GrainCorp reaps $122m profit on the back of logistics

GrainCorp points to its strategic focus on delivering supply chain value as the reason for strong half year results announced today

GrainCorp reaps $122m profit on the back of logistics
Graincorp reaps $122m profit on the back of logistics

By Anna Game-Lopata | May 22, 2012

says its strategic focus on delivering supply chain value
is the reason for strong half year results announced today.

The grain handling and storage company's underlying net profit after tax of $122.0 million up 39 percent for the first half was driven largely by higher earnings from storage, handling and ports activities.

GrainCorp Chief Executive Officer Alison Watkins told investors the company’s Country and Logistics business nearly doubled its earnings, despite a smaller crop than last year’s record.

Underlying earnings were $235.1 million, up 36 percent.

"We’re pleased with the progress we’ve made on improving rail productivity, and while that’s also been a factor in improving margins, we’re aware there’s more to do," Watkins says.

"We remain focused on improving the efficiency and productivity of the supply chain but we’re also mindful that we need to pass on benefits to growers."

Watkin says the "best thing" is to put growers in the most competitive position so they’ll be motivated to grow more grain.

"We’ll be talking in more detail at our investor day about some of our specific initiatives to improve supply chain efficiency and the attractiveness of our network,"
she says.

The Country and Logistics business reported a $34 million earnings uplift due to record 6 million tonne carry-in, higher storage and out-load revenues, and "effective customer service in the face of 11.6 million tonnes of receivals".

"Our harvest-related operating costs were also lower due to a more straightforward harvest period," Watkins says.

"GrainCorp’s ports benefited from handling record grain exports of 5 million tonnes during the half.

"This is an excellent outcome in challenging circumstances, considering the disruption to rail and accumulation caused by the significant flooding across NSW in February and March.

"Due to the high level of grain available for export and good international demand, we’re expecting to export a further 5 mmt in the second half. This compares with 4.9 mmt exported in the previous corresponding period."

In terms of port capacity Watkins says GrainCorp has about 16 mmt of bulk grain.

"Even in a large export year like this one, we still have excess capacity, although certain ports get close to capacity in certain months.

"We’re very comfortable with our capacity and our ability to manage it."

Watkins says an important factor has been more rail capacity coming into the system which means greater volumes of grain can get to port.

"Export supply chain bottlenecks tend to be around getting grain to port rather than getting grain out of port," she says.

"We’ve been able to increase the capacity at some of our key ports, including Newcastle, Geelong and Port Kembla, by a cumulative 635,000 tonnes, due to our better confidence in the supply chain’s ability to bring grain to port and growing global demand for Australian grain."

Watkins says the company plans to continue its strategy of diversification.

"We know that in some years our ports will be quiet, so as well as exporting non-grain commodities we’re also importing them," she says.

In the first half GrainCorp imported around 200,000 tonnes of non-grain commodities including fertiliser, meal and sands.

"We continue to explore complementary non-grain export opportunities that allow us to leverage our port assets," Watkins says.

"To this end, we’re focused on growing non-grain exports to a minimum of 2 mmt per annum."

"In Country and Logistics we are accelerating our program of safety expenditure and equipment upgrades, to ensure we are prepared for another potentially large harvest.

The continued busy export program means GrainCorp expects FY13 carry-in to be about 4.5 million tonnes, compared with 6.0 million tonnes at the beginning of the current financial year.

"GrainCorp has sought to provide a greater level of certainty for its export customers by opening the shipping stem early for the first quarter of the 2013 shipping year," Watkins says.

"Demand for elevation capacity is very strong, as customers seek to meet international demand."
"We will continue to work with our customers to identify ways to plan their export programs further in advance, encourage supply chain flexibility, and to build the competitiveness of Australian grain exports."

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