GrainCorp Limited (GNC) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and fellow shareholders. Welcome to the Annual General Meeting of GrainCorp Limited. I'm Peter Richards, Chairman of the Board, and I thank you for joining our first virtual online AGM. It is now 10:00, the nominated time for the meeting, and I have been advised by the company secretary that a quorum of shareholders is present, not that I can see you, so I declare the meeting open. This AGM will be very different from our previous AGMs, but we are pleased to be able to provide our shareholders the opportunity to participate in this meeting in a way that is safe and responsible. Before proceeding with the formal parts of the meeting, on behalf of GrainCorp, I'd like to respectfully acknowledge the many traditional owners of the land on which we are located today. For those of us at GrainCorp's head office here in Sydney, these are the Gadigal people of the Eora nation. We pay our respects to the elders past, present and emerging. I would now like to introduce GrainCorp's Board of Directors to you and outline how they and other attendees are participating in today's meeting. Joining me at our head office in Sydney is our Managing Director and CEO, Robert Spurway; and Non-Executive Director, Dan Mangelsdorf. In light of the uncertainty created by the COVID-19 pandemic, our Victorian-based Non-Executive Directors, Kathy Grigg and Donald McGauchie, join us remotely today. Kathy is joining by video link, and Donald joins us by telephone. Our company secretaries, Stephanie Belton and Annerly Squires; and our Chief Financial Officer, Ian Morrison, are present today. Also in attendance are our Investor Relations Manager, Luke Thrum; representatives from Link Market Services, GrainCorp's share registry provider; and a representative from Gilbert + Tobin, our external legal advisers. Joining us remotely, we have Kristin Stubbins; David Ronald; and Eliza Penny from PricewaterhouseCoopers who are our external auditors. I'll now outline the technology and procedural matters for the meeting. Our AGM virtual meeting online guide for this meeting has been lodged with the ASX and is also available on our company website. If you are experiencing any difficulty participating via the online platform, please call the helpline shown at the top of the screen or call the number shown in the meeting guide. If we experience any technical issues today, a short recess or an adjournment may be required depending on the number of shareholders being affected. If this occurs, I shall advise you accordingly or, where I'm unable to do so, an announcement will be made on the ASX Announcements platform with the details of any adjournment. In case you have any difficulty viewing the presentation slides during the AGM, I confirm these were lodged on the ASX Announcements platform earlier this morning and can be accessed via the ASX website. On the online platform, there are 2 icons. These allow you to ask a written question online and vote. You can also download the 2020 Annual Report and the AGM Notice of Meeting by clicking on the download icons. [Operator Instructions] I confirm you may start submitting written questions anytime, and I encourage you to do so. You do not need to wait until we get to that item of business. If you experience any difficulties, please call the AGM helpline number. We will deal with the questions when we reach the relevant item of business in the meeting. While we will endeavor to answer as many questions as possible during the meeting, should we not able to address all the relevant questions or where your question is detailed, we may respond to you following the meeting. In terms of the questions we received during the meeting, we may choose to moderate or amalgamate some of the questions together, particularly if we receive multiple questions on one topic. I would now like to briefly summarize the voting procedures, which will apply to this meeting. As we have asked you to participate virtually, each resolution will be conducted by a poll. Shareholders have the option to submit a direct vote or appoint a proxy prior to today's AGM. If you're eligible to vote, including if you wish to change your vote you cast before the meeting, you may vote through the online meeting platform. To vote, please click on the voting icon at the top of the platform. When you click on this icon, a pop-up voting screen will open and set out the list of resolutions and the option for you to vote for, against or abstain on each resolution. To cast your vote, simply select one of the options. Once you are finished, please ensure you click the submit vote or submit partial vote button. You may do this at any time during the meeting once you have registered. You can also change your vote at any point up until the poll is closed. I confirm that where undirected proxies have been given in favor of the Chairman, I will vote in favor of all resolutions to the extent permitted. During the meeting, we will discuss each resolution. We will display in the presentation slides the number of direct and proxy votes received on each resolution prior to the meeting. Votes cast during the meeting will be counted by personnel from Link after the meeting closes. Results of the poll will be released as soon as available today on the ASX and will also be displayed on our company website. I now declare voting open on all items of business, and we invite you to start submitting your votes from this point onwards in the meeting. Turning now to the agenda. I will deliver the Chairman's report. And then our Managing Director, Robert Spurway, will present a report on financial year 2020, an overview of the business and an update on our strategic priorities and, importantly, an outlook for the current financial year. We will then proceed to consider the resolutions set out in the Notice of Meeting. Before we move to my address, we will begin with a short video that reflects on the year that was and encapsulate some of the highlights of financial year '20 while also featuring some of our leaders across the various GrainCorp businesses. [Presentation]

