GrainCorp Limited. annual report Transforming our business

Transcription

1 GrainCorp Limited annual report Transforming our business

2 GrainCorp has

3 been transformed into an international agribusiness with operations in Australia, Canada, the United States and the United Kingdom With the acquisition in November of Canada Malting Company (Canada), Great Western Malting (USA), Bairds Malt (UK) and Barrett Burston Malting (Australia) making it the world s fourth largest commercial malt producer GrainCorp took one of the most significant steps forward in its 93 year history. Contents About GrainCorp 2 Results summary and highlights 4 Chairman s review 6 Managing Director s review 7 Review of operations 10 Storage and logistics 10 Port elevators 12 Trading 14 Merchandise and Allied Mills 16 People, community and environment 18 Board of directors 22 Executive management 23 Corporate governance statement 24 Financial report 29 Shareholder information 107 Corporate directory 108 1

4 About GrainCorp From what was essentially an Australian grain industry supply chain and grain trading company, GrainCorp has, following the acquisition of Canada Malting Company, Great Western Malting, Bairds Malt and Barrett Burston Malting, been transformed into an international agribusiness. GrainCorp maintains a strong supply chain focus, but with the potential for half of our earnings being derived from barley (malt) and wheat (flour) processing. Transformation timeline Implementation of strategic plan led to annual cost savings of more than $20 million Increased NPAT/Tonnes received, stored and handled Profitable entry into the bulk wheat export market Acquisition of United Malt Holdings in November Graincorp s existing business in Australia GrainCorp Malt s strategic fit Country and ports storage and handling Valuable portfolio of infrastructure assets Up to 20 million tonnes of storage capacity Up to 13 million tonnes of annual grain shipping capacity through seven bulk grain port elevators A portion of Barrett Burston s barley can be sourced from GrainCorp s network in Australia Expanded business will create demand for our storage and handling network in Australia GrainCorp Malt owns storage assets in Canada and the UK Trading Major Australian grain trader, exporting bulk wheat, barley and other grains Trades more than three million tonnes of grain a year GrainCorp s grain sourcing, market intelligence and trading experience will complement GrainCorp Malt s international barley procurement GrainCorp s existing ability to create and maintain grower relationships Downstream processing Processes wheat for flour via 60% ownership of Allied Mills, Australia s largest producer of bakery premixes and flour for the bread and food sector Processes barley to create malt for supply to brewers and distillers Well positioned for further international growth opportunities 2

5 NORTH AMERICA EUROPE AFRICA SOUTH AMERICA AUSTRALIA Locations North America Canada Malting Company the largest malt producer in Canada Great Western Malting one of the largest malt producers in the United States Servicing domestic brewers, the growing North American micro-brew market and export markets United Kingdom Bairds Malt Limited major malt producer Supplying domestic brewers and Scottish distilling industry Scotgrain and Saxon Agriculture leading suppliers of seed and other farm inputs Australia Largest grain storage network on the east coast operating seven bulk grain export elevators Grain value adding Allied Mills largest supplier of bakery premixes and flour to bakeries and food sector Barrett Burston Malting supplying malt to major Australian and Asian brewers Revenue by geographic Segment Australia 66% UK 12% US 8% Canada 14% Graincorp SUPPLY CHAIN BUSINESS MODEL Grain growers GrainCorp Malt provides vertical and geographic diversification Majority of revenue will continue to be generated in Australia Platform for further international growth Country storage network Take-or-pay trains Contracted road transport Road Rail Port elevators Export markets EBITDA by segment Storage and Logistics 23% Port Elevators 17% Trading 15% Allied Mills 2% Malt 43% other bulk handlers Domestic customers other bulk handlers Earnings from malt production are not significantly dependent on Australian weather conditions Increased exposure to downstream processing revenue provides increased earnings stability 3

6 Results summary and highlights Key financial results show that GrainCorp s transformation has led to a significant improvement in financial performance EBITDA 1 up by $114 million 1 EBITDA is earnings before interest, tax, depreciation and amortisation. EBITDA $M Cash flow up by $229 million OPERATING CASH FLOW $M Net Profit After Tax $63.2 million NPAT $M

7 FY09 Results Summary FY09 FY08 Business Drivers (million tonnes) Grain carryin Country network grain receivals Grain received at port ex-farm and from other Bulk Handling Companys Grain exports handled GrainCorp bulk wheat exports 1.3 Domestic outload Grain carryout Non-grain exports Key Results ($ million) Revenue 1, ,534.2 EBITDA EBIT Net profit / (loss) after tax 63.2 (19.9) Dividend per share Nil Nil FY09 Business Units Results Summary BUSINESS UNIT FY09 FY09 FY08 FY08 MOVEMENT $ MILLION REVENUE EBITDA REVENUE EBITDA EBITDA % Storage and Logistics Port Elevators Trading 1, , Merchandise and other Allied Mills Corporate, head office and eliminations Total 1, , Five Year Financial Highlights Drivers Total receivals MMT Outloadings Domestic MMT Outloadings International MMT Carryover MMT Earnings Total revenue $M 1, , EBITDA 1 $M Net profit / (loss) after tax attributable to members $M 63.2 (19.9) (19.8) Assets and Equity Total assets $M 1, , Net tangible assets per ordinary share 2 $ Total equity $M Long-term debt to equity % Net debt to net debt and equity 3 % Shareholder Returns Basic earnings / (loss) per ordinary share cents 33.8 (11.4) (34.5) Return on equity % 9.1 (4.6) (5.0) Dividend per ordinary share 4 cents Dividend yield per ordinary share 4, 5 % EBITDA is earnings before interest, tax, depreciation and amortisation. 2 Excludes reset preference shares at nominal value. 3 Debt includes an amount for commodities inventory which is offset by an inventory balance. 4 All dividends were fully franked and yields include franking credit. 5 Using closing price immediately prior to or on 30 September divided by dividends for year. 5

