available on our website. I will now talk about our financial results for fiscal year 2019. The headline numbers we reported are on the table. There was clearly a significant decline year-on-year with underlying EBITDA of $69 million and an underlying net loss after tax of $82 million. On a statutory base, we reported a net loss after tax of $113 million. Our Grains business saw a substantial decline in earnings, primarily reflecting the draught in Eastern Australia and its impact on grain production. This led to low grain receivables, weaker utilization of our rail contracts and lower export volumes. We also experienced an unexpected disruption to our international grain trade flows, which caused a rapid and large decline in Western Australia feed grain values. This led to a significant adverse impact on our commodity positions. The severity of the drought led to grain deficits across much of Queensland and New South Wales. And in response to this lack of supply, we reversed our port supply chains and transshipped over 2 million tonnes of grain from other states to satisfy Eastern Australian demand. Improving the utilization of our ports, whether it's through importation of commodities or the export of nongrain products, like wood chips, is important to our business. It's also worth pointing out that our existing rail contracts expired at the end of FY 2019, and we now have new rail contracts in place for fiscal year '20. Contracts are structured to provide much greater flexibility to manage transportation costs through the crop cycle. And this is important, particularly in light of increased transship requirements and the ongoing drought. Our Oils business had a mixed year, with oilseed crush margins down due to low Australian canola supply caused by the drought. This, in turn, elevated the underlying price of canola and meant we incurred additional freight cost to transport canola seed longer distances to our crush plants. Malt delivered another good result, which was a result of the strong customer demand, high capacity utilization and operational efficiencies. Similar to last year, there was a strong SKU in Malt earnings to the second half, reflecting increased beer consumption in the Northern Hemisphere in the summer months. The first half was adversely impacted by increased barley freight costs in Eastern Australia arising from the drought and weather issues in Alberta, Canada, which temporarily restricted some of our malt deliveries. As Graham has discussed earlier, the Board undertook a portfolio review during the year, and there were 3 major outcomes from the review, including the proposed demerger, which I will discuss a little bit later. Turning now to the outlook for each of our businesses. I will start with Grains and Oils, or the combined New GrainCorp, as we sometimes refer to it. We have experienced another below-average winter crop in 2019, 2020, with the latest ABARES production estimate showing a total Eastern Australian winter crop of 11.4 million tonnes. Grain production was again heavily weighted to Victoria, which had a much stronger volume than New South Wales and Queensland. However, the summer crop was down considerably on last year. For the second year running, there was minimal exportable surplus in Eastern Australia as the domestic market secured most of the supply. We're continuing to see grains transshipped from other states to Eastern Australia in order to satisfy that domestic demand. On the canola side, we have seen slightly stronger national production this year compared to last year, which has been beneficial to oilseed crushers and refiners. The grain industry and the farming sector, more broadly, received a very welcome boost during the past week with some meaningful rain across much of the Eastern seaboard. While it is too early to call a break in the drought, it is an encouraging sign after the prolonged dry spell that we have just experienced. For the FY '20 outlook for GrainCorp, year-to-date, we've received about 3.7 million tonnes into our network. This is primarily coming out of Victoria and Southern New South Wales. As I mentioned earlier, we expect minimal grain exports again this year. However, we will see further importation of grains coming from Western Australia and Victoria as well as a flow of grain south to north on the Eastern seaboard. Our new rail contracts have started this year, and this will provide GrainCorp with much greater flexibility to align volumes to rail usage. Importantly, the contracts comprise a substantial reduction in fixed costs. We are continuing to diversify our origination from Canada and Ukraine, which has been a benefit for our international customers while also allowing us to strengthen our relationships with them. We've seen good improvement in crush margins compared to last year and expect this to continue through FY '20. Having a bigger canola supply obviously helps. But we've also seen an improvement in oil and meal values, which has been both beneficial. As Graham mentioned earlier, based on the ABARES 2019, '20 total winter crop production estimate of 11.44 million tonnes and subject to the completion of our submission to White Rock Insurance, a subsidiary of Aon, we expect to receive a total gross payment of approximately $57.9 million for FY '20. The value of the crop production contract is evident in a year like this, and it will be important over the longer-term in helping to smooth the GrainCorp's cash flows through the cycle. Turning to the outlook for Malt. The U.S. craft beer market continued to grow in 2018 at about 4%, which is a lower rate compared to the previous years, however, still represents good growth and on a much bigger base than where we were 5 years ago. We have also pointed out that some U.S. states are underpenetrated with respect to craft beer production, and this offers good growth and opportunities for our Malt business. Craft beer is also starting to grow strongly in emerging markets like Latin America and Asia, representing further opportunity for our Malt business in different geographies. The scotch whiskey industry is experiencing continued good consumer demand and is high value. Single