GrainCorp Limited (GRCLF) Q3 2023 Earnings Call Transcript

GrainCorp Limited (OTCPK:GRCLF) Q3 2023 Earnings Conference Call November 15, 2023 6:00 PM ET

Company Participants

Robert Spurway – Managing Director, Chief Executive Officer

Ian Morrison – Chief Financial Officer

Conference Call Participants

Apoorv Sehgal – UBS

James Ferrier – Wilsons

Ben Wedd – Macquarie

Richard Barwick – CLSA

Jonathan Snape – Bell Potter

Operator

Thank you for standing by, and welcome to the GrainCorp Limited FY’23 Results Briefing. All participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. [Operator Instructions].

I would now like to hand the conference over to Mr. Robert Spurway, Managing Director and CEO. Please go ahead.

Robert Spurway

Thank you and good morning everyone. Welcome back to those that have followed us for some time and welcome to anyone new joining the call for the first time.

Before I start, I’ll just acknowledge page three, where GrainCorp would like to acknowledge the traditional owners of the land on which we meet. For those of us here in Sydney, that’s the Gadigal people of the Eora Nation. We pay our respects to elders past and present.

This morning you’ll hear from myself and our Chief Financial Officer Ian Morrison as we share the GrainCorp results for financial year 2023.

Moving to slide four on the pack, I think the numbers speak for themselves. It was excellent all-round performance and an outstanding result from GrainCorp. EBITDA of $565 million, net profit after tax of $250 million and a very strong return on invested capital of 18.6%. We again saw strong volumes of grain through our network at over 37 million tonnes, down only slightly on the year prior.

Our oilseed crush volumes came in at just under 500,000 tonnes. It’s the fifth year in a row that we’ve increased our throughput through crush volumes. Importantly, and a result we’re proud of, very strong balance sheet at $349 million and that’s before the receipt of funds associated with the sale of the United Malt Holding. Ian Morrison will talk to the financial strength of the business shortly.

Just looking at some of the key themes on page five that sit below those headline numbers, I’ve talked about our EBITDA and our grain volumes handled and our record oilseed crush volumes. Earlier in the year, you’ll recall that we lifted our through the cycle EBITDA to $310 million. So GrainCorp has delivered outstanding performance in financial year 2023.

Alongside that, we continue to execute strongly on our strategy. We’ll talk about that in a bit more detail around both delivering on what we call strength in the core and identifying and delivering on growth opportunities.

Just yesterday, we announced the acquisition of XF Australia and the benefits that will bring to our wider animal nutrition business. We’ve made good progress in assessing the additional crush capacity and I’ll talk specifically about that in the coming slides.

We’ve continued to broaden our portfolio of digital and ag tech investments, both financial, technology and capability builds across our business.

We are driving shareholder value. That exceptionally strong balance sheet of $349 million in core cash, plus as I said, the proceeds of $127 million from the sale of UMG received yesterday, put us in an exceptionally strong position. That’s allowed the Board to declare a $0.30 final dividend, bringing total dividends to the year of – to $0.54 per share. All of those dividends are fully franked. In addition, today we’ve announced a buyback of up to $50 million.

On page six, I want to reiterate the comments I made at the half year and convey our condolences to the friends and family of our colleague fatally injured in a truck accident in April at our Moree site. Its incidents like that that underpin why we will continue to strive for zero harm every day. The slide itself goes into the detail of the other areas that we’re investing in, in safety and the progress we are making. As I said, we will continue to strive for zero harm every day.

As well as announcing our results today, on page seven, we talk about our commitment to sustainability, the fact that it’s right throughout our business and right through all the strategic themes. I’m also proud to recommend to you our sustainability report for 2023, which is published on our website today. That goes into details across all areas around the progress we’re making and the commitments we’ve made.

Some highlights to call out in that. Just in this last 12 months, we’ve decreased emissions across our processing sites by 11% per tonne of production. We’ve committed to setting science-based targets through the SBTi initiative for scope one, two and scope three emissions reductions.

We’ve completed a pilot study with a key customer on sustainable agricultural practices in Australia. And we continue to make additional commitments, including the elimination of grain tarpaulins from landfill by 2027.

Alongside that, strong investments in people and our communities. We’re proud of the GrainCorp Community Foundation and the support that that foundation has provided to over 140 community groups in the last 12 months.

In addition, we’ve closed our gender pay gap and are well ahead of the national average and continue to make progress in those areas. Reconciliation Australia have endorsed our Reconciliation Action Plan. We’re continuing to raise awareness and make progress across all areas of our business. And as I said earlier, the sustainability report makes for a great read and something that we’re proud of, acknowledging that alongside those commitments, we’ve got more to do.

For those of you that have followed us for some time, on page nine you’ll recognize our strategy slide. It’s consistent and we’re delivering against that strategy. It’s deliberately split into two parts. What we call strengthening the core, delivering on that commitment of return on invested capital, evidenced in our result, not just this year, but over the last several years, and also identifying and delivering targeted growth opportunities.