8 The acquisition of the former United Malt Holdings... strengthens our core business, reduces the seasonal volatility of our earnings, substantially increases the contribution to earnings from the downstream processing of grain and positions us well for future growth. Chairman s review criticism of our gearing levels, meant the board had two choices. Either hope for a good /10 harvest to maintain cash flows that would allow us to continue to meet our banking covenants, or take a more conservative approach and go to the marketplace to strengthen our balance sheet and reduce debt. This financial year has been one of the most challenging and rewarding GrainCorp has ever experienced. The new marketing opportunities for the wheat industry with the removal of the bulk wheat export monopoly, that came into effect in July, was something that GrainCorp and I as Chairman had been advocating for some years. We were nevertheless uncertain about how growers would adapt to the new circumstances. Multiple exporters and significantly reduced rail capacity presented new challenges, and as a consequence we began the year in uncharted territory. It quickly became apparent that growers were comfortable marketing their wheat to a range of export buyers, as they have been doing domestically over the past 20 years. The new export wheat market, combined with better-than-expected seasonal conditions in our northern region and higher infrastructure revenues, contributed to the significant improvement in the company s performance. Another uncertainty for us at the start of the year was how the global financial crisis would play out. While we had received strong support from our bankers, the uncertainty about the future availability of credit, and the market s We chose to go to the market and we were very well supported by the investment community. Going to the market when we did was not risk free. We raised funding at a time when we did not know just how strongly our results this year would be. Factors unknown to us at the time including one million tonnes of additional winter crop receivals post harvest, something that had never occurred previously resulted in the company upgrading its results on two occasions. Being involved in agriculture means our profit performance will always be dependent on rainfall and the capacity of farmers to produce grain. The cyclical nature of our earnings is something we accept. That said, for some time we have been looking to expand and diversify our business, to allow the company to return a profit, no matter the size of the crop. We believe the acquisition of United Malt Holdings meets this objective. It strengthens our core business, reduces the seasonal volatility of our earnings, substantially increases the contribution to earnings from the downstream processing of grain and positions us well for future growth. Significantly, the acquisition transforms GrainCorp into an international business. Finally, I would like to take this opportunity to thank all of the company s employees and the management team, led by Mark Irwin, for their outstanding contribution and dedication over the past year. This has been a busy year for GrainCorp but one which has laid the foundations for robust future growth. Don Taylor Chairman 6

9 There is no doubt that had we not transformed the business internally and recapitalised the balance sheet, we would not have been in the position to execute this international transaction. Managing Director s review led to a significant increase in efficiency of the eight trains contracted in NSW and Victoria, and the four branch line trains in NSW, and allowed us to supply rail transport not only for our own grain, but also for other exporters. By any measure, was a seminal year for GrainCorp. The transformation of the company which commenced in 2006, and was particularly evident in the past 18 months, finally bore fruit. In that time we revised and revitalised our management team. We restructured a number of key functions, created an in-house grain accumulation team, and improved our focus on customer service and commercial returns. We also expanded the quality and reach of our grain trading operations. As a new bulk wheat exporter, we had to develop systems and processes that focused on delivering high quality products to international customers. This focus has allowed us to add value at each step of the supply chain: the way we trade, store, transport and export grain. Fiscal 09 was the first year GrainCorp had the ability to manage the full logistics chain from country storage to port. The withdrawal of Pacific National from hauling grain on rail in late 2007 left GrainCorp with no choice other than to begin playing a meaningful role in rail logistics. To ensure there was a rail provider in NSW and Victoria, GrainCorp entered into a five year take-or-pay contract for rail haulage with Pacific National. Rail is the most efficient means of moving export grain long distances from receival sites to ports. Our management of rail freight Our capital restructure, achieved through a $198 million equity raising in mid, was a significant factor in the transformation of GrainCorp. It meant we had the confidence, and the confidence of the market, to negotiate the successful acquisition of United Malt Holdings (UMH). There is no doubt that had we not transformed the business internally and recapitalised the balance sheet, we would not have been in the position to execute this international transaction. An international agribusiness With the acquisition in November of Canada Malting Company, Great Western Malting, Bairds Malt and Barrett Burston Malting, GrainCorp has taken one of the most significant steps in its 93 year history. The new GrainCorp is approximately double the size, with more than 1,400 staff in five countries and a market value on the Australian Securities Exchange of over $1 billion. The four well-known and respected maltsters we acquired are a logical and strategic fit for GrainCorp s existing business, as we already have downstream processing experience from our 60% interest in Allied Mills. The new earnings base is geographically diverse, reducing our reliance on eastern Australian weather conditions and giving us more earnings stability. The acquisition provides a larger infrastructure footprint, improved trading knowledge, active conditions for growth, particularly internationally, and gives us choices which would otherwise not have been available. For example, we now have the ability to procure grain in Australia, 7

10 Managing Director s review Canada, the US and the UK and sell it into markets such as the United Kingdom, Canada, the United States, the Middle East and Australia. Canada Malting Company, Great Western Malting, Bairds Malt and Barrett Burston Malting all supply malt to some of the world s largest brewers and distillers. Their production volumes are underpinned by long-standing customer relationships, by a capacity to expand and by strong underlying industry fundamentals. Growth prospects The malt businesses have demonstrated strong Australian and international growth. They currently produce approximately 1.05 million metric tonnes (MT) of malt per year. There are expansion projects underway to increase production capacity to up to 1.2 MT a year by early Between them, Canada Malting Company, Great Western Malting, Bairds Malt and Barrett Burston Malting operate 14 facilities which are located near, or with convenient access to, the world s main barley growing and trading regions. Malt barley is grown in a limited number of countries, meaning there is an inherent barrier to entry to this market. Most malt produced, around 95%, goes into beer production, 4% is used in whisky and the rest is used in various food products. Global beer consumption has grown steadily over the past seven years, with an average annual growth of approximately 4% between 2001 and. Much of that growth has come from increased consumption in emerging markets. At present, beer consumption is relatively low in Asia, Latin America and Africa, providing potential for further growth. As a result, we believe the industry fundamentals are attractive. Canada Malting Company and Great Western Malting also provide a direct presence in the export-focused Canadian and United States grain markets, enabling GrainCorp to develop grain supply chains in these significant markets, should we choose to do so. Looking ahead In many ways the UMH transaction was more a merger than an acquisition, and is complementary, rather than a cost synergy-based transaction. We are putting together two high quality management teams and aligning the interests of both businesses. A new business unit, GrainCorp Malt, has been formed, replacing the United Malt Holdings name. Canada Malting Company, Great Western Malting, Barrett Burston Malting and Bairds Malt are well known and respected brands. To ensure we protect their inherent value, each organisation will retain its name and will operate as a separate GrainCorp business. Also unchanged will be their focus on procuring high-quality malting barley, controlling process costs, producing superior quality malt and providing outstanding customer service. The new enlarged GrainCorp will be led by a team made up of members from the existing GrainCorp and Canada Malting Company, Great Western Malting, Bairds Malt and Barrett Burston Malting senior management teams. The key malt businesses managers, including Chief Executive Officer Jim Anderson, and the four operating company presidents, have executed new terms of employment. I would like to take this opportunity to thank every one of the people in our respective businesses who have laboured so long and with such determination to make the transformation of GrainCorp a reality. Thanks to your efforts, the future looks truly bright. mark irwin Managing Director 8

11 Our management of rail freight led to a significant increase in efficiency of the eight trains contracted in NSW and Victoria, and the four branch line trains in NSW, and allowed us to supply rail transport not only for our own grain, but also for other exporters. 9

12 Review of operations Storage and Logistics Key features A 66% increase in up-country grain receivals to 9.6 MT Increased profit per tonne Restructured the business in March to improve decision making and strengthen grower relationships Secured an additional nine grains trains, three in Queensland, two in Victoria and four branch line trains in NSW 10

