GrainCorp Limited (GNC) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the GrainCorp Limited First Half '25 Results Call. [Operator Instructions] 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 GrainCorp First Half '25 Call. As we start, we're presenting from Sydney today so I wish to acknowledge the Gadigal people of the Eora Nation. We pay our respects to their leaders, past and present. Through this morning's call, I'll be joined by Ian Morrison, our Chief Financial Officer. I'll provide some comments upfront around the highlights for the half, a reflection on the business and an update on our strategy and growth initiatives. Ian will detail the financial performance across our segments and talk about the strength of our balance sheet and capital management initiatives before we conclude and open up for questions. I'll also update you on the slides as we go for those that are following online. So starting with Page 5, just in terms of our investment proposition. This is a bit of an index of the sort of topics we'll cover today. But as I reflect on the fact that it's now 5 years since the demerger of the Malt business and therefore, my start and shortly after that Ian's appointment to the CFO of GrainCorp, we thought it was valuable to just reflect on how the business has changed in that time and indeed the strength of the business we have today. We have extraordinarily attractive long-term fundamentals. That's growth across Southeast Asia; the fundamental demand for food, feed and fuel; and the fact that we're seeing growing supply here in Australia. We've also got an extraordinarily valuable set of strategic infrastructure assets. We often talk about that. But over the last 5 years, I have talked about the times when you visit our sites and you see the scale of our up-country network and the flexibility and the value that brings to growers and customers alike. The quality of our port and processing assets is beyond comparison when you look at the scale and the enduring nature of those. It sets GrainCorp apart to deliver the sort of results we have demonstrated in recent years when the conditions allow. That -- those assets have also been a part of the extraordinarily supply chain resilience that we've demonstrated. We have a track record in that. Whether that be through the resilience we showed through the pandemic, the resilience we showed when China implemented tariffs on barley and the ability and agility we had to open up other markets very quickly or indeed, the opportunities that we've taken more recently, such as chickpeas in India, in a tariff-free window. So really agile business with a resilient value chain. We've built a very strong balance sheet that's allowed us to continue to invest in the business, both in terms of the core business, but also platforms for growth now and into the future. That's been part of a disciplined capital management program, including acquisitions like the XFA Feeds business, and we'll talk about that through the presentation. And through all of that, we're demonstrating a track record of shareholder returns and importantly, the capacity to continue to invest in what is now a much stronger business with continued growth opportunities. If we move to today's highlights for the half year completed for the first half '25 on Page 6 of the presentation. We're reporting underlying EBITDA of $202 million and underlying net profit after tax of $69 million. And importantly, today, we're upgrading our earnings guidance for financial year '26 to between $285 million and $325 million. In the middle of the page, we continue to demonstrate really strong operating metrics. In a word, we are controlling what we can control well and delivering results whether that be through the grain handled, again, a record crush volume through our crush plants and strong growth in volume through our Animal Nutrition business and segment. That leaves us in a very strong position in terms of our balance sheet and Ian will detail that shortly, but $296 million in core cash at the balance date. The Board has declared total dividends of $0.24 per share. That's a fully franked ordinary dividend of $0.14 per share and a fully franked special dividend of $0.10 per share. Today, we're also announcing an increase in our ongoing share buyback from previously $50 million to up to $75 million. If I move now to Page 7. Health and safety remains an area of continuous improvement and an area that we always strive for an ambition of zero harm for everyone associated with GrainCorp. We're pleased to see the general trend in terms of improvement in our statistics there and acknowledge that there's always more to do. And that's why we continue to invest in leadership capability and upskilling of our leaders, but also a focus on the critical risks that a large operating business like ours faces. We will continue to invest in that area and expect to achieve continued results in that space. On sustainability on Page 8. GrainCorp is building a track record of creating long-term shareholder value in this space. I've said many times before, that whilst there's challenges in sustainability, there's, on balance, many more opportunities in the ag sector and for GrainCorp specifically. In particular, I want to call out GrainCorp Next as an example of that. It's an initiative that we've spoken about before that builds out an end-to-end value chain, demonstrating the opportunity for both a low-carbon and low-emission value chain on canola oil but ultimately, including nature-positive aspects as well. We've had great engagement from the growers that we're working with, our industry partners and in customers that ultimately drive the value and opportunity in the space. It is an opportunity to provide a point of difference in international markets but importantly, to demonstrate the best practice employed right across the Australian agriculture sector and to identify further opportunities for improvement into the future. In terms of our own emissions and profile, we continue to invest in initiatives like the recycling of tarpaulins. And in the '24-'25 season since harvest, over 300 tonnes of tarps have been recycled. And since inception, that brings it to over 1 million kilos or 1,000 tonnes of recycled tarp material. So a great initiative of where we can make a difference in our own business on top of other initiatives like electric loaders and solar panels that we continue to implement across our sites where it makes sense, both commercially and from a sustainability point of view. We're also delighted to continue to contribute to the Jet Zero Council of Australia. That's an opportunity to represent the sector and particularly the feedstock sector to work alongside our partners in the MOU with Ampol and IFM on developing ultimately the policy and conditions to see that industry flourish and be invested in, in Australia so that we can be a part of a domestic feedstock supply to renewable fuels and renewable aviation fuel in particular. If we turn now across to Page 10, GrainCorp's vision and strategy on a page. For those of you that have followed us for a while, you'll be familiar with this and, in particular, the terminology around enhance and expand and evolve. Today, we'll talk to some of those examples of how we continue to invest and enhance our core business; the areas that we're growing in across food, feed and Agri-Energy; and the tools and analytics and digital technologies that we're using to enable that growth. I do just want to spend a few moments, though, on Page 11, talking about the macro trends supporting GrainCorp strategy. Again, I think it's easy to talk about these from a sector point of view, but very important to highlight what that means for GrainCorp and how GrainCorp's positioned in those macro trends. In the top left of the page, we talk about the population growth and changing demographics. Just pulling out the detail on that, of the 20 largest grain export markets for Australia and therefore, GrainCorp, the population is expected to grow by 80 million people between now and 2035. So that really underpins a really strong demand story in food and feed and fuel. So not only do we talk about that, but we've got real proof points that demonstrate the demand we're seeing now and into the future in our business. We're also seeing the Australian ag sector and farmers invest in innovation that are driving a CAGR or compound annual growth over more than 30 years now of 2.7% per annum. So on the East Coast of Australia, we're seeing, despite volatility associated with weather conditions, strong underlying supply. So those dynamics of supply and demand in our business are very strong. On the