2020 certainly was an extraordinary year for GrainCorp and, indeed, for all of us. Your company completed 2 transformative transactions and yet produced solid financial results. All of this was achieved following 3 years of drought, catastrophic bushfires and the ongoing pandemic. Your Board is extremely proud of the GrainCorp employees who were able to recruit 3,500 people, while travel was restricted and safety was paramount. In December 2019, GrainCorp completed the first of its transformative activities with the sale of the Australian Bulk Liquid Terminals business. We then unlocked further value for shareholders by demerging our malt business in March 2020 to create the United Malt Group. GrainCorp shareholders voted overwhelmingly in favor of the demerger through which they received 1 share in Malt for every share they held in GrainCorp. We have retained a minority interest in United Malt, currently 8.5%, which provides us with useful financial flexibility. Post the sale and demerger, GrainCorp has a strong financial platform and is well positioned to create further value for shareholders. I mentioned safety before. Safety remains paramount at GrainCorp and is a personal priority of mine. We continue to drive the strong safety culture and embed a safety mindset throughout the organization. In FY '20, we made excellent progress in this area with improvements across our key metrics of recordable injury frequency rate and lost time injury frequency rate. From the outset of the pandemic, GrainCorp put in place measures to ensure the safety of our people and customers while protecting our business operations. As an essential service, we've been able to operate across each of our businesses, largely without interruption, and this has allowed us to continue servicing our customers throughout the year. As part of the demerger process, Robert Spurway joined GrainCorp as Managing Director and CEO. My Board, colleagues and I are delighted with the contribution Robert has made in the 11 months he has been with us and for the strong leadership he has brought to the company. In August, we were also pleased to announce the appointment of Ian Morrison as our new Chief Financial Officer. Ian has worked for GrainCorp for 10 years and has substantial experience across all our businesses. The experience and enthusiasm that Robert and Ian bring to GrainCorp has already proved beneficial to our business and will continue to be critical to the success and growth of your company. Our executive has also been strengthened by the recent appointment of Jesse Scott to the newly created role of Chief Growth and Innovation Officer. Jesse joined us in January of this year after over 13 years with McKinsey and brings with him extensive experience in strategy and transformation, together with comprehensive knowledge and capability in the ag sector. Now to the results. Touching briefly on our FY '20 results, we delivered a solid financial performance, as I said, despite being in the third year of drought. This is a testament to the resilience of our business and the initiatives we have undertaken to maximize returns and reduce overall volatility. It also clearly demonstrates the effective performance of our executive management team and their focus on our core business. Underlying EBITDA from continuing operations was $108 million, a strong turnaround from last year's $107 million loss. This reflects improvements in both our Agribusiness and Processing segments and, of course, payments received through the Crop Production Contract. On a statutory basis, we reported net profit after tax of $343 million, which reflects the gain from the sale of our Terminals business and the profit on the demerger. The Board declared a dividend of $0.07 per share, fully franked, for the FY '20 year. This payment reflects the strength of our balance sheet, the benefits of the Crop Production Contract and our confidence in the stability of future earnings and cash flows. We are now several months into the 2021 financial year, and I'm very pleased to report that we are currently handling one of the biggest winter crops on record. The benefits from this crop will be welcomed by our regional communities not just this year but over the ensuing couple of years. Robert will provide more comment on GrainCorp's financials outlook and earnings guidance in his presentation. Turning to the Board. As part of the demerger process, we undertook a structured program to establish new Boards for both GrainCorp and United Malt. The GrainCorp Board comprises Robert and 4 Non-Executive Directors, including myself as Chair; Kathy Grigg as Chair of our Audit Committee and most recent appointment, and she actually was formally elected to the Board by shareholders at last year's AGM. I am actually very pleased with the Board's strong mix of skills and experience and of the Board's diversity in terms of capability and tenure. This composition has worked very well in the post-demerger period. Notwithstanding, towards the end of last year, we embarked upon a comprehensive review of Board composition, skills and capabilities. This review is a key part of our ongoing renewal process and is closely aligned to our core business and targeted growth strategy. In conclusion, I am proud to chair the Board of Directors of GrainCorp and to be working with our new management team to ensure the continued success and growth of your company. On behalf of the Board, I would like to thank all our employees and customers for their ongoing commitment to GrainCorp, particularly during the stresses of the past year. Finally, I would like to acknowledge the continued support of you, our shareholders. I now invite Managing Director and CEO, Robert Spurway, to deliver his presentation.