Today, I’m going to share a little more detail with you around our progress on Agri-Energy, Animal Nutrition, and Digital and Ag-Tech. But first on strengthening the core, we are driving our existing assets harder.

For example, we’ve seen renewable feedstock exports grow by 6% each year on a compounding basis. In ‘23 we achieved the highest volumes we’ve seen in five years. We’re seeing sustained growth in our crush volumes, 8% compound annual growth since financial year ‘19. We are doing what we said we would do.

Alongside that, it’s not an area that we always talk about, but despite the record grain volumes over the last few years, we’ve continued to grow our bulk materials or non-grain volumes through our ports. That’s all part of increasing the quality and the diversification of our earnings.

We’re leveraging our capabilities. We are commencing a business and systems transformation that will both reduce complexity and improve efficiency. We’ve integrated our nutrition and energy business to improve efficiency and deliver on customer experience.

We’ve invested in digital and advanced analytics capabilities, and one of the key examples or proof points of that is the ongoing improvement and crush volumes. It’s a successful program and we expect to continue to drive efficiencies across grain core.

Although the overall business is performing exceptionally well, we have called out areas that we would like to see improve. Our Foods New Zealand business and our GrainsConnect Canada business are not performing at levels that we’re happy with. And we are continuing to support and invest in those business to determine the strategic options that will deliver on their capability into the future.

Alongside that, we have a continued focus on cost management as we respond to the variable weather that we’re faced with and indeed respond very capably and manage effective results in a higher inflationary environment. GrainCorp is performing well and is committed to continuing to do so into the future. And that’s all underpinned by our confidence in our through the cycle number of $310 million we shared earlier in the year.

Just moving to page 11 in the pack. At the half year we announced our evaluation of new oil seed crush plant capacity. That is going well. We continue to see it as a compelling case and an attractive growth opportunity for GrainCorp. It builds on our existing leading position as a supplier of renewable fuel feedstocks to export markets.

It creates the opportunity for satisfying the demand we expect to grow in Australia and the security and sovereign capability that Australia over time will have in renewable fuel and reducing emissions.

Our progress to date includes an announcement today that Western Australia is our preferred location for a new crush plant. We expect a new crush plant, if it goes ahead, will be in the order of 750,000 to 1 million tonnes capacity. So it is a scale plant that we see the opportunity for, bringing the efficiencies that come with that scale.

Just this week, we’ve announced an initiative with IFM investors who are keen to underpin their investment in aviation by developing out the demand for sustainable aviation fuel and GrainCorp in the agriculture sector can play an important part in that.

We’re proud to be part of that partnership as we continue to evaluate and build out the feasibility for a future investment in crush capacity. That work will focus on building the upstream and downstream partnerships on both the supply and the demand side and further feasibility to build out the financial and economic business case.

I touched on in the opening in the detail covered in page 12 around our acquisition of performance feed and nutrition services associates in Australia. That acquisition is a $35 million acquisition. The business produced earnings over the last 12 months of $7.6 million. It’s complementary to our existing animal nutrition business.

It will build out the capability that we’re able to offer to our customers and the geographic footprint we operate in across Australia. We look forward to welcoming the capability and the expertise that acquisition will bring to our existing animal nutrition business. That acquisition will be funded out of existing cash reserves and we would expect it to complete early in 2024 following the completion of customary conditions.

Across our GrainCorp ventures area on page 13, we’ve continued to make excellent progress this year. You’ll be aware of the existing investments that we had in FutureFeed and Hone. Businesses that we both expect to return financial benefits in the future, but also a part of improving sustainability in the ag sector and delivering benefits to GrainCorp, the value chain and importantly to growers and farmers.

In addition, over the last 12 months, we’ve made investments in Zetifi, Loam and ZoomAgri. They’re all very much on strategy to deliver those technology benefits and learning and capability to GrainCorp and growers, whether it be through extended Wi-Fi and connectivity for precision farming, such as Zetifi, the Loam business, which is involved in sequestration of carbon and importantly, improving productivity of crops. Or ZoomAgri, which brings direct benefits to growers and GrainCorp through better assessment and quality understanding of the grains we already handle.

In summary, on page 14, we are doing what we said we would do. We’re delivering on our strategy and building a stronger and more capable business focused on growth opportunities and doing what we do well. We are driving our existing assets harder to deliver maximized returns. We’re simplifying and optimizing our business and building an efficiency and importantly, lifting customer experience. That’s an ongoing commitment that we have to growers.

We are identifying and acting opportunities to lift returns right across the portfolio. We’re leveraging capabilities to invest in growth and our future. We’ve demonstrated that through progress in animal nutrition and Agri-Energy, and that gives us absolute confidence in our ability to deliver through the cycle over time. We are demonstrating that in our results.