right-hand side of the page, particularly in a volatile global market where we see tariffs becoming commonplace in the headlines, diversification is a key strategy. It's something GrainCorp has been doing and continues to deliver on. I think you can see in the graphic there that not only do we talk about diversification, but we can demonstrate it in terms of the number of markets we operate and the exposure we have to that broad range of markets. Finally, I've talked earlier about our supply chain resilience. That's brought about by the quality of our assets, the scale of our operations across the East Coast and that puts us in really good stead to overcome challenges often outside of our control associated with weather. It really provides value to growers, customers and shareholders alike. If we turn on Page 12 to the global operating environment. GrainCorp and the broader ag sector has a long history in managing both tariffs and nontariff barriers, well before they became a daily headline. What that means is we have contracts that are very clear on where those responsibilities and obligations lie. And we have risk management frameworks in place that not only manage the risk, but set us up to take opportunities in a volatile environment. We've demonstrated that even recently with the tariffs from China on barley 2 or 3 years ago now, and the ability to open up new markets almost overnight as a result of that disruption. We've also demonstrated earlier in this half the opportunity for export of chickpeas to India as they reduce the tariff. So GrainCorp not only has decades of experience, but a demonstrated track record in that space. Beyond that, the fundamentals of food are far more important than the prevailing market conditions. People always need to eat, and it's our experience that trade will continue to flow. And that sets us up in a very resilient position in a market to be in. I've touched on the diversification and the importance of that as a strategy, and that's something that we have delivered on and continue to focus on in our business. Underpinning all of that is GrainCorp's strong balance sheet. Not only does that provide for capital returns to shareholders and investment in the business, it allows us to take opportunities when they prevail in a volatile market. So GrainCorp is extraordinarily well positioned, and that leads into our strategy, if you look at Page 13, more broadly. On this page, it really introduces some areas. I'm going to spend a few minutes on just as examples of where we are enhancing, expanding and evolving our business. So I will jump straight to that in the first example on Page 14. It's one of investment in our existing network and our grain handling network. It's an expansion and improvement in both the efficiency and capability of our Condobolin site in New South Wales. For an investment of about $7 million completed earlier in this half, we've been able to expand the rail loading capacity from 30 to 48 wagons. That's important because it improves the amount of grain that we can move to port, it reduces the cycle time to -- by about 20%. So that provides value to both customers and to growers. And it also is good for the environment because moving product off road transport to rail transport is both more economical but also better for the environment. It's a good example of the sort of initiatives right across our business that demonstrate our disciplined investment approach and capital allocation approach. It provides a lift in service and values to growers and creates a more sufficient -- more efficient supply chain. On Page 15, we have and continue to expand our Animal Nutrition portfolio. The XFA acquisition was completed on 2nd of April of last year, and the integration has progressed extraordinarily well. In the first 12 months of ownership, that business has delivered $14 million in EBITDA, outperforming expectations of only $10 million. So it demonstrates the value that our ownership can bring to businesses like that and the investment and ongoing organic opportunities that we see in that sector of our business. We continue to look for similar type acquisitions, not just in the feed space but across our portfolios that provide programmatic opportunities and growth in our business, and we have a healthy pipeline in that respect. On Page 16, we provide an update on the renewable fuel sector and our growth ambitions in that space. As I've already touched on, we have an existing MOU with our partners in Ampol and IFM, and we continue to work together with them on the deliverables of that MOU, particularly around developing an opportunity for supply to Ampol in the event that they convert the refinery in Brisbane to process renewable fuels. That also requires bringing many parts of the industry together, including having the right government and policy frameworks in place. And as we've always said, GrainCorp's investment in a future crush plant will be reliant on the demand being in place. So that's why we're partnering with companies like Ampol and IFM stand us in good stead, and we expect that, that will create opportunities through '26 as they complete the economic studies and engineering studies alongside us for that value chain. We are encouraged by the reelected government's allocation of $250 million for renewable fuel as a pre-election commitment but also the consistency that the government brings and the interest in that space. We've also recently seen an announcement just this week by Ampol and Qantas and Sydney Airport around an import of renewable fuel, demonstrating the demand is there and it makes absolute sense over the medium term to see that demand manufactured in Australia, which will provide better economic outcomes, better carbon intensity outcomes and the opportunity for investment and job creation in Australia. Another example of strategy and action in our business is our business transformation program discussed on Page 17. Just to recap, the program overview is a business-wide transformation program to unlock value and drive efficiencies. It also is an opportunity to address end-of-life version of an SAP instance which modernizes our systems for the future. And importantly, we've flagged benefits of $20 million to $30 million on completion of the program. I'll talk in a moment around how we're endeavoring to bring some of that forward and the growing confidence we have in that commitment. In terms of how the program is progressing. As we all know, there are challenges with these programs, and we have moved to derisk that by splitting it into 2 releases. That is progressing, and we still expect to deliver Release 1 in the first half of financial year '26. We are flagging that through '26, the previously flagged expenditure is likely to be up by about $10 million as we have looked to adjust scope and derisk the programs. The overall cost of the total program, including Release 1 and Release 2 is expected to be about the same as previously advised as we learn from Release 1 and, as I said, adjust the scope between the 2 releases. In terms of where we're at on the -- on Release 2, we expect to provide an investment case and approval for that later this year. Just referencing back to the comments I made on targeted benefits for these programs. We have listed, on the right-hand side, the sort of benefits we expect, particularly around improved asset and labor productivity and the cost impact of those initiatives. And the vast majority of the targeted benefit in EBITDA is associated with cost. We also expect through that margin uplift in areas of our business through a better data-driven decision-making and the platforms that provide for a better future growth and improved customer service levels. We are increasingly confident that we can bring forward some early-stage benefits ahead of completion of the full program. And we'll be in a position to provide more updates towards the end of this year on that program. Just before I hand to Ian on Page 18, really a recap and a summary of what I've talked about: A strong first half performance with underlying EBITDA of $202 million; a strong operating metrics and an upgrade to our earnings guidance to underlying EBITDA of between $285 million and $325 million. We are continuing to progress our strategy, and we're demonstrating the capability of this business and delivering those sorts of results. We are delivering shareholder value. We've got a strong balance sheet. We've declared interim dividends of $0.24 per share and increased our ongoing buyback from $50 million to up to $75 million. Ian, I'll hand across to you to talk through the segment report and some of the detailed financial results.