malt whiskeys, in particular, a product category that we concentrate on, is showing the majority of growth in this area. When we look ahead at the remainder of FY '20, we're very confident of continued high-capacity utilization of our Malt plants. A good portion of our production sits under long-term agreements, and we continue to see good, solid demand from our larger customers. The specialty Malt area also continues to grow with product customization and innovation supporting this demand. A key focus for Malt business in FY '20 is optimization of our warehouse and distribution network. After having grown the network considerably in recent years, we're now in a position to optimize our inventory management and all of our systems and processes, our logistics and our customer service. We also continue to explore opportunities to expand the warehouse and distribution network geographically. Turning to the portfolio review, as Graham has discussed early, the Board undertook a portfolio review during the year, and there were 3 major outcomes from that review: First, we sold our Australian Bulk Liquid Terminals business to ANZ Terminals for $333 million, which includes a deferred component of $19 million. The transaction was completed on 31 December and was important in strengthening the company's balance sheet in preparation for the proposed demerger. Second, we combined our Grains and Oils businesses to create one integrated domestic and international grain handling, storage and trading and processing business. And third, we announced the proposed demerger of our international Malting business, United Malt. I want to take this opportunity to emphasize one key aspect of the demerger, and that is the capital structures of the 2 companies and getting them prepared for separation. From the outset of this process, the Board has been intently focused on ensuring both companies are set up with the right capital structure and that both companies have the financial strength to handle variability that is inherent in our industries. This was particularly important for GrainCorp, considering the large fluctuations that we see in grain production year-to-year and the impact this has on GrainCorp's cash flows. The Board has taken 3 significant steps to support this objective: The first was ensuring GrainCorp starts operating as an independent company with minimal core debt. The second was putting in place the crop production contract, which protects cash flows in poor production years. And the third was retaining a 10% minority interest in United Malt post demerger. This holding is purely to provide additional balance sheet resources and financial flexibility. On the Malt side, United Malt has been set up with a target gearing range of 2 to 2.5x EBITDA, which we believe is appropriate when we consider the strength of its cash flow generation and its financial profile. Lastly, I'd like to acknowledge the collective efforts and contribution of the many GrainCorp employees who have worked tirelessly over the past 2 years in one of the worst droughts on record and during extreme weather events. Our people are very connected to their local communities, and they go above and beyond to support their neighbors when in need. As you saw during the recent bushfires, many of our people took time off to fight the fires and protect their neighbors and their own properties. It's been a big year for everyone at GrainCorp as we prepared the group for the demerger of United Malt, and I'd like to thank each and every one for their hard work and the effort that they put in this past year. With that, I'd like to thank all of you for being here today and look forward to seeing you again on the 16th of March. Thank you.

Thank you very much. Thank you very much, Mark. And look, we'll now welcome questions or comments from shareholders in relation to our addresses. For shareholders holding a yellow or blue card, there are roaming microphones at the back of the room. So please indicate, put your hand up if you would like to comment or ask a question, and a member of staff will bring you a microphone. Before asking a question, please state your name and whether or not you're a shareholder or whether you're attending as a proxy or attorney for another shareholder. So with that invitation, are there any questions or comments please? Gentleman over here?

[ Peter Breton ], shareholder. Why is the company retaining 10% and not, say, 15%? What was the rationale for 10%?

Yes, thank you for that question. I mean, ideally, we would not have had any retention. If we felt we could get the balance sheet of the emerging grain company to be where we wanted it to be with virtually no core debt, we might not have had to have any retained stake. So the purpose of the retained stake was to give the grain company the flexibility to ensure that it was not going to be adversely impacted by carrying over debt after the demerger. Of course, it's got the crop protection contracts now to assist it in the case of a bad year. But nevertheless, it made sense for it to have an additional strength in its balance sheet. Our aim is to make it as small as possible. And that was the right balance, we felt. It's a noncore asset for the grain company. It's something that they can realize as a market value. There's already a market for it, we believe, when and if they need to realize and monetize that stake. To make it any more than 10% might have caused some concern that it was somehow -- might have a chilling effect as a larger blocking stake if there -- in the event that there might be an offer -- takeover offer for the Malt company. Were there to be such an offer and were it to be recommended to shareholders by the Board, we didn't want to create the situation where there was too large a stake out there. Similarly, when and if the grain company wishes to sell that stake, they may do so. If they have some other growth opportunity or some acquisition opportunity or some other need, then it's a small enough parcel to be readily placed in the marketplace without disrupting the share price. So that was the rationale. Thank you. Other questions? Sorry, the gentleman over here? Thank you.