I’m now going to hand to Ian Morrison that will talk through the segment reporting and the strength that underpins those headline results I’ve shared. Thank you, Ian.

Ian Morrison

Thanks, Robert. I’ll now move on to slide 16 and summaries the FY’23 financial performance. It’s pleasing to report record earnings this year for our processing segment, and that’s alongside another strong result for our agribusiness segment. I’ll cover the various details on this slide as we get into the various segment details in the coming slides. The only item I’ll touch on in a bit more detail here is the increase in net interest this year.

This just comes from increased interest rates on our commodity inventory funding. And as we’ve previously highlighted, we’re able to pass on these additional interest costs from commodity inventory funding into the prevailing commodities that we sell. And so that’s an area that we have good protection against in a rising interest rate environment.

I’ll now move on to slide 17 and the agribusiness segment. FY’23 saw another strong year of crop production across the East Coast of Australia. That saw 29.5 million tonnes of winter grain production and a further 2.5 million tonnes of sorghum from the summer crop. The large carrying of 4.9 million tonnes from the prior year, along with that large crop, saw us handle total grain of 37.4 million metric tonnes, so another large volume year.

Although we did see a decline in overall supply chain margins from the record highs experienced last year, margins still did remain robust and above historical averages. And that largely comes off the back of that strong surplus of grain across the East Coast.

A couple of highlights to point out. It was really pleasing to see the benefits from the investments we’ve made in capabilities across our network in recent years. And we saw a 7.5% improvement in truck turnaround times, and that’s a really important metric for us and our grower customers at harvest. We also saw NPS improve to plus 22 in FY’23, which is really pleasing.

Just one comment on the east coast Australia results. This result does include the $70 million payout under the crop production contract. And that’s in addition to the $6 million annual premium and also a $6 million fair value loss on that contract. So overall, there’s a negative impact of $82 million in the overall results from the CPC.

And last thing just to touch on for ECA. A really pleasing highlight in the result was the increase in bulk material volumes from 2.5 million tonnes in the prior year to 3.3 million tonnes this year. That continues to build on our strategy to improve the utilization of our assets through the cycle.

Now moving on to slide 18. Our international business delivered a strong result this year, and that largely was off the back of good margins from WA in delivering that large crop to our customers right across Asia and beyond. We continue to see strong demand for Australian grain. And our international business played a key role in connecting both West Coast and East Coast Australian grain to that global demand.

As Robert touched on before, our GrainsConnect Canada joint venture did have a challenging year in FY’23 with that region still recovering from drought. That’s all margins and volumes impacted. We are, however, pleased with the operational performance and capability of that asset base and look forward to seeing improvements in its performance.

Now on to our Feeds, Fats and Oils business and what was a record year in FY’23. We saw strong performance across all the parts of that business. Our Feeds business benefited from the large herd size and continued strong demand for supplementary feeds. And on the Agri-Energy side, our Fats and Oils business also delivered a strong result as demand continues for renewable fuel feedstocks.

I’ll now move on to slide 19 and our processing segment. As you can see in the graph on the right-hand side of this slide, FY’23 has seen a fifth year of consecutive growth in our crush volumes, and that’s off the back of us driving those continued operational improvements that Robert touched on earlier.

This year we delivered an advanced analytic program across our crush plants and that saw us achieve nearly 500,000 tonnes of crush volumes this year. We also saw excellent crush margins continue this year. The second half did see those margins moderate from the record highs we saw in the first half, but overall that supply of canola seed in the east coast of Australia, as well as the increasing demand for vegetable oils, underpins that ongoing positive margin.

Turning to our Foods business, we saw softening market conditions across that part of the portfolio. And in New Zealand in particular, this saw us take a $19 million non-cash impairment charge in the year.

Now turning to slide 20 and the corporate segment. The firstly total corporate costs increased $10 million year-on-year. And the majority of this increase came from growth and transformation projects as we continue to pursue strategic opportunities across the portfolio. This included costs relating to the crush feasibility work we’ve been doing and also some early work on looking at systems modernization.

On this slide, we’ve also split out the UMG fair value gain of $46 million, and that sits in the corporate segment in our annual report. Note that this fair value gain is based on the closing share price of 30 September of $4.94 compared to the final sale value of $5.

We’ve received gross proceeds of $127 million this week from the sale of UMG with net proceeds after tax of $104 million. And one item just to note is the guidance we provided back in May had already assumed a fair value gain of $39 million from that UMG holding. So we’ve seen an additional $15 million since then in the fair value gain in the year.

I’ll now move on to slide 22 and talk about the balance sheet. We finished the year in a very strong position with a core cash balance of $349 million. FY’23 saw really strong operating cash flows with some of that working capital unwind we’ve talked about previously, and that’s coming off the peak we saw last year.