Thanks, Robert, and good morning all. I'll now move on to Slide 20 to summarize financial performance for the first half. At a headline level, Agribusiness results are higher year-on-year, and that's benefiting from improved East Coast Australia crop production. Nutrition and Energy delivered a strong first half result, benefiting from an uplift in Animal Nutrition earnings, and that's following the inclusion of XFA with the completion of that acquisition 12 months ago. Nutrition and Energy division also benefited from some mark-to-market timing in the first half relating to crush, and that partially offset lower structural crush margins. I'll now move on to Agribusiness segment and in particular, ECA on Slide 21. We saw increased total grain production of 33.8 million metric tonnes in '24-'25, and that's compared to 26 million metric tonnes in the prior year. And the backdrop to that is strong production in Queensland and New South Wales, in particular, partly offset by lower production in Victoria. And as noted on the slide here, and ABARES reported the lowest production in Victoria since 2018-'19. So to see that overall strength of crop right across the East Coast, really shows that diversification and the strength of the crop up in the north. Another item just to call out is the carry-in of 2.5 million metric tonnes compared to 3.9 million metric tonnes in the prior year. So overall, that gives a total grain handled of 29.5 million metric tonnes compared to 25.4 million in the prior first half. Another call out for the first half result in ECA was capturing better export margin opportunities on commodities such as chickpeas and canola seed. That really highlights the ability of our network to respond to the market conditions and the demand signals for different commodities. Also, just to highlight, the result includes a P&L impact of $42 million from the Crop Production Contract. And that's with this year's cash payment of $58 million. And just to note, this year's cash payment sees us reach the cumulative cap under that contract. So what that means is we won't have any further net payments against the contract for the remaining 4 years of that contract while still having the protection on the downside. And finally, on ECA, we continue to focus on diversification of our revenue streams through the utilization, in particular, of airports for bulk material handling. It was pleasing to see the first half report a further increase in contribution margin from that part of our business, which continues our positive momentum on building out this earnings base. I'll now move on to Slide 22 and touch on our international business. Similar to East Coast Australia, we saw higher volumes with the benefit of a larger Western Australian crop. As noted on the slide here, the winter crop in Western Australia was well above the prior year and also well above the 5-year average, and that led to those increased contracted grain sales highlighted on the right-hand side of this slide. However, despite those higher volumes, we have seen stronger global production from many of the major exporting markets lead to weaker export margins relative to the prior year. This same dynamic also has -- is having an impact on our Canadian business and our joint venture GrainsConnect Canada. We continue to see challenging results there with a loss of $10 million reported in this half compared to $7 million in the prior year first half. Overall, though, we do remain pleased with the operational performance of the assets and their efficiency. However, noting the continued challenging financial results, we are undertaking a review of that business in conjunction with our JV partner. Moving on to Slide 23 now on our Nutrition and Energy segment. We continue to see strong crush volumes with 283,000 tonnes crushed this half, marginally higher than the prior year. We also saw a positive increase in edible oil sales volumes as a result of improved domestic demand this half. We've completed the transition of processing volumes from East Tamaki plant in New Zealand to West Footscray in Australia following the closure of manufacturing at that site that we announced last year. In terms of margins, as we had indicated at year-end and back in February when we provided guidance, crush margins are structurally weaker than the prior year. And the main impact driving that is the smaller Victorian canola crop as well as global -- lower global demand for vegetable oils. And in terms of that global dynamic impacting crush margins, we're seeing strong -- a strong global supply of oilseeds out of competing markets as well as some weaker demand into the renewable fuel segment, and that's having that broader impact on crush margins that not only we are seeing, but also many of our peers are seeing. As I did touch on at the opening of this section, some of the lower crush margins were mitigated in the first half by some timing benefits on mark-to-market, and that supported the strong result in the first half. Now just moving over the page to Slide 24 and our Animal Nutrition and Agri-Energy businesses. Animal Nutrition sales volumes have increased half-on-half partially as a result of the inclusion of XFA, but also off the back of increased sales volumes in New Zealand. And that's as a result of dry conditions we've seen in the North Island and record farm gate milk prices, driving demand from the dairy sector. And we're delighted to be able to report the strong progress we've made on the integration of XFA with the business generating EBITDA of $14 million for the 12 months to 31st March '25, and that's well ahead of the business case as Robert touched on before. And just mentioning briefly on Agri-Energy. Volumes were slightly lower than the half but still remain robust off the back of the high domestic slaughter rate. But in terms of margins, we have seen demand into renewable fuel amidst U.S. biofuel policy uncertainty have a little bit of impact on that. Now just moving on to our Corporate segment on Slide 25. Underlying corporate costs remain in line with the prior year, and we remain focused on managing costs right across the business. And other aspects just to touch on, spending on growth projects noted here on the slide, mainly continues to represent the ongoing work on the oilseed crush feasibility study. And as noted, business transformation costs were higher half-on-half as we commenced the implementation of Release 1 of the program this year. Now just moving on to Slide 27 and touching on the balance sheet. We finished the half with a core cash position of $296 million, slightly down on the balance at prior year-end, but overall in a very strong position. The higher net debt position noted on the right-hand side in the table of $1.3 billion, that's driven by funding requirements for commodity inventory as a result of the larger crops we've seen across both the East Coast of Australia and Western Australia. That just reflects the typical end cycle of commodity inventory with the peak often being at the half year date. So overall, in summary, our balance sheet is in a very strong position which allows us to continue investing for growth, but also continue to provide those strong returns to shareholders. I'll now move on to Slide 28 and touch on capital expenditure. Total CapEx of $30.5 million includes sustaining CapEx of $22 million. For the full year, we'd expect sustaining CapEx to be in the range of $60 million to $65 million. And that typically reflects the weighting to the second half in relation to sustaining CapEx. That range is slightly higher than our typical at $40 million to $50 million of sustaining CapEx. That reflects the larger crop in the north to some extent, but also reflects some additional investment across our network, including the upgrade at Condobolin that Robert touched on earlier. On the right-hand side of this slide in relation to depreciation and amortization, we'd expect to see full year D&A broadly in line with FY '24. And now just moving to Slide 29 and returns to shareholders. As Robert noted earlier, the Board today declared total dividends of $0.24 per share fully franked. And that's made up of an ordinary dividend of $0.14 per share, which continues that track record of consistency of ordinary dividends. And in addition to that, a special dividend of $0.10 per share, also fully franked. In addition to that, the Board has increased the on-market share buyback up to a maximum of $75 million, and $8 million of that has been completed as at the balance date of the first half. So this overall continues our strong record of capital management and returns to shareholders. As highlighted on this slide since the start of FY '21, in total, we've returned over $520 million to shareholders. Capital management will continue to be assessed against growth opportunities in line with our capital management framework. On that note, I'll now hand back to Robert.

