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Grain growers’ cooperative poised to perform following challenging FY2019

  • Posted on Friday 10th, January 2020.

The CBH Group's strong operational and underlying financial performance has been impacted by global grain market forces leading to a Group deficit before rebates of $13.3 million and a net loss after tax of $29.7 million according to 2019 financial results.

For the 12 months to the end of September 2019, CBH received and managed the second largest harvest on record at 16.4 million tonnes, with Group revenue rising by 10 per cent to $4.2 billion, driven by high grain values in the first half of the year.

The increase in Group revenue was offset by the $4 per tonne supply chain fee reduction provided to growers and marketers for the 2018-19 harvest, totalling $60.4 million, the Marketing and Trading loss, several impairments in investments and one-off costs.

CBH CEO, Jimmy Wilson, said the Group experienced a strong start to the financial year, with large harvest volumes coupled with higher grain prices driving robust underlying performance.   

“Most Western Australian growers experienced an exceptional harvest, with the second largest crop on record, also the highest value grain crop ever produced,” said Wilson.

“Our underlying performance was strong, particularly from the Operations division which performed well to safely and efficiently receive the large crop and move it through the supply chain to our four ports for export customers," he said.

At the end of September 2019, Operations recorded a division surplus before rebates of $115.9, up from $91 million, driven higher by increased harvest volumes.

“This was a particularly good outcome, given the $4 per tonne or $60.4 million fee reduction passed on to marketers and growers,” said Wilson.

“In line with our purpose of sustainably returning value to growers, we made a record annual investment in the network, accelerating the pace of new storage builds that will drive throughput capacity and efficiency, enable competitive supply chain fees and meet export demand at the right time to capture value for our growers’ grain," he said.

A total of $285.3 million was invested in network capital, maintenance and sustaining projects during the year including to expand storage capacity, enhance inloading efficiency such as installing weighbridges, and maintain existing infrastructure.

Wilson said headwinds experienced by some areas of the business, particularly grain trading, and in the markets that some of our investments operate in, negatively impacted the Group’s overall financial performance.

“Along with other Australian grain traders, our Marketing and Trading division experienced a set of global and political circumstances during the year that significantly impacted its bottom line, resulting in a $119.3 million loss,” said Wilson.

For 2019 financial year, CBH recorded a Group deficit before rebates of $13.3 million. The result includes one-off impairments and provisions totalling $35.1 million including:

  • $13.7 million impairment of Interflour’s milling business in Turkey. Interflour is currently undergoing a strategic review of the Turkey business to de-risk its exposure in the market.
  • $8.5 million impairment of the Newcastle Agri Terminal which has been impacted by the ongoing drought in eastern Australia.
  • $300,000 impairment in Marketing and Trading’s investment in CI Trading, Vietnam, which CBH has exited.
  • $12.6 million site rehabilitation provision, which relates to future estimated costs relating to site retirements. CBH has yet to finalise retirement plans however is raising this provision for future balance sheet planning purposes.
  • After returning $16.4 million to growers through the Grower Patronage Rebate Program, CBH reported a Group net loss after tax of $29.7 million.

“While the loss is disappointing, it should not overshadow the strong financial position of the co-operative which has a robust balance sheet that has been strengthened over many years with $1.8 billion in net assets and little long-term debt,” said Wilson.

“Without the one-off impairments and site retirements provision, our underlying performance for the year would have been a Group surplus before rebates of $21.8 million.

“Despite a challenging year, this reiterates the strength of the co-operative’s financial position and capacity of the business to return value to growers, including reducing supply chain fees, while managing unexpected market impacts," he said.

Significant headwinds were experienced by Marketing and Trading, with a range of external factors in the wheat and barley markets affecting the division’s ability to generate a profit.

The factors included the ongoing Chinese anti-dumping investigation into Australian barley, unexpected movements in wheat values and basis and price uncertainty as a result of the prolonged drought in eastern Australia.

While growers benefited from high prices last harvest, the changing market conditions during the year meant that these values could not be met when making export sales, impacting the profitability of Australian grain traders, including CBH.

“We have taken stock of the circumstances that led to the 2019 result and reflected on how we can best position ourselves to limit exposure to similar events occurring in the future,” said Wilson.

“Marketing and Trading has been able to withstand these market events as the division has built a strong balance sheet which enables us to weather the fluctuations of our dynamic global grain industry.

“For the current harvest, Marketing and Trading has secured banking facilities in excess of $1 billion to purchase grain from growers demonstrating the continued strength of our banking relationships and balance sheet, despite a difficult previous financial year," he said.

CBH remains well positioned to continue with its investment in the network and deliver storage expansion and throughput enhancement projects for the coming year. 

“We remain focused on a disciplined approach on delivering an optimal supply chain with efficient inloading and outloading capabilities to help keep our growers internationally competitive,” said Wilson. “While it has been a tough trading environment, Marketing and Trading will continue to maintain and strengthen customer relationships and explore new export opportunities in the year ahead to help counter some of the challenges that emerged in the past year.”

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