We’ve also seen a decrease in net debt year-in-year with closing net debt of $373 million. Note that that reported core cash position of $349 million, that doesn’t include the cash proceeds received from the UMG sale as that is only completed this month in FY’24. So overall, in summary, our balance sheet is in a very strong position and that provides us really good flexibility to continue to deliver strong returns and also invest in our strategy.

Moving on to slide 23 and capital expenditure. Similar to FY’22 and ‘21, we’ve seen slightly higher CapEx against our through the cycle range. That’s largely been to support additional capability and capacity across the East Coast network in particular to handle the large harvest we’ve seen in recent years. We’re really pleased with the benefits coming through from those investments and the quick paybacks we’ve been able to see.

Investment capital in the year of $26 million includes two main items, $14 million of equity into our GreenConnect joint venture as part of a recapitalization of that business, and it also includes $12 million across our portfolio of Digital and Ag Tech investments that Robert covered earlier.

I’ll now move to slide 24 and touch on dividends and capital management. The Board today declared a final dividend of $0.30 per share fully franked. That’s made up of a $0.14 per share ordinary dividend and a $0.16 per share special dividend. This brings total dividends for the year to $0.54 per share. And in total, this is dividends of nearly $3 million having been paid and declared since the merger.

In addition to those dividends, the Board also announced a share buyback of up to $50 million today. Those announcements today demonstrate an ongoing commitment to continuing to deliver strong returns back to shareholders.

On that note, I’ll now hand back to Robert.

Robert Spurway

Thank you, Ian. As well as a look back on financial year ‘23, I would also like to provide an update on the outlook and where we’re placed for financial year 2024. We are extremely well placed for the season ahead. Albeit,despite the dry conditions in the north, continue to forecast an average crop and we’re now seeing harvest well underway in Queensland and northern New South Wales, with southern New South Wales and Victoria getting underway as we speak. We wish growers all the very best for that harvest period, and we’re seeing strong volumes come through, particularly in those southern regions.

Harvest is running earlier this year, and I’m not sure there’s any such thing as an average harvest. You may recall 12 months ago, we talked about the fact that harvest was running later than average. So perhaps a more normal timing this year, with year to date receivables of 3 million tonnes. So the business is busy, as are growers right across the southern regions of Australia.

Year-to-date exports are just under 0.5 million tonnes. And as Ian touched on earlier, we are demonstrating strong processing volumes throughout the year, despite margins moderating. We will provide further guidance at the AGM in February, as we’ve done over the last three years. And again, I reiterate our wishes and support to growers as they move through the busy harvest period.

Look, finally, before we open for questions on Page 27, I want to make some concluding remarks, and indeed a bit of a recap on the material we’ve covered this morning. It is an outstanding result for financial year 2023, underpinned by strong performance across all the business segments.

Our balance sheet is in an incredibly strong position, with significant flexibility for ongoing returns to shareholders and further investment in the business. We have made an acquisition and announced the Animal Nutrition Growth Strategy today. And as I said, we look forward to welcoming that capability into our business.

We’re continuing to make good progress on our assessment of new crush plant capacity. We’ve got confidence in our through the cycle earnings guidance announced back in May of $310 million. We are demonstrating a strong track record of strong returns to shareholders.

And I thank you for your time, interest and support this morning. And I’ll hand back to the moderator to manage any questions.

Question-and-Answer Session

Operator

Thank you, sir. [Operator Instructions]. Your first question comes from Apoorv Sehgal with UBS. Please go ahead.

Apoorv Sehgal

Good morning, Rob and Ian.

Robert Spurway

Good morning, Apoorv.

Apoorv Sehgal

My first question, just on the working capital, referencing slide 38, good to see that working capital unwinds or takes shape in the second half. I’m just like curious on your thoughts into FY’24. Assuming the ‘24 crop does normalize, to what degree can we get that working capital position to unwind further in FY’24? And what would be the appropriate sort of time period to look at in that chart as a reference point? Is that 2020 sort of net working capital position kind of maybe an appropriate reference point when we’re starting to think about 2024?

Robert Spurway

I’ll let Ian answer that, Apoorv. You’re right, and good to see you dive straight into the appendices. It is all part of our commitment to make sure we’ve got very transparent and complete disclosures. And there is certainly opportunity to further unwind in working capital. And as you point out, that does to some extent depend on the prevailing conditions. But Ian will talk about how we see that and qualitatively the sort of level we expect it might end up at over time.

A – Ian Morrison

I’m happy just to add some additional comments. So on slide 38, you can see the graph of working capital over the last number of years. Probably my comments Apoorv would be FY’20 was more drought-like conditions. So that’s probably below average, and FY’21 was coming out of drought into a larger crop year. So I would say it’s probably – our average working capital is closer to that 21-year or certainly the early part of that 21-year than maybe seeing an unwind back to 2020 level. So hopefully that gives you a bit of a flavor, but definitely still some more working capital to unwind as we return to more average values and volumes.