Thanks, Ian. On Page 31, we provide some comments on the outlook. As we've talked about today, we're upgrading our financial year '25 earnings to underlying EBITDA earnings to between $285 million and $325 million. If we look at the market outlook, we still see strong global supply of grain and oilseeds, and that is impacting and creating a competitive margin environment. And in particular, as Ian mentioned, we're calling out the softer margins that we expect to see in the Nutrition and Energy business through crush margins. That is typical where you do see a mix between first half and second half, but certainly a feature of what we're seeing this year. Moving to the '25-'26 plants and what that means for the crop that's going in the ground now will be harvested later this year and impacting, of course, next year. We have seen excellent rainfall and soil moisture conditions across Queensland and Northern New South Wales. And we'll go as far as saying that sets the potential for a large harvest in that area. It is fair to say that autumn and winter rainfall will be required to release the benefits of dry sown crops in Victoria. So alongside farmers, we'll be looking at the rain outlook over the next few months in Victoria in particular. We note that ABARES will provide their first update of the '25-'26 crop in the first week of June of this year. Just on Page 32, as we move to questions and in conclusion. You are seeing strong execution and the demonstration of capability in this business and our delivery of a $202 million EBITDA result in the first half. We continue to invest in our business. We have a strong balance sheet with core cash of $296 million at the balance date. The Board has declared total interim dividends of $0.24 per share, and we have increased our buyback to up to $75 million. We've also, again, upgraded our underlying EBITDA earnings for '25 to between $285 million and $325 million. And at that, I'll hand back to the moderator, and Ian and I are very happy to answer any questions you may have.

