GrainCorp Earnings Down 34% to $250M on 9% Lower Grain Volume

About

GrainCorp Limited (GrainCorp or the Group) is an integrated agribusiness and processing company focused on grain and edible oils, that connects growers to domestic and international consumers around the globe. The Group owns and operates the largest grain storage and handling business in East Coast Australia with 160 grain receival sites, 7 ports and 120 marketing offices globally. Founded in 1916, GrainCorp was corporatised in 1989 and listed on the ASX in 1998 under the Ticker symbol GNC.

FY23 earnings above historical averages

Continuing strong domestic and international demand for Australian commodities helped drive GrainCorp’s Net Profit After Tax to $250 million for the year to 30 September 2023. Although 34 percent below the $380 million result earned in the previous financial year when volumes and margins were at record levels, the FY23 profit outcome is above historical averages.

Revenue was up 4.6 percent to $8.2 billion and total grain handled was 37.4 million metric tons (mmt) compared to a record 41.1mmt in the previous financial year. Although volumes and margins were down from the record levels seen in FY22, tonnages remained above historical averages, in that grain handled in FY21 and FY20 was 34.4mmt and 14.2mmt respectively.

FY23 dividends were 54 cents per share (FY22: 54 cents) and the final dividend of 30 cents fully franked is payable on 14 December. GrainCorp’s dividend policy is to distribute 50 to 70 percent of underlying net profit after tax to shareholders on a through-the-cycle basis. This means that the dividend payout ratio is based on the long-run average of the weather-driven production volume cycle and ignores short-term production and earnings volatility.

The balance sheet remains robust with core cash of $349 million and net debt at 30 September 2023 of $373 million (FY22 $540 million), representing a gearing ratio of 19 percent at 30 September 2023, compared to 22 percent a year earlier. On 15 November 2023, $127 million gross proceeds were received from the sale of GrainCorp’s 8.5 percent equity stake in United Malt Group. This has enabled the board to announce an on-market share buy-back of up to $50 million commencing on 16 February 2024 and ending on 15 November 2024, with the maximum number of shares proposed to be bought back capped at 22,433,699. This is 10 percent of the 224,336,997 shares on issue at 16 November 2023.

GrainCorp Ventures

Launched in May 2022, GrainCorp Ventures is GrainCorp’s $30 million corporate venture capital fund that is focused on start-ups within the Australian agriculture and food production sectors. The fund seeks to invest in early-stage start-ups across Ag Tech, animal nutrition and food innovation that drive sustainable agriculture and food production. Enhancing GrainCorp’s capabilities in Animal Nutrition, the Group announced in November 2023 the acquisition of XF Australia for total cash consideration of $35 million. XF Australia generated EBITDA of $7.6 million for the 12 months to 30 June 2023.

Outlook

The ECA winter crop harvest is underway and while high crush volumes are anticipated and the quality across all products is excellent, margins are likely to moderate from FY23 levels. However, agriculture production volume should be considered on a ‘through-the-cycle’ basis by considering the impact of weather on year-to-year production volume.

Importantly, global population growth is driving increased demand for food, particularly in Asia, which with other emerging economies is shifting the focus to health and sustainability. Australia has a geographical advantage delivering grain to Asia and a powerful reputation for clean, green, and safe food sources. Combined with GrainCorp’s monopoly supply chain infrastructure that efficiently moves grain from producer to end customer to meet sustainable food and fuel solutions, these factors should sustain positive shareholder returns over the medium to long term.

FY23 dividends: 54 cents per share, final dividend 30 cents payable 14 December