Apoorv Sehgal

Yeah. Okay. That makes sense. Is there a certain level of net core cash you’d like to maintain at a minimum through the cycle? And if a large acquisition opportunity presents itself, would the business be willing to go into a core debt position if it made sense?

A – Robert Spurway

Look, we haven’t provided specific guidance on that, but we will reiterate what we have said, that our capital management framework calls for minimal core debt. So that suggests that we’re certainly not expecting to carry core cash in every year.

All of that depends, of course, as to where we think we are in the cycle, our continued investment in diversification and growth of earnings. But whilst we haven’t defined minimal core debt, you can look at the sort of structures that we had in place at the time of demerger and feel comfortable that in the order of $100 million in core debt we’d regard as minimal.

So I think the balance sheet has plenty of capacity to fund the ambitions we’ve got, the investment in the business, potential growth opportunities, and also deliver ongoing strong returns to shareholders.

Apoorv Sehgal

All right. And just my final question, just on that incremental crush capacity of up to a million tonnes, which is a large number, can you give us any details on what the financial cost of that might be or anything we can consider when trying to think about that?

A – Robert Spurway

I’ll make two comments on that. We’re not in a position to disclose exactly what we think that might cost. But if you look to signals overseas, you can pretty quickly deduce that it could be several hundred million dollars. If we were to go ahead with an investment case, there are a number of different funding options and partnerships that make it difficult to provide guidance on what we think that might be, and there’s plenty of work going on to build out that business case and investment case.

The second thing I would say, and it follows from your last question on the balance sheet, that irrespective of the cost, the balance sheet has absolutely got the capacity for the sort of ambitions we have, not just in crush, but in the broader growth ambitions for the business. So we feel we’re very comfortably placed for delivering on the strategic intent that we’ve shared today and previously.

Apoorv Sehgal

Fantastic. Thanks, Chris.

Operator

Thank you. The next question comes from James Ferrier with Wilsons. Please go ahead.

James Ferrier

Good morning, Rob and Ian. Thanks for your time and congratulations on the result. Could I firstly ask you about the feed, fats and oils business? I think back at the half-year result, you described it as probably tracking close to 2x in terms of its earnings contribution, close to 2x its historical level. And I’m just wondering whether there’s been further improvement in FY’23 versus FY’22 or is the strength of the result more about holding those elevated performance levels from FY’22?

Robert Spurway

Thank you, James, and good morning. I’ll leave Ian to talk to that one in a bit more detail for you.

Ian Morrison

Yeah, happy to. James, it is probably – it is an improvement on FY’22, but a moderate improvement. We did see pretty strong performance and in the prior year as well, and it’s also got a number of different elements to it. So we’ve seen really strong performance, especially in the second half from the animal nutrition side. We did see really strong performance across elements of the fats and oils portfolio last year, particularly with the elevated values we saw in commodities and the vegetable oil complex. We’ve seen some of those values in the veg oil complex come off this year, and that impacts margins to some extent. But overall, across the portfolio, we have seen an uplift year-on-year.

Robert Spurway

I’d further add, James, I think it’s a good example of a diversified area of our business where the long-term demand signals and momentum in that sector are very strong, and we’re in a leading position to be a part of those growth opportunities into the future. And it’s nice to see it being a significant feature in the recent sentiment we’ve shared around our results.

James Ferrier

Yep, absolutely. That makes sense. Thanks, Rob. Second question, in the outlook statement, you talked about an expectation for processing margins to moderate. Is the reference point to that FY’23 or second half ‘23?

Ian Morrison

Yeah, I’m happy to take that one, James. We’ve seen relatively consistent performance across processing and crush in particular, other than probably first half this year where the margins were quite a bit elevated. So when we’re talking moderation, it’s more from first half than second half. We think second half is where we see margins probably travelling into the early part of next year.

The other thing just to call out though, is it’s pretty typical to see first half margins stronger than second half margins, and that’s off the back of ability to deliver seed at a lower cost, generally speaking in the first half, just because of proximity to harvest, cutting costs, etc. So that is a typical profile as well to see first half stronger than second half.

James Ferrier

Yep, that makes sense, Ian. Can you give us some guidance on D&A and CapEx for the year ahead, please?

A – Ian Morrison

Yeah, happy to. So on D&A, we probably expect to see that relatively similar year-on-year, potentially a very moderate decrease. And you’ll recall the comments we’ve made at recent updates that we have invested in more short-life assets in recent years. And so those are typically two to three years. Our key one, for example, is tarpaulins. So as the volumes across the East Coast business in particular go back to more typical levels, then some of the investment in those short-life assets will come off. But we’d expect in the year ahead that it will be relatively flat.

On CapEx, we’ve been calling out in the last couple of years, in particular on sustaining CapEx, that we’ve seen that at higher levels off the back of the higher volumes on the East Coast. As we return more to a typical and type of harvest activity, we’d expect to trend back our sustaining CapEx closer to those through the cycle levels of $40 million to $50 million. Of course, any additional investment in growth projects or acquisitions and those types of investments would be over and above that sustaining CapEx type envelope.