[Operator Instructions] Your first question comes from Apoorv Sehgal from UBS.

Just the first topic I wanted to touch on, on the transformation program, Slide 17. I just want to understand the cost being and the timing of it properly. So $19 million has been spent in the first half across both OpEx and CapEx. In the second half, I think that will be $25 million, roughly, at the midpoint of the Release 1 spend. So it's $25 million in the second half and a further $25 million in first half '26 for Release 1. Is that correct?

Broadly speaking, Apoorv, that's the right way to think about it and exactly what we're guiding to in terms of the spread of the spend to go. It's fair to say the spend is relatively well locked in for the second half, and the increase we're calling out of $10 million over the previous advice will apply in '26, not this year.

Yes. Okay. And then Release 2, it sounds like -- I mean, a part of the $2 million you've spent, tiny amount so far, that's largely just going to be FY '26 for Release 2. And is the quantum of Release 2 broadly similar to Release 1, which I think you could tally up all the numbers for Release 1 is about $80 million cumulative.

Yes, that's right. And that's broadly what we said. Obviously, it is subject to business case and finalization. What we would say is that we've been able to learn from the experience of Release 1 in terms of how we scope and plan activities. And I think that's been an important derisking approach to the overall program. And in particular, I want to flag the growing confidence we have in the $25 million to $30 million that we've flagged associated with both Release 1 and Release 2, but also our ability to deliver at least some early-stage benefits of that following the completion of Release 1. So that's a separate stream of work, but really I think underpins not just the reason why we're doing this, but the reason why we're doing it the way we are.

Okay. One more question just on crush margins. Do you think the second half would likely represent trough crushing margins and we sort of start seeing a recovery maybe in first half '26? Or is your expectation that this could be a bit more of a longer-dated recovery process?

I'd like Ian to comment on that as well, Apoorv. It's always difficult, and we're reluctant to forecast specific margins over a specific period of time. What I can talk to and Ian might be able to add to it is the factors that drive that. We have seen 2 factors impacting crush margins. That has been the dry conditions and the lower crop last year in Victoria. And that certainly pushes pressure on margins in the second half as effectively, you've got a pay per seed that you've got to go further for so the transport cost becomes relevant in that respect and the competitiveness in Victoria, where our major crush plant is. The second factor is the global environment where we're seeing strong supply of oilseed and competing products like soybeans globally. So that's meant that whilst there's still global demand for these products in terms of the oilseed and the oil, it is competing against fairly full supply from the rest of the world. Now we do, and as we flagged before, that will correct over time. It is more difficult to say when that will be. And we look at things like conditions in the Northern Hemisphere, which will ultimately change the supply/demand dynamic in the rest of the world. Ian, you got anything to add to that?

That probably largely covers it, Apoorv. The other aspect that can support global crush margins is that renewable fuel and demand and policy settings that support that. That's probably the other factor. But I think the bigger fundamental ones are definitely those supply and demand of crop, which is always a key feature of margins. So that Victoria and canola crop being a key aspect and then canola and soybean crops elsewhere globally. So these are the things that will affect margins. So hard to predict that too far out the curve just as a result of weather conditions, but those are the elements that, broadly speaking, can have an impact on crush margins.