13 National for eight mainline export grain trains in NSW and Victoria. It is pleasing to report that we were able to increase the annual volumes moved per train by approximately 100,000 tonnes, ensuring a sustainable grain rail service for our system and the industry as a whole. In July, we took ownership of four branch line trains. These trains provide grain haulage on the NSW branch line network and support our high capacity grain sub-terminals. In October, we entered a three year arrangement for three trains in Queensland. GrainCorp stores and handles around 60% of the grain grown in eastern Australia. As our network is open access, up to 80% of the grain passing through it is owned or traded by third parties. More than $15 million in fixed costs have been removed from the Storage and Logistics business over the past four years. The current flexible cost structure better matches the variability of grain production and receivals. This, together with rail freight management, should allow us to maximise returns from the business in the year ahead. The earnings contribution from our Storage and Logistics business increased to $44 million EBIT compared with last year s $1 million loss. The result was primarily driven by increased grain receival volumes (9.6 million tonnes (MT) compared with 5.8 MT in the prior reporting period (PRP)) and higher grain carry-in (2.2 MT compared with 1.2MT PRP), as well as increased revenues from the greater use of our rail assets. In March, we restructured our country grain receival and storage network management to promote closer grower and buyer customer relationships. During the year, six new regions: Queensland, Northern NSW, Central NSW, Southern NSW, South Eastern Victoria and North Western Victoria were formed as a way of better managing our country operations. Each regional manager has a smaller area to cover than the former divisional managers. This not only allows them to engage more effectively with growers, it empowers them to make decisions and be more responsive to grower problems. They are also better placed to capture new business opportunities as we expand our range of supply chain services. EASTERN AUSTRALIAN GRAIN PRODUCTION VS GRAINCORP RECEIVALS East coast grain production GrainCorp grower receivals As the Managing Director mentioned, was the first year of our five year take-or-pay arrangement with Pacific 11

14 Review of operations Port Elevators Key features Elevated over five million tonnes compared with less than one million tonnes in the previous year A 40-50% decrease in non-grain volumes, largely as a result of the global financial crisis impact on demand for paper in Japan 12

15 The removal of the bulk wheat export monopoly in July, and the entry into the bulk wheat export market of 22 accredited exporters, injected new competition into the wheat export sector. approximately 700,000 tonnes was sorghum, compared with an average quantity of 200,000 tonnes. The shortage of rail capacity in Queensland had a significant impact on the operation of Fisherman Islands. Around 70% of the total tonnage elevated was received by road. Historically the mix has been 70% rail and 30% road. The contribution by the Ports business unit to EBIT was $66 million, compared with $5 million the previous financial year. The FY08/09 result was enhanced by continuation of the cost reduction program that commenced in The global financial crisis contributed to a decline in woodchip exports to Japan of around 40%-50%. Before the crisis, Japan was producing about 30 million tonnes of paper a year. The drop to around 27 million tonnes of paper had a significant effect on the volume of woodchips handled through Portland, Geelong and Fisherman Islands. Significant declines in other non-grain products, such as sand, dropped overall non-grain volumes by 40%, to 1.3 million tonnes. The new Barrett Burston malt house at Pinkenba, part of an $80 million plus redevelopment of the site, commenced construction mid year. The new malt facility and the upgraded storage facilities should be operating by early During, as a requirement of the Wheat Export Marketing Act, GrainCorp had to develop, in consultation with the Australian Competition and Consumer Commission, a port access undertaking. This undertaking was approved at the end of September and regulates the provision of wheat elevation services at GrainCorp s seven bulk grain terminals. GrainCorp operates seven of the eight bulk grain ports in eastern Australia and handles over 80% of all bulk grain exports. Our terminals at Mackay, Gladstone, Fisherman Islands (Brisbane), Carrington (Newcastle), Port Kembla, Geelong and Portland have the capacity to elevate up to 13 million tonnes of grain a year. We also operate two grain container packing facilities, at Fisherman Islands in Brisbane and at Sunshine in Melbourne. Our Portland, Geelong and Fisherman Islands terminals also elevate up to 1.2 million tonnes of woodchip a year, while our bulk commodity terminals at Pinkenba (Brisbane) and Kooragang Island (Newcastle) handle and store mineral sands, fertiliser and protein meals. The five million tonnes exported compared with less than one million tonnes the prior year was undoubtedly a key highlight for the year. NON-GRAIN EXPORTS HANDLED MMT GRAIN EXPORTS HANDLED MMT GRAINCORP S EASTERN AUSTRALIA PORT NETWORK AND COUNTRY REGIONS GRAIN BULK PORTS OTHER PORTLAND North Western Victoria GEELONG Queensland Northern NSW Central NSW Southern NSW South Eastern Victoria SUNSHINE MACKAY GLADSTONE PINKENBA FISHERMAN ISLANDS KOORAGANG NEWCASTLE PORT KEMBLA Removal of the bulk wheat export monopoly introduced more competition into the wheat export market and changed the way customers accumulate cargoes. In, significant quantities of high protein wheat were delivered to European markets, achieving good returns for exporters. Most activity in was focused on Queensland and New South Wales. Our Fisherman Islands port elevated 1.5 million tonnes of grain, compared with 420,000 tonnes in. Of the 1.5 million tonnes elevated in, 13

16 Review of operations Trading Key features Sold more than 1.3 million tonnes of bulk wheat to exporters and customers in the South Pacific, South East Asia, Europe and the Middle East Contributed $25 million to earnings, demonstrating positive impact of entry this year into the bulk wheat export market Opened a representative office in Singapore Entered the durum export market Integrated Hunter Grain s soymeal trading 14

17 To enhance GrainCorp s ability to service South East Asian customers, a representative office was opened in Singapore in August. The Singapore office will allow us to offer technical, quality and logistical support and advice to customers in the competitive Asian markets. Opening the representative office sends a clear signal to customers in Asia that GrainCorp is serious about building direct relationships and providing support in their region. Hunter Grain During, the Hunter Grain soymeal importation business was fully integrated with GrainCorp Trading. This involved putting in place a new management team, systems and processes that allowed the business to focus on core soybean trading activities. Hunter Grain imports soymeal from Brazil, Argentina and the United States. Soybean meal is principally used in the poultry sector. GrainCorp Trading currently buys and sells more than three million tonnes of grain and protein meals a year, and services both domestic and overseas customers. Over the past 13 years GrainCorp has established itself as one of the major traders of wheat, barley, sorghum and oilseeds on the east coast of Australia. Following our acquisition of Hunter Grain in 2007, we became the country s largest importer and distributor of soybean meal servicing the Australian stockfeed sector. The highlight of the year for our Trading business was the opportunity to participate in the bulk wheat export market, following the removal of the wheat export monopoly in July. During /09, GrainCorp Trading sold over 1.3 million tonnes of wheat to exporters and direct to international customers. Wheat sold by GrainCorp was exported to flour millers in the South Pacific, South East Asia, Europe and the Middle East. As a new bulk wheat exporter, GrainCorp had to build a customer base from zero and adapt to a new marketing environment. Managing the complexities of the supply chain, meeting customers and promoting our services to them, increasing the level of knowledge of the international wheat market, and recruiting people with the expertise, were all part of the activities of GrainCorp Trading during the year. GrainCorp Trading s contribution to after tax earnings was $25 million, reflecting good trading results from both the wheat and sorghum desks. Another highlight of the year was our entrance into the durum market. In, GrainCorp, in alliance with CHS Inc., one of the world s largest durum traders, became Australia s largest durum exporter. The main market for these durum exports was Europe. Durum is used to manufacture pasta and couscous. During, GrainCorp sold its 50% share of Australian Grain Accumulation Services (AGA) to Cargill Australia. The company then formed the GrainCorp Marketing Services (GMS) team to take greater control of our relationships with growers. PROFIT BEFORE TAX $M TRADING RESULTS FY09 $M FY09 FY08 REVENUE 1,243 1,270 EBITDA PROFIT BEFORE TAX