Robert Spurway

Yeah. I certainly want to reiterate that commitment to the $40 million to $50 million and the fact that we’ve made very deliberate choices to invest above that as the conditions have provided an opportunity over the last couple of years. And those projects or programs of work have typically delivered better than a one-year payback. Without doubt, that’s evidence in the results we’ve delivered this year and in the last couple of years.

James Ferrier

Yep, that’s great. Thanks Rob and Ian, thanks for your time.

Robert Spurway

Thank you.

Operator

Thank you. The next question comes from Ben Wedd with Macquarie. Please go ahead.

Ben Wedd

Hi, Rob and Ian. Thanks for taking my question. Congrats on the result. Maybe just the first question, and circling back to the additional processing capacity which you’ve indicated here. Do you want to just talk us through some of your thinking re-Western Australia as a preferred – was a preferred location there, and also maybe as to why you’ve been elected to look at the route of the Greenfield rather than the Groundfield expansion? Thank you.

A – Robert Spurway

First thing, two areas we look at is both supply and availability of surplus oil seed, and there’s certainly a greater exportable surplus of oil seed on an ongoing basis in Western Australia, which supports the sort of scale that we envisage there’ll be the demand for.

The second piece of course is where we see the demand, both domestically, but also potentially for export on a scale plant like that. And in that respect, Western Australia is a compelling place to look at that additional crush capacity.

The second part of your question, if you look at the existing site we have in WA, it’s a relatively small scale site by comparison, and the opportunity to build Greenfield is just a much more efficient, modern opportunity, rather than extending the plant we’ve got, which is at a completely different scale, and frankly, for a different purpose, in terms of the market that it currently satisfies fairly niche customers across South East Asia in the oil business, and the meal and poultry sectors in WA. So this would be quite a different proposition, whereby Greenfield makes sense on top of the logistics factors and the location to both scale, supply and off-take demand.

Ben Wedd

Fantastic, thank you for that. And then maybe just one more re-wheat basis. We’ve seen a fairly adverse move in wheat basis over FY’23 and into ‘24. Do you mind just sort of commenting around that and what impacts, if any, you expect to see from that in the export program into FY’24?

A – Robert Spurway

Clearly, the drier conditions in the north will mean that a lot of the export program comes from Southern Australia. I think the market is responding to that as domestic customers look to cover D&A. We’re not going to make predictions on the forward curve in terms of where pricing is at, other than to say, I think the market response has been reasonable and understandable associated with the conditions. We expect obviously prices will respond to the harvest as it progresses.

Ian, did you want to make any further comment on that in terms of the impact?

A – Ian Morrison

Yeah, it’s something we’ve talked about quite a bit at recent calls as well. I mean, basis is certainly one factor that comes into margins, and of course with a lower and surplus pressure of grain, then that does see margins moderate to some extent. But overall, volume is by far the biggest driver for our earnings and historically has been.

Ben Wedd

Great. Thank you very much. That’s all I had.

Robert Spurway

Thanks, Ben.

Operator

Thank you. The next question is from Richard Barwick with CLSA. Please go ahead.

Richard Barwick

Good morning, guys.

A – Robert Spurway

How do you do?

Richard Barwick

[Multiple Speakers] I’ve got a bit of an echo on the line.

Robert Spurway

No, we can hear you. [Multiple Speakers]

Richard Barwick

Very good. I’ve also got a question about the new crush plant. Is it too early to even talk timing here or to give a rough guide? And then the other question, just to clarify, if I look at the — through the cycle earnings guide, so $310 million, you included an increased sort of $30 million from oilseeds business there around volumes and crush margins. I’m assuming what we’re talking about here with this WA new plant is over and above. So if we’re thinking how this might fit into our modeling long term, then it’s in addition to the $310 million.

Robert Spurway

Richard, yeah, that’s correct. First thing I’d comment is when the results are so strong, maybe it’s good you get an echo and you hear them twice. So hopefully you can hear us clearly. I’ll answer your last question first.

Yes, any growth initiatives, including a potential crush plant, are not included in the $310 million. And any investment and associated delivery of returns would be incremental and on top of that. Obviously, the time to provide those disclosures and updates is in the future when those decisions or investments are made and we feel there’s a materiality in an update.

The first part of your question around timing, look, we’re signaling that over the next – through the course of financial year 2024, and I don’t expect it will take the full year, but we don’t want to time bound ourselves on ensuring that we form the right partnerships, understood the off-take and the demand. Indeed, the developing policy positions in Australia all play into the investment case. And we would expect that would occur over at least the coming months.