And just a quick clarification question, please, Ian. The -- in FY '24, you called out $10 million of those to East Tamaki closure costs. Was that all done in '24? Was there any sort of left over in the first half?

Yes. Very, very modest in the first half of this year. And just remember that $10 million last year was across the full year, not all in the first half. Some of it was in the first half, but some of it was in the second half last year. But in terms of year-on-year in this first half, it's a relatively modest uplift in earnings as a result of that.

Your next question comes from Owen Birrell from RBC.

I just wanted to, I guess, draw on a comment that you made around the Human Nutrition business, around a timing benefit that occurred in the first half. I was wondering if you could just reiterate your comments around that firstly.

Yes. That's not so much specifically the Human Nutrition business, but the Nutrition and Energy division in aggregate, but I'll let Ian clarify those comments, Owen.

Yes. It's especially in relation to crush margins. So as you can appreciate, there's 3 legs to crush margins. There's the seeds that you're purchasing, the meal that you're selling and then ultimately, the oil that you're selling. So from time to time, we're hedging open parts of that as we haven't always purchased the seeds, sold the meal and sold the oil at the same time. So we do enter into effectively hedges. So for example, if you bought the seed, you've sold the meal, but you haven't sold the oil yet, we might enter into a hedge product like a future product to effectively hedge the flat price exposure, creating a basis exposure. So what can happen from time to time is you have to mark to market effectively the derivative or the futures hedge. But the other side of that being the realized gain or loss against the oil of the meal happens when you actually sell the product. Just from an accounting perspective, typically, the noise around that is very modest, but there is a little bit more to that in the first half in terms of a benefit, and that could partially unwind in the second half. And it's in the handful of millions. So not a significant feature, but that's a little bit of a pull forward into the first half. Hopefully, that makes sense, Owen.

Yes, yes. And I was going to ask you to quantify. So you said sort of a few million dollars impact to effectively EBITDA in the first half. And then I guess into rolling into the second half, I mean, the Nutrition and Energy business delivered a fairly flat EBITDA half-on-half. Now you're calling out, I guess, weaker spreads into the second half. You probably won't have this benefit of this hedge delta coming into the second half as well. Are you able to give us a sense of how much, I guess, the earnings delta that you're expecting to see into the second half or sort of, I guess, some sort of first half, second half split on what you're expecting from that business?

Yes. So if you look at the Nutrition and Energy segment in general, typically, there is a weighting to the first half, similar in Agribusiness as well. But that weighting, I'd expect to be a little more pronounced into the first half of this year as a result of a couple of factors. One is that timing benefit I just mentioned. And the second is increased pressure on margins half-on-half with some of the factors we touched on before that are having a broader impact on margins. And of course, conditions looking ahead to new season crop can impact that, especially in quarter 4. And so at this stage, we've only really got visibility of Q3 crush margins. But as the year progresses, we will get more visibility into final quarter and head into the start of next year.

Okay. And do you mind if I ask the same question. Just wanted to understand whether you think for your markets whether there's been any sort of flow on impact or benefit from the recent flooding that we've seen in Southeast Queensland. I know it's sort of starts to move eastward towards -- sorry, sorry, westward towards South Australia. But is there any benefit to the growing areas that you're exposed to?

In terms of the benefit, it's soil moisture profile and the potential that creates for a well above average crop in that region that's going in the ground now and impacts inflows into next year. So that's very much the net positive side of it. I think when we're talking about flooding and/or dry conditions, it's always important to acknowledge that for those directly impacted on farm, that can create some challenges. In terms of operational implications, relatively minor and the scale of our network allows us to overcome those challenges. We have seen some roads and rail routes temporarily washed out and closed, but that's not a feature in our results or outlook because the scale of our network allows us to overcome those sorts of challenges. So I think really all rain is good rain in terms of the benefit it brings to a larger crop for next year, particularly in that region.

Can I ask, do you expect any benefit to soil moisture levels into South Australia and Victoria as a result of this rain? Or does it just bypass?

Look, not in terms of the cropping regions. A couple of comments I'll make is, first of all, we have very little exposure to South Australia. We note some recent commentary that the more acute impact on both South Australia and Victoria is for those in the livestock and dairy sector. And as I said earlier, that region and particularly Victoria is a autumn and winter rainfall region, which is why crops are planted now to benefit from that rain that typically does come over the next number of months. And we'll be watching the forecast and looking for that rain to come through to create the potential of the crop as I'm sure farmers will be.

Your next question comes from John Campbell from Jefferies.

Just a couple of questions. And just firstly, on the business -- another question on business transformation. Have you actually detailed the totality of the CapEx and the transitional OpEx to give us the sort of indicative -- all right, because you detailed obviously the $20 million to $30 million in sustainable benefits, but the sort of return on capital from the totality of the business transformation program? Or is that just something we have to sort of calculate?

We are reporting it in terms of the look back in terms of the split between OpEx and CapEx. It's typically running at about 15% CapEx, which is typical of these programs and indicative of the fact that we're trying to avoid as much customization as possible. But Ian, do you want to add any broader comment on that?