Chairman, I don't get the annual report. I don't know exactly why. But I'm wondering what the cost of the crop protection is.

Yes. We were very -- this is a unique arrangement. There isn't anything quite like it in the insurance world. So it was actually evolved when we went looking for a way to underpin the balance sheet of Grain company, GrainCorp, in the event of a recurrence of drought years or difficult years. And in the -- I believe we've announced or we've disclosed the premium in the Scheme Booklet, and it's approximately $6 million a year. So for a relatively modest premium, we have the protection of a contract that can pay us in a very bad year up to $80 million. And in a good year, we will, of course, make a payment to the insurer, up to a total of $70 million. And there are some conditions around that. But from our point of view, that seemed a very affordable and modest premium to provide us with that better security against poor years. Thank you for the question. Other questions, please? No? Okay. Well, thank you. If there are no further questions, we'll proceed to the formal items of business, and there will be an opportunity to speak or question these particular matters as we move through the meeting.

So as set out in the Notice of Meeting and the explanatory memorandum, there are several items of business here today, and they're displayed on the screen, as you can see. The first item for consideration does not require a vote. All of the other items are ordinary resolutions and, therefore, require a shareholder vote. All in attendance should have received from the desk outside and been registered and received a voting form, the yellow form. I presume you'll all have that if you're a voting shareholder or a proxy or a corporate representative. Shareholders, proxies and corporate representatives that are not voting here today will have received a blue nonvoting shareholders admission card. Only those holding a yellow card are eligible to vote, and only those holding a blue or yellow card are eligible to speak at the meeting. Anyone with a red card is not able to ask questions during the meeting or the resolutions. As shareholder -- as Chairman of the Meeting, I advise that I hold undirected proxies which I intend to cast in favor of all resolutions. As you will see from the Notice of Meeting, the Board recommends voting on all resolutions. Direct voting enables shareholders to vote without attending the meeting and by appointing a proxy. As Chairman, I have also determined that voting on all items of business will be conducted by a poll. That is to say, we'll be filling out the form, they will be collected at the end of the resolutions, and the subsequent results will be notified on the ASX. Ms. Lucy Chiu from Link Market Services will conduct the poll as our returning officer. Your voting cards will be collected at the conclusion of the formal business. If you need to leave early, please complete the voting card and present it to Link as you leave. As Chairman of the Meeting, I will ensure that there are opportunities to discuss each of the items of business today, discussion, please hold your questions, though, on the executive remuneration issues until we get to the remuneration report resolution, which is the second resolution this morning. I encourage you to ask questions and air any issues you may have with the resolutions. It's important, of course, that your comments and questions are restricted to the matters of business and the resolutions that we're considering. Details of the proxies and direct votes on each resolution that have been lodged will be shown on the screen at the conclusion of the discussion on each item. So ladies and gentlemen, a copy of the notice of meeting and the explanatory memorandum containing the resolutions to be considered today were provided to all shareholders last month, and I will take the Notice of Meeting as read. Item 1 on the notice of meeting concerns consideration of the financial statements and reports of directors. The auditors for the financial year, the 30th of September -- sorry, and the auditors. And the resolution is shown on the screen at the moment. The reports are contained, of course, in the annual report, which was posted to all GrainCorp shareholders on the 14th of November. I will take the reports as read and now formally lay them before the meeting. Shareholders are invited to submit questions in advance of today's meeting to our auditors on the conduct of the audit, the preparation and contents of the auditor's report, accounting policies adopted by GrainCorp in relation to the preparation of the financial statements, and on the independence of the audit -- of the auditor. Would anyone like to raise any questions or comment on the financial statements and reports, please? No? There being no questions on that item, and there being no requirement for a vote on that item. We'll now move on to the other items of business, which do require a formal resolution. Item 2 on the Notice of Meeting is the adoption of the remuneration report. The relevant words of the resolution are set out on the screen. We'll now move to consider the 2019 remuneration report, which was contained in our Annual Report, as usual. I'll just make a few comments about remuneration before we ask questions -- ask for questions on this issue. As shareholders will know, this is a nonbinding vote, but it's an important one. And the Board, as usual, will take note of the