18 Review of operations Merchandise and Allied Mills Key features Merchandise Record decline in price and demand for fertiliser and chemicals in late Inventory write-downs to market value: total of $11 million for fertiliser and chemicals Total operating costs reduction in excess of 30% vs. budget Allied Mills Margins reduced due to mill commissioning and Albury and Summer Hill shutdown Frozen dough manufacturing acquisition Picton commissioning 16

19 Merchandise The year was a challenging one for GrainCorp Merchandise. The prices of fertiliser and glyphosate, two products that constitute a significant portion of the whole merchandise sector, dropped by almost 78% during the year. This required our inventory to be written down to market replacement value. The fertiliser and chemical write-down of $11 million contributed to an end-of-year loss of $23 million EBIT. known household brands manufactured by Goodman Fielder and Arnotts. Allied also supplies the Woolworths and Coles in-store bakery businesses. Allied Mills buys over 800,000 tonnes of wheat each year. GrainCorp and its joint venture partner, Cargill, buy wheat from growers and traders for Allied, and supply this wheat at the prevailing market price. GrainCorp provides Allied with rail and road transport services. Allied Mills commenced milling operations at its new $97 million flour and maize mill at Picton, in Sydney s southwest, in January. This location, on the major north-south rail line, and near major flour customers on Sydney s western expressway network, has increased supply and distribution efficiencies. In December, Allied Mills purchased a frozen doughnut factory in Yatala, Queensland. This factory produces doughnuts, and other frozen dough products, under a long-term supply agreement for a major Australian retail franchise chain. During the /09 financial year, Allied Mills margins were reduced by costs associated with the commissioning of the Picton mill, and the shutdown of Allied Mills Albury and Summer Hill flour and maize mills. Allied Mills will continue to innovate and introduce new flour mix products to complement its current product range. The company will also continue to pursue growth in complementary business areas, to add value to the current flour milling and distribution network. Allied Mills GrainCorp, by way of a joint venture with Cargill Australia, owns 60% of Allied Mills, Australia s largest producer of bakery premixes and flour for the bread and food sector. Allied Mills operates a bakery premix plant in Kingsgrove, New South Wales; eight flour mills located in Queensland, New South Wales, Victoria, South Australia and Western Australia; and a soy flour mill in Dalby, Queensland. EBITDA $M ALLIED MILLS MILLING NETWORK NORTH FREMANTLE MILE END BALLARAT KENSINGTON TOOWOOMBA AND DALBY TENNYSON TAMWORTH PICTON & KINGSGROVE (PREMIX) Allied Mills supplies biscuit and bakers flour, specialty grains and premixes to industrial bakeries, supermarket bakeries, hot bread shops, food service and catering companies. More than 100,000 tonnes of the flour milling by-product millrun (bran and pollard), is sold by Allied to the stockfeed sector each year. Allied s flour and premix products are distributed in bulk and bagged form to customers from a national warehouse network. Allied products are included in a range of well 17

20 Review of operations People community and environment Key features Defined GrainCorp s values Embarked on a three year Occupational Health and Safety Plan Introduced new recruitment strategy Implemented comprehensive leadership development strategy for all executives and managers Together with our staff, donated approximately $50,000 to help victims of the Victorian bushfires 18

21 Following a comprehensive consultative process, which included workshops with employees and the executive team, this year we reaffirmed what we value: Safety, Excellence, Integrity, Our People, Community and the Environment. These values define how GrainCorp employees should interact with each other, our customers and our stakeholders. relevant information that will enable better management of safety. Our aim is to reduce the rate of injuries across the business by 10% in FY10. The plan is designed to strengthen our focus on OH&S, by improving systems, processes and behaviour. Led by a newly appointed General Manager OH&S, and with the full commitment of the board and executive team, the plan is being implemented by line managers throughout the organisation. An occupational, health and safety steering committee, chaired by the Group General Manager of Storage and Logistics, meets quarterly. The committee s charter is to review our safety performance, develop strategies to achieve safety goals, review the effectiveness of these strategies and resolve safety issues presenting specific challenges to individual businesses. Excellence GrainCorp has a proud history of being at the forefront of industry change. We recognise that our reputation depends on our ability to achieve excellence, provide superior customer service, adapt to change and solve problems. We acknowledge, too, that demonstrating accountability, consistency and professionalism is essential if we are to maintain successful relationships with all stakeholders. Integrity Embracing and upholding the highest standards of personal and professional integrity and being honest and trustworthy are all at the core of our beliefs. We believe integrity to be a prerequisite for future success. We encourage all employees to be responsible and accountable for their decisions, and promote and practise open and honest internal and external communication. Our people During the year we put significant effort into strategies for recruiting talented, skilled and motivated people, developing our leaders, managing performance and retaining talent. Recruiting the right people The breadth, scope and scale of our operations present career opportunities across the entire grain supply chain, while also creating considerable employee challenges. As one of the country s largest supply chain and logistics companies, we are an integral part of rural Australia, and many of our people provide an essential link between growers and customers. Hiring the right expertise is essential. To this end, this year as part of a new recruitment strategy, we established a formal partnership with the leading recruitment outsourcing provider in The GrainCorp values have been communicated throughout the business and will continue to govern the way in which we operate. They are linked to all our leadership development initiatives and employee performance will be measured against them. Safety We hold safety as one of our highest values. We are committed to achieving best-practice safety performance and work hard to create high levels of safety awareness for all employees, visitors to our sites and members of the community. Our aim is to build a culture of zero harm and to ensure safety at work is never compromised. We are disappointed to report that this year s Lost Time Injury Frequency Rate increased from 7.3 to This deterioration in performance was a driving factor in deciding to embark on a new three year plan to reinvigorate safety management at GrainCorp. As part of this plan, we have moved to an All Injury Frequency Rate target for the coming year. This will provide more GrainCorp has a proud history of being at the forefront of industry change. We recognise that our reputation depends on our ability to achieve excellence, provide superior customer service, adapt to change and solve problems. 19