Yes. From an overall, we've only put out there the specifics around Release 1 ahead of approval of business case of Release 2. So the indicative comments we gave last year was that we expected Release 2 to be broadly similar in size to Release 1, but didn't put a number specifically out there as we were still effectively in the planning stages. So as you saw in the slide update earlier, we've spent a little bit this year on Release 2 or in recent months to start to get clarity on what that looks like in totality, and we'll be able to provide more updates by year-end, certainly on the total program. And that's why, to some extent, there's a bit of a wider range on the benefits as well at this stage when you're trying to look at it as a whole program, but you're from a derisking of completing the program, looking to do it in phases and stages. So that's effectively how we've thought about and look to provide good transparency to the market in the meantime.

Great. Just one other question, if that's okay. So you've sort of raised the issue around weaker demand for biofuels and policy uncertainty in the U.S. I guess the question is, is the environment for biofuels becoming increasingly risky from a policy perspective, particularly out of the U.S., but maybe spreading to other markets? And does that then raise the risk spectrum, I suppose, for the new crush plant investment?

Look, I'll make some comments on that first, John. First of all, no, I don't think it suggests any long-term trend. In fact, the U.S. administration have been broadly supportive of renewable fuels in terms of their time in office. There has been some short-term uncertainty in markets generally associated with the U.S. administration. But we would say that actually quite the opposite, there is developing confidence in the market in the rest of the world, both in terms of demand across Asia, previously announced mandates coming into place in the U.K., Japan and Singapore to name a few. And as I touched on the recent announcement by Qantas, Sydney Airport and Ampol around actually committing to demand here in Australia. So I think as we've always said, we're looking at the long term here. This is not a point in time. I think the fact that we've taken a prudent approach and the volatility that we've seen over the last 6 months demonstrates how prudent we've been, but we remain very confident in both the medium and long-term fundamentals of this as the only way to decarbonize the aviation sector over the next couple of decades. And as carbon pricing across the rest of the world becomes -- and including Australia, becomes a bigger feature, we think that's only going to drive the fundamental economics for investment in this space. And that's why we work with government to make sure there is certainty in the long term. And I think the outcome of the election adds to that certainty certainly in Australia.

Okay. That's a great answer. So I mean, clearly, with the reelection of the Albanese government and the Made in Australia and the whole renewable momentum, I presume there'll be Commonwealth funding potentially available for the project.

Look, we're always open to funding and support for any project, but we're looking at this in the long term as needing to be economically viable based on fundamentals. So we'll let you have that presumption, and we'll happily be a part of any co-funding or opportunity that's available. And we do think this is good for Australia. It is an opportunity for investment and job creation. So we'll continue to work with the government on what funding might be available at both federal and state levels.

[Operator Instructions] Your next question comes from James Ferrier from Wilsons Advisory.

I'll stick to one question. Just looking at the EBITDA profile in the Agribusiness segment. So the improvement there on pcp in the half, if you exclude that CPC fair value gain, so that earnings improvement came from some better volumes in terms of receivables, export outloadings and also on the contracted grain sales side of things. But margins per tonne also improved a bit. So my question for you is whether you feel that is solely reflective of the opportunities on chickpeas, et cetera, that you took advantage of in the period? Or whether you see this margin improvement is more broad and reflective of better export demand or at least a more stable margin environment relative to the downward trend we've seen over the last year or 2?

We might both comment on that. You've captured a couple of the key features. Certainly, we've called out in the ASX statement, the benefit of the chickpea program to India and the weighting in the first half towards that. We've also, though, seen opportunities in canola seed exports as well and the margins associated with that. More broadly, what I would say is you have seen our business respond really well to opportunities that have existed in volatile markets. It's, of course, difficult to forward forecast those opportunities other than to say we are consistently demonstrating our ability to respond to opportunities when they present in a volatile market. So as challenging as the margin environment has been and the competing grain from other markets, our teams are doing a really good job of hunting down, finding those opportunities and operationally being able to execute on them. Ian, I'm not sure you can add a great deal more than that, but I think you've broadly summed it up. Probably the only other thing I'd say is that broadly speaking, the first half, second half split in Agribusiness is fairly typical.

Your next question comes from Ben Wedd from Macquarie.

Just thinking about sort of the -- I guess you kind of referenced it in some of the segment comments there, but sort of the first half, second half skew. I mean if we sort of take the midpoint of the guidance, looking sort of like 66% for '25 versus 61% and sort of more typical to some of those larger years. I'd just be interested to hear any comments that you have around what that sort of implies for second half conditions there, maybe with reference to some of the export margin piece there and then also sort of touching on crush, your expectation for crush margins, too.

