CBH Group Annual Report delivers $497.7m annual surplus

For the financial year ending on September 30, the grower-owned co-operative reported a surplus (or net profit after tax) of $497.7 million.

That was driven by a record harvest which saw CBH receive 21.3 million tonnes and achieve an 11 per cent increase on its previous annual shipping record, as well as endure dramatic shifts in market fundamentals as a result of the Ukraine conflict.

The financial result was dominated by the $437.9m surplus posted by the Marketing and Trading (M&T) division, which over the year accumulated 50pc of the record WA crop and paid a record $5 billion to WA growers.

"The Marketing and Trading division experienced a significant increase in export margins due to the Ukraine conflict, which started after the division had largely completed its accumulation program," said chief executive officer Ben Macnamara.

"Market fundamentals shifted dramatically after the start of the conflict, and this significantly increased the international value of grain far beyond anyone's expectations."

M&T plans to retain 62pc of its surplus to bolster the division's equity position, which will be necessary to fund the purchase of the current and forecast larger crops, manage market risk and offer higher prices for growers.

The remaining 38pc, or $168m, was paid as an inaugural fully franked dividend to CBH, in line with its strategy to be able to export 3mt per month by 2033, or sooner.

Payment of that dividend enabled the co-operative to obtain a $72m tax refund for historical taxes paid by M&T.

"We currently have a once-in-a-lifetime opportunity to strengthen and reinvest in the co-operative - it is that type of forward-looking vision that allowed the co-operative to deliver major projects such as the Kwinana Grain Terminal in the 1970s, which are still delivering value to growers today," Mr Macnamara said.

"Strengthening the network is a long-term investment - an opportunity to set us up for success in the coming years as the crop size continues to grow.

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"While we have invested significantly in the network over the past five years, we are committed to investing a further $4b over the next decade, which is crucial to increase the capacity of the network and deliver sustainable, long-term value for Western Australian growers."

The decision to keep all of M&T's surplus within the co-operative was met with disappointment from many growers when it was first announced back in October, before it was fully known just what that surplus would be.

It marked the second year in a row CBH opted not to return a rebate to growers and had some wondering if it was an indication of the way things would be in the future.

From a storage and handling perspective, Mr Macnamara said it was more unlikely CBH would pay a rebate going forward given the quantum of investment that is required in the network.

However, from an M&T perspective it is not such a simple choice.

"We don't set out to make these sorts of surpluses and in fact we only set out to cover the cost of capital within that business," he said.

"To the extent that if we did make a large surplus in the future, we would contemplate the situation and the circumstances we're faced with at that point in time, so we would consider rebates (from M&T) in the future."

At the top of the list of concerns from the growers who believed a rebate should be paid was the belief that the few loyal farmers who market their grain through M&T would be paying for infrastructure that nearly every graingrower uses.

However, that belief was usurped by CBH after it revealed 93pc of growers sold tonnes to M&T in the previous financial year, meaning only 7pc of shareholders chose not to sell any grain to CBH.

The tonnage that was exclusively not sold to M&T was about 377,000t, out of 21.3mt.

"We have about 50pc market share, but that doesn't mean half the growers sell their entire crop to us," Mr Macnamara said.

"If you look across history, there is only a very small proportion of growers who don't sell any grain to CBH Grain and on that basis all growers have contributed to the profits made by M&T."

The pressure of the record 2021/22 harvest on the supply chain's logistical capacity meant shipping delays extended significantly earlier in the year, resulting in demurrage costs of $43m incurred by CBH, up $25.77m from last year.

The demurrage reflects COVID disruptions in the middle part of the year, particularly from a rail perspective and on that basis it was mostly impacted within the Kwinana and Albany zones.

It was also compounded by the fact that shipping rates were significantly higher than last financial year.

"As of today, the situation has improved quite considerably," Mr Macnamara said.

"Rail performance has been very good, labour availability has been higher and the harvest progress has allowed us to get good harvest shipping in the months of October and November."

For the Operations side of the co-operative, it was also a positive year with a surplus of $57.9m driven by record receivals and strong shipping demand.

The 2021/22 harvest smashed dozens of records including outstripping the five-year crop average by 50pc and growers delivering their grain to CBH sites quicker than ever.

While the team safely received the record harvest, the size of the crop challenged the outloading program, which was compounded by disruptions from COVID-19 related absenteeism and labour shortages, including truck and train driver availability.

Despite that, CBH was able to export 16.7mt and deliver 1.4mt to domestic customers.

"There has been some commentary that the supply chain is broken," Mr Macnarama said.

"But in a year where we have encountered COVID absenteeism and undertaken a rail transition, we have done record tonnes on rail and from a road perspective we moved nearly 30pc more than we have historically.

"The supply chain is not broken, but the capacity of that supply chain needs to be increased to deal with these larger crops."

Revenue for Operations for the year was $641m and the earnings before interest, taxes, depreciation, and amortisation (EBITDA) was $216.5m, up from $146m the year prior.

The difference between the surplus, which was 32pc higher than last year, and the EBITDA was mainly due to locomotive leasing and the deprecation that relates to, as well as the number of initiatives introduced to increase road movements which came with higher rates and higher surge costs.

CBH's fertiliser business continued to report growth in a difficult year and despite supply chain disruptions and increased fertiliser prices, the division reported an 11pc increase in tonnes sold compared to last year.

The co-operative also started supplying fertiliser from Esperance this year and is set to start supply from its purpose-built Kwinana facility in early 2023.

"This expansion opens the door for more WA growers to directly benefit from access to secure supply and competitive pricing as we continue to grow our fertiliser business," Mr Macnamara said.