22 People, community and environment the Asia-Pacific, created an internal recruitment team and developed a careers website. The new strategy will reduce time and cost spent on recruiting, improve screening to ensure the quality of our hires, mitigate risks associated with labour shortages and help us to create and build a first-class talent pool. It will also facilitate a cultural understanding of GrainCorp and allow us to promote and manage internal mobility, which in turn means we will retain talent. Developing our leaders During the year we implemented a comprehensive leadership development strategy for all managers. The strategy, endorsed by the board and executive team, sets out the vision, objectives and implementation plans to develop a sustainable approach to leadership and management development within GrainCorp. Its purpose is threefold: To develop the capacity and capability of leaders and managers at all levels to improve performance and achieve business goals and growth. To develop a cohesive framework that brings together the principles of leadership and management. To develop a culture that supports people in achieving business goals and maintaining high levels of skill and professionalism. Initiatives include a leadership competency framework and curriculum; and a talent and succession management plan. These initiatives incorporate all levels of leadership: executives, line and functional managers, emerging leaders and teams. These programs will be implemented over the coming year and will be evaluated to measure business impact. Leadership competency framework: This translates our values into the behaviours we expect from our leaders. We expect them to be committed to safety and the environment, think strategically, bring out the best in others, deliver results and achieve business excellence. The framework enables us to recruit, develop and evaluate performance more effectively. It also allows us to identify gaps between present skill sets and future requirements, and empowers employees to take charge of their own careers and personal development. Leadership curriculum: The curriculum currently comprises a 360-degree feedback program that is facilitated by an external provider and includes one-on-one coaching for leaders. It also includes a safety leadership development program for all line managers, and a program that focuses leaders attention on three areas in phase one: effective conversations, constructive problem-solving and decision making, and coaching skills and tools and techniques for empowerment. Talent and succession management plan: This determines how we recruit, develop, promote and retain our people. It protects the company against the risk of critical positions remaining unfilled, lack of readiness for more senior roles and assimilation problems when we recruit external talent. Retaining employees In addition to the new recruitment strategy and the talent and succession management plan, both of which will support retention across the organisation, we introduced a retention share plan for key staff. Its main aim is to ensure GrainCorp retains people over the medium to longer term. The plan aligns individual performance with that of the company in each business year, and over a three year period. Shares are allocated to reward individual performance to the employee after three years. This serves to keep employees focused on shareholder value over the longer term. Leadership development strategy Initiatives Evaluation and Assessment of Leadership Framework Integrated approach and consistent messages Talent and Succession Management, Personal Development Plans Leadership Curriculum and Development Options GrainCorp Leadership Competency Framework GrainCorp Values and Strategic Plan 20

23 Community GrainCorp is an important part of the community, wherever we operate. That is why we actively support and invest in local communities. In February, fires ravaged large sections of Victoria. In response to appeals, GrainCorp s employees donated approximately $24,000 to the Australian Red Cross, and GrainCorp donated $25,000 to the Horsham Rotary Club in Victoria and $25,000 to the Victorian Farmers Federation bushfire appeal. Leadership development strategy Objectives and outcomes Fostering open relationships with local communities is essential for the longterm sustainability of our business. We work hard at facilitating the flow of information and knowledge between GrainCorp and the places in which we do business. Environment As a significant contributor to the agricultural sector, we recognise that the adoption of sound environmental management practices and sustainable business operations is important. To that end we are a registered participant in the Energy Efficiency Opportunities (EEO) program administered by the Federal Department of Resources, Energy and Tourism. Companies participating in this program undertake energy use assessments and identify energy efficiency opportunities. As the majority owner of Allied Mills, GrainCorp has elected to act as that organisation s controlling corporation for the purposes of the Energy Efficiency Opportunities Act This means that GrainCorp and Allied Mills are joint participants in the EEO program. By 31 December, GrainCorp will release its first Energy Efficiency Opportunities Public Report, which will be available on our website. In, almost 1,000 of Australia s largest corporations were required to report their greenhouse gas emissions under the National Greenhouse and Energy Reporting Act As a participant in the scheme, GrainCorp is obliged to disclose its Scope 1 and Scope 2 greenhouse gas emissions on an annual basis. GrainCorp submitted its National Greenhouse and Energy Report on 30 October in compliance with the Act. As one of the country s largest supply chain and logistics companies, we are an integral part of rural Australia, and many of our people provide an essential link between growers and customers. Hiring the right expertise is essential. 21

24 Board of directors Don Taylor B.Com, CA, Graduate Certificate in Rural Science Fellow of the Australian Institute of Company Directors Chairman Don Taylor joined the board as a non-executive director in October 2003 and was appointed Chairman in December He also chairs the Remuneration and Nominations Committee and is a member of the Trading Risk Management Committee. A chartered accountant with audit and taxation experience in the manufacturing and heavy industry sectors, Mr Taylor runs a mixed farming and grazing enterprise at Moonie in Queensland. He was formerly Executive Chairman of Grainco Australia, a director of Forest Enterprises Australia and Chairman of Carrington Cotton (formerly listed on the Australian Securities Exchange). Mark Irwin LLB MBA Managing Director and Chief Executive Officer Mark Irwin was appointed Managing Director and Chief Executive Officer of GrainCorp in March. He is a member of the Trading Risk Management Committee and is a director of Allied Mills Australasia. Before joining GrainCorp, Mr Irwin led a team of finance professionals, based in London, specialising in global mining and metals corporate transactions. Prior to this, he spent 11 years with BHP Billiton working across a variety of international operational, change management and strategic leadership roles. Dan Mangelsdorf B.Ag.Ec (Hons) Graduate of the Australian Institute of Company Directors Non-Executive Director Daniel Mangelsdorf has been a non-executive director of GrainCorp since February He chairs the Trading Risk Management Committee and is a member of the Remuneration and Nominations Committee. Mr Mangelsdorf is a grain grower from West Wyalong in New South Wales. He was formerly Chairman of the Grain Growers Association and a member of the Federal Government s industry expert group. David Trebeck B.Sc.Ag (Hons), M.Ec Fellow of the Australian Institute of Company Directors Non-Executive Director A non-executive director since he joined the GrainCorp board in February 2002, David Trebeck also chairs the Audit Committee and is a member of the Remuneration and Nominations Committee. Mr Trebeck is a grain grower from Barmedman in New South Wales and resides in Canberra. He is a director of Maersk Australia and PrimeAg Australia and Chairman of Penrice Soda Holdings Ltd. He was formerly a commissioner of the National Water Commission. For over 35 years Mr Trebeck provided high level economic advice to companies and governments in Australia and abroad, having been principal Managing Director and co-founder of economic consultancy ACIL Consulting (now ACIL Tasman). 22