Once an investment decision were made, if we did go ahead, it is likely that a build of that scale would take in the order of one and up to two years to complete. And bearing in mind that we’re investing reasonably significantly in the feasibility and the design work, so that when we got to that point, we’d be ready to go. But it’s certainly not something that you would look to project in financial year ‘24 or even ‘25 in terms of returns from that style of growth initiative. Does that answer your question Richard?

Richard Barwick

Yes, it does. That’s good. Very clear. And a much more near term question. Just the latest rainfall outlook, so November to June from the BOM was slightly more optimistic than it had been in terms of average rainfall expected through most of your sort of East Coast cropping area. Is that too late to make an impact for the summer crops or is this the sort of incremental piece of good news and enough to make a difference to tonnage, do you think?

A – Robert Spurway

I want to be a little careful, because it sounds like you’re trying to trick me into forecasting the weather and I’m good, but I’m not necessarily that good, Richard.

Richard Barwick

No, no, no. You can reference everything in the context of the BOM forecast.

A – Robert Spurway

But look, I was out and about in Central New South Wales last week and there was very good widespread rainfall of in the order of 25 mils and even more in Northern New South Wales and in Queensland. And objectively, if I look at the eight day Bureau forecast in terms of the chance of rain, there is widespread rain forecast across Central Northern New South Wales and throughout Queensland. That rain is very timely for summer crops.

So in answer to your question, I think farmers will be absolutely delighted about rainfall for those that do have a summer cropping program. And pleasingly, the rain that we’ve seen in southern regions hasn’t been particularly disruptive to harvest and certainly is not at a level where we’ve got any concerns about quality or the ability of growers to get the crop off the ground.

So just in summary, I think the rainfall we’re seeing now will not have an impact up or down on the current crop that’s in the ground, the winter crop. We’ll be wishing growers all the best for a successful harvest, which does rely on good weather over the coming weeks or a month or more in Victoria.

And then any rain beyond that is good for both the summer crop in the northern regions and indeed it builds soil moisture levels for winter crop across the whole of the east coast. But I wouldn’t want to get ahead of ourselves around what conditions are required for that. In reality, most planting for the next winter crop doesn’t occur until April and in some cases, April, May and beyond. So plenty of time for the Bureau to work out what it’s going to do and for farmers to respond to that.

Richard Barwick

Yep, indeed. All right, thanks. That’s helpful.

Operator

Thank you. The next question is from Jonathan Snape with Bell Potter. Please go ahead.

Jonathan Snape

Yeah. Hey guys, just a couple of questions. Maybe first on this oil seed crush bit. I know you’re kind of not committal on numbers at this point, but.

Now if I look at Cargill, I think they pulled the trigger on a 100,000 tonne expansion and it cost them somewhere around about kind of $75 million to do it just recently, which would kind of imply a scale of the investment you’re looking at is quite material. Would that be a reasonable basis if you were kind of looking at potential kind of costs to look at some of these recent announcements from some of your competitors, kind of what they would be thinking?

And then if I was trying to think about it logically, I mean, I think someone referenced before here, $30 million bucks you put in the 310. I think off memory, that was off a 40,000 tonne volume lift, but there was also some margin stuff in there. Should I be going back to the original business case for the Marker [ph] expansions as possibly a better kind of guide to what you would think these things would drop through to the bottom line in theory?

A – Robert Spurway

Look, I’ll get in to make some comments. A couple of things though in opening, I’m not going to be drawn on making specific comments about Cargill or others specifically, other than I understand their investment case included working capital and other sorts of things. But I think that comparison is probably not the best one.

I’ll go back to some comments I made before in answer to a similar question. I think the best way to look at the sort of scale of investment that might be required for the scale of plant we’re talking about, is to look at some of the offshore Brownfield and Greenfield investments and to go a little further and suggest that, yes, the scale we’re looking at could be to the churn of several hundred million dollars.

Bear in mind though, there is plenty of work to do on what the best partnership funding models, de-risking models are around that investment. And I think it would be premature to get ahead and make too much speculation around what that might look like.

The second thing I’d comment on is we have significantly lifted our throughput and crush volumes with close to nil CapEx over the last five years. So we’ve done a good job at optimizing our existing assets and driving them harder. And that is the way we operate in terms of looking at how we lift returns and maximize the return on invested capital.

Ian, you might like to make some comments just as to how you should look at our processing business as it continues to deliver strongly in terms of the progress we’ve made.

Ian Morrison

Yeah, just to go back to your point around the original New Marker [ph]expansion case, I think a lot has differed since then. Costs of bills are very different, but also the demand for the outputs from this space are so different now with that added demand into the renewable fuels and SAP space. So that’s really what underpins investment today. And I think that’s seen a lift in crush margins really globally, and that’s what’s led to investment, not just here in Australia by ourselves and others, but more broadly across other jurisdictions as well.

