AUSTRALIA'S biggest grain exporter CBH Group has achieved a remarkable $40.7 million turn around in its finances, despite a trading year marked by COVID-19 and trade tensions with China.
In the year to September 30, CBH turned a net profit after tax of just under $11m from group revenues, down 23 per cent on the previous year to $3.2 billion - mainly because of poor seasonal conditions and a small 9.8 million tonnes harvest - according to its annual report released last week.
This result compared to the previous year where CBH had handled a 16.4mt harvest and made a net loss of $29.7m from total revenues of $4.2b.
But there are no rebates returned to growers this year with storage and handling fees held flat, CBH choosing instead to improve equity by slashing net debt from $295m to just $6.7m.
CBH did claim in the annual report to have the lowest grain storage and handling fees in Australia at $27.20 a tonne, some $20/t lower than interstate supply chains.
Its average grower freight rate of $13.20/t was also about $3/t lower than where it would likely have been with inflation since 2012 had CBH not introduced its own locomotives and rail cars to move grain, the report indicated.
Chief executive officer Jimmy Wilson described the financial result this year as a "good outcome given the headwinds experienced across the business".
"We responded quickly to the challenges presented through the year to keep the supply chain operating, developed new and existing markets for Western Australian grain and continued to return value to our growers," Mr Wilson said.
"CBH is in a strong financial position with net assets of $1.8b and no long-term debt which enables us to maintain elevated investment in improving the network and the fertiliser business."
In a reversal of the previous year's situation, CBH's operations business unit this year made a loss and its marketing and trading business unit returned to profit despite what chief financial officer Doug Warden described as "global headwinds and market disruptions" due to trade tensions and COVID-19.
The operations unit suffered a $110.4m turnaround from the previous year's $99.5m profit, to record a $10.9m net loss after tax on revenue reduced from $507.7m to $374.8m.
Mr Warden attributed the loss to the small harvest and the reduced amount of grain handled.
"That impact is reflected in the 26pc decrease in revenue due to less tonnes coming into the network," Mr Warden said.
"As a result of the loss, no rebate was returned to growers this year, but we did achieve some really good operational outcome, moving almost 2mt of grain in addition to the 9.8mt we received through the network over the year."
In contrast, the marketing and trading unit made a net profit of $12.2m on revenue of $2.7b, compared to a loss of $119.3m it made on revenue of $3.5b the previous year.
Mr Warden said the result was helped by "strong performance from M&T's products including Swaption, Pools and Pre Pay Advantage".
While the COVID-19 pandemic had affected trade and created challenges and extra costs because of logistical problems across the supply chain, ironically it had also helped CBH sell down its grain stocks inventory, Mr Wilson pointed out.
He said CBH had handled a total of 11.7mt last year and had shipped 10.4mt from its four port grain terminals, reducing its "carryover" of grain held at the end of the year to "an all-time low".
"Because of COVID-19 there was some aggressive buying and countries positioning their grain stocks in a manner that would allow them to be more self-sufficient," Mr Wilson said.
However, "from a broader grower perspective" the tariffs imposed by China on Australian grain in May and the suspension of the CBH marketing and trading unit's barley imports from the beginning of September were "where the lion's share of the impact (on trade) has been", Mr Wilson said.
While CBH had managed to minimise its exposure to China on barley - an investigation of alleged dumping had started in November 2018 and triggered its response - by finding other markets in Thailand, WA growers were affected by the price difference between malt and feed barley, he pointed out.
"There has been an up to $200m impact on the Western Australian grower and a $500m impact on the Australian grower, based on average barley crops, caused by the loss of the malting premium," he said.
"In relation to CBH's M&T trading book, we were concerned that such an action by China could occur and we were vigilant in selling down our barley book during the first part of this financial year, so the tonnes that we carried in May when the tariffs hit were not high, so the impact on us, relative to the other numbers, was quite small.
"The price did bounce after the big drop, so we did regain some of the loss - overall our loss was in the single digit millions.
"The differential between the Chinese market at the beginning of the year and the feed market in the Middle East is about $40 per tonne, so the WA grower is being impacted because we're selling into markets where those growers are making less."
Mr Warden said CBH was not aware of any moves by China to restrict or ban imports of other commodities from CBH into the future.
"But our philosophy is to plan for the worst and hope for the best," he said.
CBH continued to improve its grain receival and storage network this year with its second largest annual investment of $226m, made up of $172.7m in capital expenditure - down from $236.1m the previous year - and $53.2m for maintenance - up from $49.2m.
Mr Wilson said more than 300,000t additional storage capacity was added to the network through expansion projects at Konnongorring, Moora and Watheroo.
But proposed expansions at Brookton, Dale and Hyden had been postponed because of COVID-19, he said and would be carried out during the current year, with work scheduled to start early next year.
Six minutes was shaved off the average site cycle time during the year and it was now under 40 minutes, according to the annual report.
Other performance indicators from the annual report for 2019-20 include:
p CBH fertiliser continued to grow with a 21pc increase in tonnes traded to 125,000.
It also captured 9pc of the 1.4mt granular fertiliser market.
- A 2018 turnaround plan for Interflour and its flour mills throughout South East Asia and a malting plant in Vietnam appears to be working despite difficult trading conditions in the second half of the year.
CBH has a 50pc share of the business and its return on investment in Interflour this year was worth $6m.
- Blue Lake Milling was impacted by high raw oats prices due to the Eastern States' drought but returned a net profit after tax of $2.7m and production at its Forrestfield milling facility continued to ramp up, supported by growing demand from Asian customers.
- CBH recorded its lowest All Injury Frequency Rate of 7.2, down from 9.4 the previous year.
WAFarmers president Rhys Turton welcomed CBH's annual results and reiterated the importance of having a strong grower owned and controlled grain co-operative operating in WA.
"It is good to see the group return to surplus with a net profit of $11m," Mr Turton said.
"Understandably operations would have been impacted by the small 2019/20 harvest, however it does highlight the cost of running a world class grain handling operation where receival tonnages below 10m have resulted in a financial loss.
"A great recovery for marketing and trading with a return to profit perhaps from better price risk management and it is good to see increased fertiliser volumes as growers support their co-operative with this initiative, that provides much needed competition in the State's fertiliser market."