25 Executive management Peter Housden B.Com Fellow of CPA Australia and of the Australia Institute of Company Directors Non-Executive Director Peter Housden joined the GrainCorp board as a non-executive director in October. He is also a member of the Remuneration and Nominations Committee and the Audit Committee. Mr Housden is a director of China Holdings Travel Group, Magenta Shores Golf & Country Club, a board member of law firm Sparke Helmore and a member of the audit committee for the New South Wales Department of Housing. He has 40 years experience in accounting, finance, management, treasury and commercial fields across a number of industries. Simon Tregoning B.Com Non-Executive Director Appointed as a nonexecutive director in November, Simon Tregoning is also a member of the Remuneration and Nominations Committee and the Audit Committee. He is a director of St Luke s Care and Capilano Honey and a former director of Australian Cooperative Foods (Dairy Farmers) and Capitol Chilled Foods (Australia). Mr Tregoning has 23 years of senior management experience spanning 15 countries in the fast moving consumer goods and energy sectors. Bruce Griffin Group General Manager Storage and Logistics Bruce Griffin joined GrainCorp in March as General Manager Storage and Logistics. He is responsible for GrainCorp s grain receival, storage, handling, road and rail logistics, quality assurance and technical services. Before joining GrainCorp, Mr Griffin spent seven years at BHP Billiton and nine years in a variety of operational and commercial positions with Shell. He also has experience as a management consultant with Bain & Company. Jim Anderson Chief Executive Officer GrainCorp Malt Jim joined GrainCorp following the UMH acquisition, having joined UMH as CEO in September Before taking up this position, he was Chief Operating Officer/Executive Vice President of CT Malt, a joint venture between ConAgra Foods and Tiger Brands of South Africa. He had been recruited by ConAgra Foods in 1995 and took up the COO/EVP position in April Mr Anderson has over 26 years experience in the agricultural processing and trading business and has held board positions with North American Export Grain Association and National Grain and Feed Association. Sam Tainsh General Manager Trading Sam Tainsh has been with GrainCorp for eight years and was appointed General Manager Trading in February He is responsible for all domestic and international grain, oilseed and meal marketing and trading activities. Before joining GrainCorp, Mr Tainsh spent seven years as a commodity trader at Louis Dreyfus Corporation. Ian Wilton Chief Financial Officer Appointed in June, Ian Wilton is responsible for capital management, risk, taxation, financial reporting and compliance functions across the GrainCorp Group. He has an extensive range of international and Australian agribusiness experience, having worked in senior positions for a number of companies both here and in the United States and Europe. Before joining GrainCorp, Mr Wilton was CFO of Ridley Corporation for eight years and spent three years as CFO of ConAgra Malt, a forerunner of the UMH business. Betty Ivanoff General Counsel and Company Secretary Betty Ivanoff was appointed General Counsel and Company Secretary for all GrainCorp entities in October. She is responsible for the company s compliance and legal affairs and oversees the company s insurance, risk and energy efficiency programs. Ms Ivanoff has held corporate counsel positions with a number of companies, including CSR and Walter Constructions. Neil Johns Chief Development Officer Neil Johns has been with GrainCorp for 20 years and was appointed to his current position in He is responsible for corporate strategy, mergers and acquisitions, major projects and investor relations. Mr Johns is a director of Allied Mills, Grain Trade Australia and Queensland Commodity Exports. Robyn Porcheron General Manager Human Resources Robyn Porcheron has been GrainCorp s General Manager Human Resources for the past five years. She is responsible for developing and deploying the company s employment strategies, policies and programs. Ms Porcheron has extensive experience in senior human resources roles across a variety of industries in Australia, the UK, Europe and the US. 23

26 Corporate governance statement 1. GrainCorp s approach GrainCorp considers the management and promotion of an effective corporate governance system to be fundamental to the success and effective management of the company. Sound ethical conduct is an attribute we expect of our directors and employees. It is through such an approach that GrainCorp and its controlled entities ( Group ) may be viewed as good corporate citizens. GrainCorp s corporate governance framework aims to enhance and protect our business, and the interests of our shareholders and our stakeholders. This statement outlines GrainCorp s support, compliance with, and achievements against the ASX Corporate Governance Council s Corporate Governance Principles and Recommendations. GrainCorp reviews local and international developments in governance standards, and relevant laws and regulations and incorporates these into its governance framework. 2. ASX Corporate Governance Council guidelines As an entity listed on the Australian Securities Exchange (ASX), GrainCorp complies with the ASX Corporate Governance Principles and Recommendations. The second edition of these Principles and Recommendations was released in August 2007, including revisions which aim to improve and simplify corporate governance disclosures. Listed entities are required to report against the changes to the Principles and Recommendations. GrainCorp s obligation to report commenced on 1 October, and this statement incorporates the revisions to the Principles and Recommendations. For further information on these revisions, please refer to corporate_governance/index.htm 3. The role of the board The role of the board is to provide an effective corporate governance framework and strategic guidance for the Group, whilst ensuring effective oversight of management with the objective of protecting and enhancing the interests and investments of our shareholders. The board has recently revised and adopted a board Charter which describes, amongst other things, the structure of the board, and the board s responsibilities which include (but are not limited to): Providing the overall strategic direction of the Group and monitoring performance against the strategic plan; Approving annual and long-term budgets, and monitoring performance against those plans; Endorsing appropriate culture and values of the Group and monitoring compliance with these to ensure appropriate social, ethical and environmental standards; Selecting and appointing the Managing Director, evaluating performance and developing a succession plan for the Managing Director; Developing and reviewing the effectiveness of Occupational Health and Safety systems; and Determining the risk profile of GrainCorp, including credit, market, liquidity, equity and operational risks and developing and monitoring the integrity of internal controls and systems in order to identify and mitigate these risks. The Managing Director is responsible to the board for the ongoing management of GrainCorp in accordance with the strategy, policies and programs approved by the board. 4. The role of management The management of GrainCorp is the responsibility of the board. Daily management of the company has been delegated to the Managing Director. 24

27 The Managing Director has been vested with certain authorities that allow for the efficient operation and conduct of the business. These authorities are sufficiently restricted and monitored to ensure ethical standards and adequate segregations are upheld. The Managing Director has appointed an Executive Leadership Team, which is empowered to implement the Group s strategic plan at an operational and functional level. The Executive Leadership Team is guided by an adopted Charter, and in accordance with this Charter seeks to (amongst other things): Promote greater integration and collaboration between business units and support services to facilitate consistency and improve performance in profitability and service delivery; Advise on the implications of policies, strategies, industry standards, changes to statutory requirements and markets, and to develop appropriate plans; Openly discuss all matters that may affect the operations of the Group, its people and the Group s reputation and make decisions in the best interest of the Group and its people; Promote and endorse the Group s values in all aspects that affect the operations of the Group; and Provide a forum for the communication of directions and queries from the board of directors or any committee of the board. The Executive Leadership Team provides financial and operational reports to the board, ensuring that the business is transparent and the directors are fully informed of the Group s affairs. 5. Structure of the board (a) Board Charter The board is governed by GrainCorp s Constitution and is bound by the board Charter, which sets out the roles, responsibilities, authorities, and processes of the board. GrainCorp recently revised its board Charter, which was approved by the board in November and is available on our website. (b) Appointment of Chairperson The board of directors elects one of their members as the Chairperson of the board. The Chairperson must be a Non- Executive Director, and his/her term of office may be determined by the directors. The Chairpersons of board committees are appointed on an annual basis by the directors. (c) Composition and size of the board GrainCorp s board presently consists of six directors, represented by five independent Non-Executive Directors (including the Chairman) and an Executive Director (the Managing Director). GrainCorp s Constitution requires a minimum of four directors to hold office; however, does not impose a maximum limit on the number of directors who may hold office. The names of directors who currently hold office are noted in the directors report. (d) Tenure of directors A director holds office for a period of three years, after which the director must retire at their third Annual General Meeting. Retiring directors may seek re-election to the board. If no directors are required to retire from office in accordance with their tenure, the director who retires will be chosen from those who have held office for the longest time since he/she was last elected. 6. Selection, skills and experience of directors Directors are appointed by the shareholders at each Annual General Meeting. The company or its directors may fill a newly created position or the office of a vacated or retired director by electing an eligible person, in accordance with the Constitution. At the Annual General Meeting of the company in February 2010, Mr D Taylor and Mr D Trebeck will offer themselves for re-election by the shareholders, with the recommendation of the board. The Remuneration and Nominations Committee nominates persons it believes are sufficiently skilled and experienced to act as directors on the board. As a diverse agricultural company, our board requires its directors to have a variety of skills and expertise that complement and enhance the strategic direction of the Group. From time to time GrainCorp may employ the services of external consultants to assist in identifying suitable director nominations. Further detail about the skills and experience of our directors is available in the directors report. 7. Access to independent advice GrainCorp s directors may access independent professional advice, at the company s expense, having consulted the Chairman prior to seeking the advice. This advice may be obtained by the directors to assist them in performing their duties. 8. Performance of the board GrainCorp s board has adopted a process of self evaluation. The board measures its own performance and the performance of all board committees. This process did not take place during the reporting period due to the new composition of the board. It was deemed prudent to allow some time for the board to function within the period. An independent board evaluation is now underway and is expected to be completed during the first half of The performance of each Non-Executive Director is formally reviewed on an annual basis by the Chairman. Similarly, the Chairman s performance is reviewed annually by the board as a whole. 25

