GrainCorp (GNC) yesterday kicked off a three year $200 million revamp of its grain handling and transport facilities across the eastern states that will see 80 jobs lost and the company slash the number of its grain receival sites.
The revamp has been hinted at by GrainCorp for some time and follows the reporting of a weak first half profit, the loss of long time CEO Alison Watkins to Coca Cola Amatil (CCL) and the failure of the Archer Daniels Midland bid for the company late last year when it was blocked by the Federal Government.
The move is a direct reply to the stepped up level of competition from rival handling companies, such as the $200 million facility planned by logistics group, Qube in Port Kembla in NSW.
The company said the plan will see the closure of 72 smaller grain receival sites and possible the loss of 80 jobs and the reduction of the number of these sites to 180 from 252.
In a statement to the ASX yesterday, GrainCorp said it will now focus on the core 180 sites which already receive 90% of the grain handled by the company each year.
This will see it lift investment in sites where grower and buyer demand was greatest.
GrainCorp said it will also improve its rail operations, aiming to reduce rail freight costs for grain growers and grain buyers by at least $5 per tonne.
This in turn could see up to a million tonnes of grain taken off the roads and carried in trains.
"This is the biggest single investment that we have ever announced in terms of our country network," GrainCorp interim executive chairman Don Taylor said in yesterday’s statement.
Mr Taylor said the revamping of the grain storage facilities and rail network (known as Project Regeneration) will aim to improve service to customers and cut costs.The changes would stretch across GrainCorp’s entire network.
"There will be no area that will not receive an injection of funds across this rebuild of our network," Mr Taylor said.
Mr Taylor said government co-investment was needed to upgrade and extend state rail owned sidings at around 40 of the company’s receival sites.
GrainCorp is talking to governments about this part of the plan.
“Rail freight performance has been in decline for some years. Slow loading and short sidings mean grain trains are shunted across multiple sites and cycled slowly, creating both cost and complexity. Furthermore poor track conditions limit wagon weights and track speed, adding to inefficiencies,” Mr Taylor said.
“We estimate rail costs in eastern Australia are $10 per tonne higher than best practice, reducing returns to growers by around $180 million1 in an average season. GrainCorp’s investment will significantly improve our network’s interface with rail and help reduce rail costs by $5 per tonne.
"However, the full benefits of our network investment – and the rest of the $10 – can only be unlocked if there is also further investment by track owners in the government-owned rail infrastructure that supports the entire industry," he added.
GrainCorp said the staff affected by the network changes would be redeployed in other areas where possible, and those left unemployed would receive their full entitlements.
Mr Taylor said that the revamp will be funded from cash flow and debt facilities. The associated restructuring cost of $4 million is expected to be reported as a significant item in GrainCorp’s earnings, principally in the 2014 financial year.
Last month the company reported a slide in profit for the first half of the 2014 year. Earnings before interest, tax, depreciation and amortisation fell to $166 million from 2013’s $277 million and net after tax profit dropped to $61 million from $109 million.
The company maintained the full year earnings guidance it provided in February of EBITDA of $275 – $315 million and underlying net profit after tax of $80 – $100 million.
Most of the changes to the network are expected to be in place before this year’s winter crop is harvested.
GrainCorp shares fell 5c to close at $8.45.
