CBH hammered by tough global trading

20 Jan, 2016 01:00 AM

TOUGH global trading conditions have hurt CBH on the balance sheet with its marketing and trading arm recording a loss of $16.7 million.

However, the co-operative was still able to maintain an overall profit of $82.7m as outlined in its annual report released last week.

This profit is down from $149.2m in 2014 when growers delivered a record harvest of 15.9 million tonnes and collected record rebates of $4.55 a tonne.

Rebates for 2015 will equate to $1.05 per tonne for each grower following a 13.6mt harvest.

This equates to an Operations Rebate of $0.85 and an Investment Rebate of $0.20.

CBH chief executive officer Andy Crane said the 2015 profit was historically a good number only reflecting lower than the year before because of a smaller tonnage and tougher marketing and trading conditions for soft commodities worldwide.

"You'll see in 2014 we had 15.9mt harvest as the biggest crop ever and perhaps 50 per cent above an average crop, so it's (this year's profit) bound to be lower than that," he said.

"It was impacted by tonnes and marketing and trading for sure and it's been a very tough year in Australia for all marketers.

"You'll struggle to find any that will have made a profit, I know many will be reporting losses this year.

"I suppose the only silver lining is that it's demonstrating the really strong competition for grain amongst the marketers and the growers are getting the benefit of that really strong competition.

"Although prices generically are lower it's a very competitive market."

CBH increased its infrastructure spending in 2015 from $153.5m to $174.m and Dr Crane said this indicated the focus the co-operative has on maintaining its network.

He said rebates were down on 2014, but growers should consider these the "cherry on the cake" on top of large capital investments to WA infrastructure that save them money long term.

"Our focus is reinvestment in the network and in growth of the business to generate income for the business and investment rebates," he said.

"It's a very good feature of the co-operative that it can compete effectively with other players and also provide growers with rebates of charges.

"A good co-operative rewards patronage and our intent is to show our growers that when you look at a profit number you need to rest assured that all that money remains in the control and for the use of our growers."

Investments were also made in several new growth opportunities in 2015, according to CBH chairman Wally Newman, including the acquisition of Blue Lake Milling for $40.7m in July, the launch of a fertiliser business and opening a new office in Russia.

"We've focused on lowering our costs, driving better prices and generating greater returns from investments," he said.

"The continued investment in the network is certainly paying off through efficiencies in the supply chain.

"We saw a record 1mt delivered to Chadwick in the Esperance zone, largely because of these investments.

"We invested $51m into our ports which play a significant role in ensuring WA growers remain competitive by being able to get their grain onto ships when their customers want it."

Interflour, of which CBH owns 50pc of operations, returned $8.4m for the 12 months, down from $12.1m in 2014.

During 2015, CBH developed a network proposal to optimise its supply chain, taking into account costs from paddock to port.

This network proposal was discussed at length at the 90 pre-harvest meetings and the board received feedback from the growers present.

Dr Crane said changes in grower size and truck sizes had already created a natural optimisation process, highlighting there are inefficiencies with maintaining 190 sites.

"We can spread our capital and maintenance over 190 sites but we don't believe that will deliver them the most efficient system for the vast majority of growers," he said.

"We believe with the change in grower size and truck size that there is a more efficient network that's there in growers' interests.

"This is not about CBH's interests it's about the interests of our growers.

"We're already starting to see that naturally where in modest harvest years we have sites that are closed and only open in very large years.

"It will ultimatley allow us to keep fees under control and limit their increases far better by managing the network more efficiently."

Dr Crane said the next phase of the process would be released to growers in the coming months.

CBH remained the nation's largest exporter of grain exporting about 30pc of Australia's grain and delivering more than 6mt to international customers.

It accumulated more than 50pc of the WA crop in 2014-15, equating to 6.5mt.

In the third year of publishing CBH executive salaries, the report outlined that on top of his $865,000 base salary, Dr Crane also received a retention bonus of $182,000.

Mr Newman received $171,350 in director's fees and deputy chairman Vern Dempster, $114,233.

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Rural Realist
29/01/2016 9:06:03 AM, on Farm Weekly

Come on Boris, of course I don't doubt that. But I think that it's still a lot closer to the truth than the nonsensical diatribe from D8.
28/01/2016 2:18:49 PM, on Farm Weekly

Come on Rural Realist, are you saying CBH operations and CBH marketing don't meet in the cafeteria occasionally to discuss things that might mutually benefit each section? I doubt your realism Realist but i don't question your naivety!
28/01/2016 1:01:48 PM, on Farm Weekly

$1,000,000 is a nice salary if you can get it. One can assume that the directors, who are voted in by the Co-op owners must be happy to pay this otherwise, they would find someone else to run the show. How many people trading in the share market over the last year have made a equivalent profit. I would bet there was a few in the oil, iron ore and nickel game who would like to see that profit. If you just want to cash out of the grains industry now you would love to see CBH floated and not care that the executive salary for the CBH CEO would probably go to $2.5 million & handling costs go up
Rural Realist
28/01/2016 9:08:23 AM, on Farm Weekly

Deregul8 I'm afraid that's incorrect. CBH Grain has the same information on stock and quality that any other trade has, which is a positive outcome from the ACCC involvement. It's also impossible to completely hedge yourself. If you have a good system to hedge barley, oats and lupins then please let me know. These markets cannot be fully hedged, so traders in these markets are more exposed (why there is little competition in these markets).
Interested Party
28/01/2016 8:34:03 AM, on Farm Weekly

Deregul8 try to make some informed comments and stop talking a lot of rubbish. Even from the other side we can see this. $100mill trading loss? we must be looking at different annual reports. I've been reviewing the one on their web site so could you please post where you are reading the $100mill loss or is this something else you don't understand?
27/01/2016 12:32:22 PM, on Farm Weekly

Rural Realist if CBH is running a hedge book that does not offset its long trades with short trades on the day a grower commits, it is playing a dangerous game with grower funds. A game for soon to be insolvent airheads. All they should be interested in is their margin and nothing else. Glencore and Emerald clocked up their losses largely because of shipping slot penalties. Not so CBH who has perfect knowledge on stocks, quality and where its all located. CBH's +$100mill trading loss was incompetancy and that is why the staff are getting the chop. Too many graduates acting as chiefs.
Rural Realist
25/01/2016 9:42:47 AM, on Farm Weekly

Typical rhetoric from growers who want to cash in on CBH so they can sell off their farm by MIA. Anyone without air in the head can see this is just business as usual, traders who generally hold a long position such as CBH operating in a year where prices decreased are of course going to be impacted.
22/01/2016 3:07:19 PM, on Farm Weekly

A trading loss of $16 mill but from the annual report the GM of Trading gets paid almost all of his bonus. What sort of KPI's are these guys working to??? Maybe when Russia goes ass up he'll get a knighthood.
20/01/2016 9:33:30 AM, on Farm Weekly

Unbelievable. The "cherry on top" comment just shows that the executives and directors only think about their salaries and lunches. The high water mark for CBH has passed now, due to new export pathways opening up, and unless someone makes radical changes then CBH is doomed. The directors are asleep at the wheel.


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