Thank you, Peter, and good morning, ladies and gentlemen. After almost a year with GrainCorp, I remain proud and privileged to lead this iconic business, particularly at such an exciting stage in the company's history. As Peter mentioned, GrainCorp reported a solid result in financial year '20 despite a third year of drought in East Coast Australia. I do want to acknowledge the difficulty and hardship caused by the extended drought and the incredible fortitude and resilience shown by growers, farmers and everyone working in agriculture. The good news is that, for many of us, the drought has now broken. And across much of Eastern Australia, we experienced near-optimal conditions during the recent winter cropping season. This remarkable turnaround is one of the truly positive stories to come out of financial year '20. 62 of our sites broke their receival records. And to date, we've brought in 13.8 million tonnes of grain across Queensland, New South Wales and Victoria. This compares to total receivals of just 4.2 million tonnes last year and is nearly 1 million tonnes higher than at the same point in the last bumper crop of '16/'17. In response to the challenges of COVID, our operations teams have established contactless receival processes and accelerated the use of our digital platforms. As a result, we have kept our grower customers safe and improved the efficiency of our operations. The feedback we've received shows a very pleasing increase in site experience and satisfaction. So to recap, we've received 13.8 million tonnes of grain while, at the same time, exciting momentum is building across our business as our infrastructure assets come into their own. Our focus now turns to the first major export program in years with 1.7 million tonnes of shipped -- tonnes of grain shipped since October 2020, and our port bookings are nearing capacity through to September 2021. COVID-19 has created some enormous personal challenges for many in our community and, indeed, across the globe. As an essential service within the primary and food processing and distribution sector, GrainCorp has been incredibly resilient and continued to operate without interruption in Australia, New Zealand and across our global operations. Our people, both office-based and on site, sought alternative solutions and new ways of working, particularly during the busy harvest period. Our digital platforms, CropConnect and FastWeigh, provided a safer, more transparent and more efficient way of working with our growers, and we now have over 10,000 growers registered on these platforms. Moving to safety. As Peter has highlighted, our key metrics improved significantly in FY '20. And notwithstanding the much higher levels of activity through the recent harvest and the increased number of new and casual workers, we continue to drive our strong safety culture and performance and our commitment to zero harm. Our commitment to sustainability is an integral part of our business. Indeed, our growers and communities are directly exposed to climate and weather risk and the management of these risks is critical both for GrainCorp and the broader agricultural industry. GrainCorp's innovative and unique Crop Production Contract is an important initiative to help manage climate risk by ensuring our cash flows are supported during periods of drought. We also actively promote sustainable agriculture throughout our value chains as shown recently when GrainCorp, and several other key agriculture and food industry companies, partnered with the CSIRO to form FutureFeed, a seaweed-based animal feed designed to reduce methane emissions from livestock. We believe this has significant potential and could be a game-changer for the global animal nutrition market. Only months after its launch, FutureFeed was awarded a USD 1 million Food Planet prize for its contribution to a globally sustainable and resilient food system. We're really excited about the future potential of this business. Expanding on Peter's comments on financial performance, GrainCorp achieved a solid result in FY '20 with underlying EBITDA from our continuing operations of $108 million, up from $107 million loss the prior year. Our Agribusiness segment reported EBITDA of $79 million, up from a loss of $94 million last year. This includes a $58 million gross payment received under our Crop Production Contract. The Crop Production Contract is now in its second year, and it's operating effectively. Our Feeds, Fats and Oils business also performed well with good demand for liquid feeds, tallow and used cooking oils. The Processing segment reported EBITDA of $46 million, up from $16 