28 Corporate governance statement Directors are encouraged to undertake continuing education, for which the company provides resources as and when required. The performance of the Managing Director is reviewed by the board at the conclusion of each financial year, through an evaluation process conducted by the Remuneration and Nominations Committee. 9. Performance of management All members of the Executive Leadership Team are set key performance indicators which are used to assess their performance against business objectives. The board and Remuneration and Nominations Committee monitor the performance of the Executive Leadership Team on a monthly basis, through functional area and business unit reporting. Specific information relating to performance of the Executive Leadership Team is located in the directors report. 10. Committees of the board GrainCorp has three board subcommittees that assist the board in its oversight and governance functions. These are detailed below: (a) Board Audit Committee (BAC) overview The BAC is responsible for evaluating the overall effectiveness of the internal control and risk management systems implemented by the Group, and making recommendations to the board. This includes oversight of the financial reporting function, accounting policy changes, the appointment of external and internal auditors, assessing the effectiveness of compliance systems, reviewing and managing business risk and reviewing the Group s insurance program. The BAC consists of three independent Non-Executive Directors, and is chaired by a director who is not the Chairman of the GrainCorp board. The names of directors who serve on this committee, and their attendance history, are located in the directors report. The BAC operates under a Charter which is regularly reviewed and updated. The Charter is available on our website. (b) Trading Risk Management Committee (TRMC) overview The TRMC is primarily responsible for overseeing the operations of the Trading business unit. The TRMC s role extends to ensuring that adequate operational procedures and risk control systems are established; that lines of authority and responsibility are clearly delineated; and that the Trading business unit at all times complies with the Trading Risk Management Policy. The TRMC consists of two independent Non-Executive Directors, an independent external Committee Member and the Managing Director. The names of directors who serve on this committee, and their attendance history, are located in the directors report. The TRMC operates under a Charter which is updated regularly. The Charter is available on our website. (c) Remuneration and Nominations Committee (RNC) overview The RNC is responsible for reviewing the composition, performance, succession planning and membership of the board, including the appointment of new directors. The RNC also provides recommendations to the board on the direction and strategies regarding remuneration and benefits, reward and recognition, succession planning and professional development. The RNC consists of five independent Non- Executive Directors, as the Managing Director is not a member of the RNC. The names of directors that serve on this committee, and their attendance history, are located in the directors report. The RNC operates under a Charter which is regularly reviewed. The Charter is available on our website. 11. Remuneration of directors GrainCorp s Non-Executive Director remuneration is not tied to the overall performance of the Group. The Remuneration and Nominations Committee is responsible for reviewing and making recommendations in connection with Non- Executive Director remuneration, taking into account current market conditions. Further information regarding directors remuneration is located in the directors report. 12. Our people (a) Values Statement In, GrainCorp developed a statement of values that helps define how our employees should behave towards each other, our customers and our stakeholders. Through a process of employee consultation, a series of values were identified that reflect the culture of our business, and how we would like to be seen in the wider community. At GrainCorp, we value: Safety Our People Excellence Integrity Our Community and Environment All of GrainCorp s directors and employees are expected to adhere to and promote our values. Senior management and employee performance against GrainCorp s values is measured as a component of our performance management system. 13. Our ethical standards (a) Business ethics GrainCorp expects directors and all employees to meet the highest ethical standards in all facets of their conduct. GrainCorp s Business Ethics Procedure is designed to assist our employees in obtaining a general understanding of the legal issues surrounding bribery. 26