views of shareholders in relation to our executive and remuneration policies. I should say at the outset that our policies have not changed materially over the past year. And I note that all major proxy advisers have recommended a vote in favor of this resolution. There are a number of points worth emphasizing as we consider the remuneration report this year. They include the following: It's been a disappointing year, not only for shareholders, but also for our executives in relation to their remuneration, notwithstanding the extraordinary efforts, which all of them have made, to tackle the many challenges which I've outlined earlier in my address. None of the chief executive or any of our leadership team received any short-term incentive payments for FY '19 as the company did not meet the minimum profit hurdles required for such payments under our policies. This was so notwithstanding the very satisfactory outcome on safety, which the chief executive has mentioned; the much improved scores we achieved on customer satisfaction across all parts of our business over the past year; the continued strong performance of our Malt business; the implementation of initiatives such as the crop protection contract and other significant and cost reduction initiatives, not to mention the successful completion of an advantageous sale of our bulk liquid terminals. There are also no changes to fixed remuneration for any of our executive leadership team nor any changes to the base Board fees of directors in FY '19, notwithstanding the extra effort we demanded of them. Although we did pay a small additional fee to the 2 directors who were the Board representatives on the demerger due diligence committee, which involved some 15 meetings during the year in preparation for the substantial demerger scheme booklet. Also, all long-term incentive awards relating to the 3 years from FY '17 lapsed with no vesting occurring as the necessary performance hurdles were also not meant -- met. Specifically, our TSR performance hurdle fell short of the benchmarks required, and the 3-year return on equity performance fell short of both the 3-year average performance hurdle and the 10-year average threshold. While these outcomes are extremely disappointing for our executives, it does demonstrate that our executive remuneration policies, which we have in place, are now are very clearly aligned to shareholder outcomes as they are designed to be. All of our directors, except our new directors, are shareholders of the company, and so have shared in the pain occasioned by the financial challenge of the past year and the impact on our share price. I want to thank Rebecca Dee-Bradbury for chairing our People, Nominations and Remuneration Committee. Again, she's had an extremely busy year, including her role in the leadership of 2 new highly qualified director candidates. And all the other decisions necessary around the demerger restructuring, as well as leading the Board on the global and local search process, which led to the appointment of Robert Spurway as the post demerger CEO. Now I won't describe in any further detail the policies that we have adopted for what we believe is the appropriate treatment of executive pay arrangements post demerger. These are set out on Page 49 of the Annual Report in the section that is not part of the formal remuneration report for the year, but which we thought we should include for those who would have queries about that. It's -- those matters are, of course, more fully considered in the scheme booklet. And therefore, the post demerger remuneration policies are not subject to this resolution. Suffice it to say here that it will be up to each of the separate Boards of the 2 companies, once we demerge, to implement the appropriate remuneration policies for each of those companies moving forward and to adapt the current policies to their future circumstances. Each Board will have the responsibility of setting therefore targets and hurdles for their executives for the FY '20 year and for future years. Now in determining the appropriate transition arrangements, the Board has sought to maintain the right balance between the protection of shareholder interests and the motivation of our senior management, and to arrive at transition arrangements that are both fair to both groups of stakeholders. I'll now be happy to answer any questions or have any comments you may have regarding the remuneration report. And in a moment, Rebecca will assist me not only on any questions here, but she will also address the meeting in her capacity as the chair of our Nominations Committee when we come to the resolutions on the election and reelection of directors. So are there any questions on our remuneration report, please? It's usually a resolution that elicits some questions, so I don't see any hands going up. Are there any? No. Well, the direct and proxy votes that we have received on this resolution are shown on the screen. And if my eyesight is accurate, it shows that we have votes in favor of in addition -- in excess of 98% on this resolution. We'll now move to Item 3. Going right now, yes. We'll now move to Item 3 on the notice paper, which is the first of the 3 director election resolutions. This first resolution is to -- well, before we go to each of the resolutions, I will now invite Rebecca in her capacity as Chair of our People, Remuneration and Nominations Committee, to address you in relation to Board composition. Thanks, Rebecca.