million the prior year. This was driven by increased oilseed crushing capacity and the improved crush margins achieved through our Numurkah site in Victoria, together with the improved performance of our Foods business. From a balance sheet perspective, we finished financial year '20 in a strong position. As Peter said, the Board was pleased to support our shareholders by declaring a fully franked dividend of $0.07 per share for the FY '20 year, reflecting both the strength of our balance sheet and our confidence in the future. As we said during our FY '20 results presentation, we aim to improve GrainCorp's invested -- return on invested capital by focusing on 2 key areas: strengthening our core business; and pursuing targeted growth opportunities. Strengthening our core business means leveraging our existing capabilities through improved efficiencies and cost reduction, optimizing our assets and expanding areas such our bulk materials portfolio. Our unique infrastructure and end-to-end network comprises one of GrainCorp's greatest attributes, and we can do more to drive value and realize the potential of these assets. We will also focus on the development of new and innovative products, including value-add products within our Foods business. New growth opportunities will be assessed in agriculture and adjacent and related industries. For example, GrainCorp already has significant interest in the animal nutrition sector with key assets in Australia and New Zealand. This sector has significant potential for growth and innovation and is an area where GrainCorp can leverage our current investment and expertise. The fast-growing alternative protein market will also provide significant opportunities for GrainCorp. As the largest canola seed crusher in Australia, we are well positioned to explore alternative uses of canola for meal -- uses of canola meal for both animal and human consumption. AgTech and digital is another exciting growth area for GrainCorp and will be an enabler for both our core and growth strategies. We already have a strong digital presence through CropConnect, which provides a secure marketplace for grain across the East Coast of Australia. We're currently conducting pilots in crop forecasting, grain quality control and grain sampling, to name just a few. Moving to the outlook. We are now 4 months into the new financial year. And today, we're providing earnings guidance for financial year '21 of $230 million to $270 million underlying EBITDA and $60 million to $85 million underlying net profit after tax. This includes the maximum payment under the Crop Production Contract payable by GrainCorp of $70 million. We are pleased to be able to provide financial guidance at this stage of the year. It reflects the greater stability in our business and our confidence in earnings. The outlook reflects the large East Coast Australia winter crop and ongoing delivery of the operational improvements in our Agribusiness segment. It incorporates a number of grain volume assumptions, including total receivals of 15.5 million to 16.5 million tonnes and exports of between 7.5 million and 8.5 million tonnes. In Processing, we expect an increased supply of canola seed to support strong oilseed crush margins despite some pressure on meal values. As planned, we expect a considerable increase in net debt and core debt at March 2021 and September 2021 to account for the increase in commodity accumulation before it unwinds through sale and delivery to customers. This profile, together with the scale of the FY '21 receivals, supports our earnings both in FY '21 and well into FY '22. Over the longer term, we expect to benefit from the attractive industry fundamentals in Australia and around the world. Demand for quality food products is being driven by increasingly health-conscious consumers, a growing middle class in developing nations and increasing rates of urbanization. Consumers are increasingly seeking improved grain and edible oil quality, which GrainCorp is well placed to store, supply and deliver. In closing, I'd like to acknowledge the outstanding efforts and contribution of our frontline operations team headed by Chief Operating Officer, Klaus Pamminger. I'd also like to thank all of our employees for their resilience and hard work in a challenging yet highly productive year. Finally, I thank all growers, customers and stakeholders for your continued support. We believe that your success is our success. After a year of transition, I'm excited and confident in our ability to grow, develop and drive the value of your business as we take advantage of the opportunities ahead. Thank you.

