GrainCorp’s renewable fuels ambitions given boost by budget spend

The agribusiness has increased its capital expenditure target for a new oilseed crush facility to $500m, with the budget’s green fuels focus providing a boost.

Graincorp boss Robert Spurway.

GrainCorp has significantly upped its expected investment in a new oilseed crush plant to $500m, with federal budget funding for low carbon fuels initiatives playing into its strategy to become a major player in the renewable fuels supply chain.

The company, which reported its half year results on Thursday, is looking to build a greenfields crush facility with a capacity of up to one million tonnes per year, with the oil produced to be refined into biodiesel or sustainable aviation fuel.

While there had been market estimates of a $350m price tag for the new plant, GrainCorp managing director Robert Spurway on Thursday announced the investment would likely be in the $500m range.

“We’ve flagged today that this is a pretty significant investment,’’ Mr Spurway told The Australian.

“That’s very exciting, because there’ll be strong returns associated with that sort of investment, but also it’s important that we take our time to de-risk and are very disciplined in our understanding of the market before we deploy that sort of scale of capital.”

The company is not yet committed to the east or west coast of Australia, with Mr Spurway telling The Australian the decision would come down to where it best fit into the renewable fuels supply chain, which involved both oilseed supply and refining capability.

Mr Spurway said two funding packages announced in the Budget this week – $18.5m for a certification scheme for low-carbon fuels and $1.5m for demand analysis – were strongly positive as the emerging industry sought to establish itself.

“The measures across the Budget are likely to accelerate the opportunity and bring the full value chain together,” Mr Spurway said.

“One I’d specifically call out is relatively small but important – the $1.5m commitment in the Budget to undertake analysis on mandates and demand side measures.

“That’s really important for us, because we want to ensure the demand is there to de-risk and underwrite the sort of investment that we expect to make.”

GrainCorp signed a memorandum of understanding with IFM Investors late last year to collaborate on measures which could feed into the supply of sustainable aviation fuel, with IFM also this week welcoming the Budget measures.

Graincorp on Thursday reported a 75 per cent drop in net profit after tax to $50m, which Mr Spurway said was a “resilient” result in the circumstances.

“GrainCorp delivered a resilient result in 1H24, as grain and oilseed markets normalise following three extraordinary years for the industry,’’ Mr Spurway said.

“As expected, we have experienced a decline in overall production across East Coast Australia and lower supply chain and crush margins relative to 1H23.

“Strong volumes in Southern NSW and Victoria have been offset by below average conditions in Queensland and Northern NSW.”

Underlying profit fell to $57m for the six months until the end of March, down from $200m a year earlier.

The company’s agribusiness division reported underlying earnings of $101m, down from $226m, with both ECA and Western Australia experiencing volume and margin moderation.

“In ECA, the network experienced lower supply chain margins due to overall grain production and tonnes received declining from recent highs,’’ the company said.

“The significant north/south split in production on ECA also impacted export volumes and margins, particularly in drier northern regions.

“The international business also saw decreased volumes and margins, driven by lower production in Western Australia and an increase in global production.

“Overall, the agribusiness segment has been impacted by global grain market conditions as global production increases, commodity prices decline and global trade flow risks moderate.”

The company’s GrainsConnect Canada business experienced year-on-year improvements, however the export and margin environment remains challenging.

The Nutrition and Energy division reported underlying earnings of $76m, down sharply from $131m.

Improved volumes were moderated by crush volumes with a lower supply of canola seed and weaker vegetable oil prices.

GrainCorp had net debt at the end of the half of $765m, down from $1.42bn a year earlier, and it had $495m in cash, up from $349m.

The company will pay an interim dividend of 14c a share, plus a 10c special dividend, and the company is soon to start its previously announced $50m share buyback.

On the outlook, Mr Spurway said despite the moderation in industry conditions in the current financial year, the fundamentals of the sector remained strong.

“We remain confident in our average earnings through-the-cycle EBITDA, which we have increased by $10m to $320m, following the acquisition of XF Australia,’’ he said.

On the 2024/25 winter crop, Mr Spurway said: “Early indications are showing recent rainfall and a healthy soil moisture profile have supported a strong planting period in ECA, with northern regions expected to rebound from 2023/24.”

GrainCorp shares were 5.3 per cent higher at $8.50 in afternoon trading on the ASX.