So I think that the drivers are quite different and it’s quite some time ago now. But I think Robert’s points are a really good one as well. We continue to look at ways that we can optimize current capacity without CapEx as well, just through efficiency and operating at as high utilization as possible, because that’s the best way to drive positive returns without the commitment of capital. So we look to do both, I guess.

Jonathan Snape

Can I just follow up though on another question around basis? I think there’s one earlier around, obviously it’s compressed, but it’s quite different when I look at all the markets at the moment.

Like down south it – there’s a big discount on grain relative to up north, which I think the last time it was like that was back in 2020, you actually did good returns. But look at a high level, I think your throughput this year wasn’t too far different from what it was back in 2021. And the EBITDA is probably what, about $130 million better in agribusiness.

Should I be thinking of that over a degree of it being a favorable basis backdrop we had at the start of the year? And then when I look into next year, that’s kind of probably come out, but there’s this – I suppose there’s opportunities to do interstate trade that maybe weren’t there before.

I mean, how are you guys thinking about how this will drop? Because it’s the biggest unknown I think from the outside, is the last two years have obviously been this big beneficiary of basis. It’s kind of disappeared and people are trying to figure out where that baseline is going to come back to.

Robert Spurway

Yeah. Thanks, John. I’ll reiterate what Ian said that, really you should think about it as volume. And yes, basis is a part of the construct and margin, but it is only a part. We do have some inherent benefits to optimize across the business, given the scale of where we operate geographically across Australia, but also the fact that we’ve seen quite significant volatility, both in the short term and the longer term across global markets and GrainCorps, extraordinarily well placed to optimize the benefits that volatility brings in that respect.

So it is difficult to just look at prevailing grain prices or basis and draw conclusions around what that means for GrainCorps margins. I think you really do need to look at the volume drivers, but then also the point you make around comparison with prior years.

It points to the improved efficiencies we have in the business, the better and optimized structures we’ve got, and the fact that we’re doing a better job making the most of the opportunities that exist in the market, regardless of prevailing pricing, much of that risk is of course born by the farmer, both on the upside and downside.

Ian, have you got anything to add to that?

Ian Morrison

Yeah, for agribusiness as well, John, the other couple of aspects is our international business has had a really good performance this year, partly off the back of WA as well, having a strong crop. Also, as I then touched on earlier the feeds, fats and oils portion that’s reported in agribusiness, has definitely improved since FY’21. So that, I guess that diversification of earnings across the portfolio is something we’re quite focused on as well. So it’s not just all about the harvest and the margins you achieve from there.

I touched earlier on a nice highlight there about East Coast business as well, handling more bulk materials or non-grain commodities. So all of those aspects we focus on as well that are driving, we’re always trying to increase that diversification of earnings to solidify that base and make sure we’re well set up for any set of conditions to maximize the benefits from the asset base and the infrastructure we have.

Jonathan Snape

Yeah, but I guess you can see what I’m saying is that the ‘21 throughput is almost identical to the ‘23 throughput. So there must be a way you can waterfall and say what component or aspect of that uplift in profit – I mean, obviously there’s different carry-ins and that sort of thing, but what aspect in there is your own initiatives versus maybe what was done by trading? Because it’s hard to argue that there hasn’t been a benefit this year from basis.

Ian Morrison

Yeah, I agree with your observation that there’s multiple factors and that’s the point I was trying to make almost, that it’s not just that one item around basis and the impact on margins, I think its multiple factors.

And I think if you looked at it, you’ll see that it is other components as well of the broader agribusiness that are contributing relative to ‘21. And no two years are ever the same. Even when you look at volumes, it depends on timing of volume in the year, the outlook for the following year’s crop and what that drives in terms of margin. So you do see that quite a lot of variability in what different volume is generating.

In saying that though, there’s no doubt volume historically has been the best predictor of overall financials, because there’s quite a good correlation and certainly to contribution margin. So I think it’s the right way to think about it, but be careful about it only assuming it’s around basis.

Robert Spurway

And just finally, John, I think our transparency around the through the cycle, our commitment that we can protect against the downside and then the demonstrated leverage or benefits in the upside on very large volume crops has been demonstrated in the results over the last few years.

So the assumptions that sit in behind that through the cycle are around more normalized factors in the business. But we’re really demonstrating the upside leverage and reiterating our commitment to protect against the downside, including the crop insurance product, which over the last three years, including this last year, has had a $70 million cash cost and has then touched on additional non-cash costs that are all reported within the result.

So really the business is set up well and strongly both from a balance sheet and a performance point of view into the future.

Jonathan Snape

Okay, thank you.

Operator

Thank you. This concludes our question-and-answer session. I’ll now hand the call back to Mr. Spurway for closing remarks.

Robert Spurway

Thank you. Look, I’ll finish with where we started. I appreciate your interest and support in the business. Thank you for joining us this morning. We look forward to meeting with a number of you over the coming days for further understanding of the results. We’re proud of the result and we look forward to staying in touch. Thank you again.

Operator

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