Thank you, Robert. We will now move to the formal items of business. The Notice of Meeting, explanatory notes and other AGM documents were sent to shareholders and lodged with the ASX and also posted to our website. I will take the Notice of Meeting as read. As set out in this notice and explanatory notes, there are 4 items of business today. Item 1 is for consideration only with no vote required. All other items are ordinary resolutions, which require a shareholder vote. Item 1 on the Notice of Meeting concerns the consideration of the financial statements and the reports of the directors and auditors for the financial year ended 30th of September 2020. The reports are contained in the annual report, which was posted to the GrainCorp website on the 12th of November last year, and a hard copy was sent to those shareholders who specifically requested it. Shareholders have -- also had the opportunity to review the statements and reports on the company's website. The purpose of this item is to provide an opportunity for you, shareholders, to ask questions and make comments about the company's performance, operations and management. Shareholders were invited to submit questions in advance of today's meeting to our auditors on the conduct of the audit, the preparation and content of the auditor's report, the accounting policies adopted by GrainCorp relating to the preparation of the financial statements and the independence of the auditor in conducting the audit. No questions were received. I now invite comments or questions on Item 1. [Operator Instructions] Please bear in mind that we have a separate item of business on the remuneration report. Any questions on the accounts, please?

Thanks, Chair. We have one question from [ Edmund Carew ]. Could you please elaborate on the Mainland China exporting situation and also demand into Saudi Arabia, Indonesia, Philippines, Vietnam and any other major destinations for export wheat?

Thank you. That's probably a better question for my CEO. I'll hand over to Robert.

Thank you for the question. As we've said previously, we've continued to see strong demand around the world. We don't disclose individual trading with individual countries. But I can confirm that we've broadened the range of countries and companies that we deal with significantly from around 30 to about 50 countries. And many of the countries that you mentioned are countries that we actively trade with. So we're very confident in the demand we're seeing for grain. We're in the middle of a strong export task. As I said, we've exported over 1.7 million tonnes of the new season crop already, so it's going well, and we have no material exposure or risk to any of the markets that we're trading with currently.

Thanks, Robert. No further questions?

No further questions.

There's no requirement for a vote on item 1. So I'll now move to the items of business, which require a formal resolution. Item 2 on the Notice of Meeting requires a formal resolution and concerns the adoption of the remuneration report. This report is set out on Pages 34 to 52 of the 2020 Annual Report and provides disclosures relating to Director and Executive Remuneration. As stated in the notice, the vote on the remuneration report is advisory only and does not bind the directors of the company. The Board will, as usual, take note of the views of shareholders in relation to our remuneration policies. Recall, shareholders last year voted overwhelmingly in favor of the remuneration report. The Board remains committed to ensuring that our approach to executive remuneration aligns with our business strategy and with the interest of our shareholders and that it is fair and competitive to enable us to attract and retain talent that we need to manage our business effectively to meet our strategic objectives. The FY '20 remuneration outcomes reflect an improved financial performance in a challenging external environment and the achievement of key milestones, including completion of the group portfolio review, completion of the demerger, progress on the delivery of operational initiatives that were set out in the scheme book that we issued on the demerger last year and, of course, outstanding performance across our safety metrics. I now invite any comments or questions on the remuneration report. Are there any questions?