Thank you, Graham, and good morning, ladies and gentlemen. I'd like to take this opportunity to set out our approach to Board and committee structure and nominations in the lead up to the planned demerger of the Malt business. Specifically, I would like to talk to the logic and rationale for the proposed Board leadership. Secondly, the considerations given to renewal versus continuity and retention of corporate history. Then I'd like to talk to the process around the recruitment of Robert Spurway. And finally, I'd like to just give you some insight to the role that I played as a neutral party in helping the Board settle on the best outcome for each company. So let me talk to Board leadership and composition first. Into merging such a substantial part of the GrainCorp business, the Board focused on the need to balance renewal and continuity and ensuring of corporate history and experience, whilst at the same time, providing a fresh viewpoint and an independent eye. We achieved this through the appointment of a new non-executive director to each of the respective Boards to complement the corporate knowledge existing around the Board table. Now in turning our attention to the roles of the chair, we believe that it was critical that certain attributes be present for each of the respective Board chairs. Let me talk to United Malt Group first. We felt that it was important that we had an experienced listed Chair with a demonstrated ability to chair an ASX-listed business with international exposure. We wanted to have experience in CEO succession, restructure and organizational change. We wanted someone experienced in M&A and with knowledge of U.S.A. operations. And importantly, we wanted a Chair with willingness and the desire to allocate the additional time in market and to manage government regulator and investor relations in Australia, given that the CEO and the executive team will be U.S.A.-based. Now in terms of GrainCorp, equally, we felt that it was critical that we had a Chair that was experienced as an ASX-listed Chair with exposure to those challenges of cyclical businesses. We wanted them to have a strong corporate history with GrainCorp. We wanted them to have experience in M&A, finance, and risk management, given the nature of the business. We also preferred them to be Sydney-based with the willingness and ability to invest time with the new CEO and his executive team. This is a very labor-intensive Board to operate on at GrainCorp, and so we require someone that's actually dedicated and able to give that time. After considerable deliberation, the Board unanimously agreed that the best candidates for these roles were Graham Bradley and Peter Richards, respectively. Having made these key appointments, the Board set about appointing a small and appropriately skilled and experienced Board that was fit-for-purpose for each of the go-forward businesses. Now let me talk to Board structure and renewal versus continuity. As mentioned earlier, in demerging such a substantial part of our GrainCorp business, we really did have to deliberate and give considerable focus to the need to balance renewal and continuity. Ensuring retention of corporate history, particularly in a cyclical business and experience through all of the elements that we've gone through was very important. But we did want a fresh viewpoint and an independent eye as we went to the next part of the journey. After a comprehensive considered process, the Board were fortunate to attract 2 excellent caliber candidates to join GrainCorp, Jane McAloon and Kathy Grigg. They're both standing for election today, as you know, and they bring extensive experience and expertise to the Boards of GrainCorp. Equally, each will bring that expertise and expertise -- their expertise and experience to the Boards and committees of the United Malt Group, in the case of Jane; and GrainCorp, in the case of Kathy, in the event that shareholders approve the demerger in March. We believe we have created a strong foundation of experience and ability in the Boards of both companies. And of course, Board renewal will continue in a measured and considered fashion in both companies as they move forward. So now, I'd like to just touch upon a little bit about the neutral role that I as an outgoing Board member played. Early in the process, it was considered critical that the person leading the nomination and Board structure processes be as neutral as possible. As a consequence, and for other complementary reasons, I decided that I would refrain from joining either Boards in order to play this neutral role. Although I can confidently say that my colleagues at all times demonstrated a high level of independence and put in place clear and robust measures to deal with conflicts of interest, whether they be perceived or real, my unique role provided an additional line of defense that we collectively believed was both appropriate and useful. Finally, I would like to actually touch upon the appointment and recruitment of Robert Spurway. The Board had a clear view as to the qualities required for the next CEO of GrainCorp and the person that would lead the company post demerger. Having a clear view doesn't always mean that you're lucky enough to get that outcome, I might add, having been involved in a number of these processes. The recruitment process was rigorous, global and extensive, and supported by a top-level executive search firm. The PRNC and the Board considered several very high-quality candidates before appointing Robert Spurway. In addition to Robert's credentials and extensive experience, the Board believed that he would work extremely well with the dedicated and highly capable senior executive team already in place at GrainCorp. And that together, they will take the organization in partnership with the new Board, subject to approval, obviously, to the next level. Thank you very much