Just in a qualitative sense, as you say, Ian has touched on some of the pull-forward benefits in the crush margin, in particular, just associated with timing. I've talked about the opportunities around chickpeas and canola. And I've also talked around the benefits and the agility and capability of our business to find opportunities. If we look to the second half, the area that we have least visibility over is the fourth quarter. So the things that we look for is what are the conditions that are developing that might create an upside margin opportunity. As we've said previously, a bigger forecast crop next year will certainly help the sentiment for farmers to sell and/or disruption in global supply, whether that be through drought or intervention by governments to restrict exports from some of those larger producing markets. So they are the uncertainties. And I think on balance, there's always a probability that those things can happen. But what we're seeing at the moment is that ongoing feature of fairly full supply around the world, making margins competitive. We'll be looking at how the Australian crop develops. We'll be looking at reports of some dryness in China in terms of their domestic production. And of course, we'll be looking at the Northern Hemisphere crops more generally, particularly Russia and the U.S. as major producing nations.

Yes. And that probably summarizes it, Ben. There is a bit more of a skew to the first half than you might typically expect, and that's largely off the back of some of the outperformance in the first half that we've referenced, whether that be the capturing of opportunities in the East Coast or the crush margins being a bit better than what we initially anticipated, partially off the back of timing benefits. And then a number of kind of key positives across the business. They're all modest, but they add up, whether it's bulk materials having a good half, whether it's Animal Nutrition, not only XFA and the business we acquired there outperforming a little bit, but also the broader Animal Nutrition portfolio. So it's not one specific call out. I think it's just that diversification of opportunities that did see us perform pretty strongly in the first half, but not looking to get ahead of ourselves on what that means for the second half with some of the global macro environment.

Your next question comes from Jonathan Snape from Bell Potter.

Look, can I just ask one just for the sake of clarity around the guidance. In the segment notes, there's -- and I was talking about this Crop Protection Contract, there's a $22 million gain that looks like it's gone through the P&L, which I assume is just shifting it from the $18 million liability last year to the $4 million asset this year because it's pretty much paid out. That $22 million, that's included in the underlying EBITDA guidance, right?

That's right, Jon.

And is that any different from where we were in February in terms of thinking? Because I noticed you pulled the receipts down a little bit. I'm just trying to figure out if that number was always going to be a $20 million type number in your thinking.

Yes, it was. That was included within our thinking, yes. It's exactly that, Jon. It's the unwind of effectively the liability, the fair value liability that was building up effectively off the back of higher crop years flowing into the valuation of it as a derivative. And then, of course, as you reach the cap of it, it's not going to make sense for it to be a liability. So in essence, the modeling of it as a derivative puts it into a small asset position, which makes sense.

So you wouldn't anticipate anything moving through in the forward years then in movements because it's -- I think there's been some years where it's been big, but hasn't had much of a contribution out -- other than that. Okay.

Especially as you get closer to the end of it, yes, we'd expect pretty modest movements now on that fair value and the noise should be very minimal now that you're at that capped position.

And just to clarify, Jon, we've always treated both payments and receipts and a fair value movement as -- underlying and as part of the reported P&L over this year and recent years or the full life of the contract. So nothing has changed in terms of our treatment of it.

No, no, no, but it was quite meaningful this year relative to, I guess, the previous couple of years.

Your next question comes from Richard Barwick from CLSA. Apologies. Your next question comes from Apoorv Sehgal from UBS.

Sorry. I thought maybe we're ending things, but thanks for taking the follow up. I'll give a quick...

[ Quick question for you ], Apoorv.

Maybe just quick on the Canada JV. I didn't comment earlier, you're undertaking a review of that with your JV partner? Just maybe talk about what hasn't quite gone right over there. Is it purely on the macro side? Is it execution issues? Losses obviously expanded a bit in the half, again, versus pcp, just for expectations going forward.

Yes. Look, I think it's an easy answer to provide. It is on the macro side. As we have said, we continue to be happy with the operational performance of that business and the quality of the assets. It's been exposed to the prevailing conditions in Canada where there has been droughts that have impacted supply against a backdrop of recent over the last few years' investment and capacity in Canada, which has made it tough for everyone in the industry, and we certainly see that as we look at the market in general. And then add to the top of that, the global environment that we've talked about impacting our overall business. That certainly is more apparent when you look at the starting position of Canada. So macro issues in entirety. And we will be working with our joint venture partner, as we've said in a strategic and operational review to work out what the best solution for that business is into the future. I'm conscious of time. We might hand back to you to wrap up the call, and I'm happy to make some closing remarks.

Thank you. That does conclude our time for questions. I'll now hand back to your speakers to make some closing remarks.

Thank you, everyone, for joining us today. I have very little to repeat other than, as I said, strong result in the first half; continuing to invest in our business; a strong balance sheet, which allows us to invest in the business and provide capital returns to shareholders, including the $0.24 of interim dividends and the increase in our buyback to $75 million; and of course, an upgrade in our guidance today to between $285 million and $325 million. Thanks for your interest and support. We look forward to catching up with many of you over the course of the next few days.

That does conclude our conference for today. Thank you for participating. You may now disconnect.