29 The procedure also clearly documents what obligations an employee has to report known contraventions or suspicious activities. The procedure is regularly updated. (b) Share trading All designated officers and their associates are prohibited from trading in GrainCorp s securities while in possession of unpublished price sensitive information concerning the Group. Directors and designated officers may only trade in GrainCorp s securities during the designated trading windows, which are open for a period of six weeks commencing 48 hours after certain events, or as otherwise documented in our Share Trading Policy, or as determined by the board. The board may impose an embargo, at any time, upon trading in GrainCorp s securities if it believes that a market sensitive event has occurred or is likely to occur. Directors and designated officers are prohibited from entering into financing arrangements (specifically margin loans) over GrainCorp securities, unless appropriate notification and approval is sought in accordance with the Share Trading Policy, and reported on thereafter. The procedure is regularly updated and available on our website. (c) Conمخicts of interest GrainCorp s directors and employees are required to comply with our Conflicts of Interest Policy, and are required to disclose any material personal interest that they may have that relates to the affairs of the Group. Directors declare any conflicts to the General Counsel and Company Secretary, which are maintained in a Conflicts of Interest register. Similarly management and staff are required to report all actual or potential conflicts, which are also reviewed, actioned and reported on in the same manner. The policy is available on our website. (d) Fraud and corruption control GrainCorp strictly prohibits acts of fraud or corruption against or otherwise involving the Group, our customers, suppliers and employees. GrainCorp has a documented Fraud and Corruption Control Procedure that has been prepared in consideration of AS/NZS 8001:. The purpose of the procedure is to put controls in place to prevent, identify, report and investigate fraud and corruption events that may occur in our business. The Fraud Control Officer is responsible for investigating suspected or known incidents of fraud, and all fraud events are reported to the Board Audit Committee. The procedure is regularly updated. 14. Our Code of Conduct GrainCorp s Code of Conduct serves to complement our Values Statement by establishing a framework of ethical standards, accepted behaviours and aspirational goals that employees are expected to uphold and promote. Our Code of Conduct is both aspirational and prescriptive in nature. The aspirational aspects of our Code set the high level ideals to which our employees should aspire. Examples of aspirations in our Code include: Valuing all people; Treating others with dignity; Acting in a manner that merits public trust and confidence; and Conducting business in an ethical, law abiding and responsible manner. Our Code of Conduct is also prescriptive as it clearly sets out our employees obligations which we consider nonnegotiable. Examples of prescriptions in our Code include: Not engaging in offensive behaviour; Not contravening any laws or regulations; Not participating in or conducting or encouraging acts of fraud, theft or corruption; The non-disclosure of confidential or company sensitive information; and Not engaging in situations that could be a conflict of interest. Our Code of Conduct is designed to be a dynamic tool on which we can all leverage to create a more ethical, robust and socially acceptable working environment. The Code of Conduct is updated regularly available on our website. 15. How we manage risk (a) GrainCorp s approach to risk management GrainCorp recognises risk to be both a challenge and an opportunity in our business. Sound risk management practices are essential for the achievement of our corporate strategy and objectives. GrainCorp s risk management framework has been established in consideration of AS/NZS 4360:2004. Our systems of risk management are documented in the Group s Risk Management Policy Framework and Guidelines, which are updated from time to time. As risk management is not a static discipline, GrainCorp s risk approach continues to evolve and improve over time, as does our culture which promotes the proper identification and mitigation of risks. The board has ultimate responsibility for ensuring the business adequately manages and monitors risk. However, the Board Audit Committee oversees risk management systems on behalf of the board, and the Trading Risk Management Committee focuses on trading related risks. The Board Audit Committee receives regular reports from management on the risk environment and systems of control, as does all the board in the Group s monthly reporting systems. This includes a report on the implementation of the Group s insurance program. The Executive Leadership Team is responsible for the ongoing, day-to-day management of risk at an operational and strategic level. 27

30 Corporate governance statement (b) Risk identiمحcation and risk management GrainCorp identifies risk through a bottom-up risk-based approach. Each member of the Executive Leadership Team is responsible for identifying risks that impact on their functional area or business unit. The resultant risk management actions then cascade through to the operational level of each business unit or functional area. Risk registers and risk action plans are established to ensure those risks are being adequately managed and/or mitigated at an operational level. Where appropriate and required, certain risks are escalated to the corporate risk register where they receive a high degree of oversight from the Executive Leadership Team and the board. Generally, risks that appear on the corporate risk register are highly significant to the success of our business and the safety of our people. GrainCorp s Managing Director and the CFO report in writing to the board that, to the best of their knowledge, the financial records of the company are properly maintained in accordance with s286 of the Corporations Act, that statements made regarding the integrity of the financial statements are founded on a system of risk management and internal control, and that the risk management and internal control systems are in all material respects operating effectively. 16. The role of audit and assurance (a) Independence of audit GrainCorp s internal audit function is independent of external audit. KPMG is appointed to report on and manage GrainCorp s internal audit function, and is responsible for monitoring the internal control framework of the Group. KPMG operates under an internal audit plan which is approved by the Board Audit Committee. KPMG regularly reports to the Board Audit Committee on its progress against the plan and any deviations from it. PricewaterhouseCoopers (PwC) is GrainCorp s external auditor and is responsible for reviewing and auditing the financial accounts for both the halfyear and full-year respectively. PwC has been GrainCorp s external auditor since PwC regularly attends Board Audit Committee meetings, meets with the Board Audit Committee independently of management and also attends GrainCorp s Annual General Meeting to answer shareholder questions about the conduct of the audit, and the preparation of the auditor s report. GrainCorp has an Auditor Independence Policy. The Board Audit Committee requires that the external audit engagement partner be rotated every five years, unless otherwise extended under transition provisions. Further information on the policy can be obtained from our website. 17. Environment The board recognises that the adoption of sound environmental management practices, and sustainable business operations are important to the long-term stability and growth of our business. Climate change is a key challenge for GrainCorp as well as other businesses in primary industry. GrainCorp identifies drought as a significant corporate risk, and our response to this challenge will be important for the long-term success of our business. GrainCorp is a registered participant of the Energy Efficiency Opportunities (EEO) program, and is registered to report energy use and greenhouse gas emissions under the National Greenhouse and Energy Reporting Act Communication with our stakeholders GrainCorp s shareholders play an important role in the governance of the Group, through exercising their right to vote for the election of Non-Executive Directors to the board, and responding to motions for adoption on requisite matters of importance. Similarly, our communication with other stakeholders such as our customers, suppliers, government and regulators, and the community is crucial to the stability and profitability of the business. GrainCorp aims to keep shareholders informed of company developments in a timely manner through various communications mediums, such as: The annual and interim financial results; Newsletters, presentations and reports; Company announcements; The Annual General Meeting; Pre-harvest meetings; Analyst briefings; and The company website. 19. Continuous disclosure to the market GrainCorp s General Counsel and Company Secretary is responsible for communicating with the ASX. Where appropriate, the Corporate Affairs and Investor Relations Manager is responsible for communications with our shareholders and stakeholders. The General Counsel and Company Secretary is responsible for the Group s compliance with the ASX Listing Rules and our continuous disclosure obligations. GrainCorp has a Continuous Disclosure Policy, which documents how we will meet our disclosure obligations to the market. The policy is available on our website. 28

31 Financial report Directors report Deferred tax liabilities Auditor s independence declaration 45 Income statements 46 Balance sheets 47 Statements of changes in equity 48 Cash flow statements 49 Notes to the financial statements 1. Summary of significant accounting policies Financial risk management Critical accounting estimates and judgements Segment information Revenue Other income Expenses Income tax expense Cash and cash equivalents (current) Trade and other receivables (current) Inventories (current) Derivative financial instruments (current) Non-current assets classified as held for sale (current) Receivables (non-current) Investments accounted for using the equity method (non-current) Other financial assets (non-current) Property, plant and equipment (non-current) Deferred tax assets (non-current) Intangible assets (non-current) Trade and other payables (current) Borrowings (current) Other financial liabilities Provisions (current) Borrowings (non-current) Derivative financial instruments (non-current) 82 (non-current) Provisions (non-current) Contributed equity Reserves and retained profits Dividends Remuneration of auditor Contingencies Commitments Key Management Personnel disclosures and related party transactions Subsidiaries Acquisition of businesses Deed of cross guarantee Investments in associates Reconciliation of profit after income tax to net cash flow from operating activities Earnings per share Share-based payments Events occurring after the balance sheet date 103 Directors declaration 104 Independent auditor s report 105 This financial report covers both GrainCorp Limited as an individual entity and the consolidated entity consisting of GrainCorp Limited and its controlled entities. The financial report is presented in Australian dollars. GrainCorp Limited is a company limited by shares, incorporated and domiciled in Australia. Its registered office and principal place of business is: Level Liverpool Street SYDNEY NSW 2000 A description of the nature of the consolidated entity s principal activities and its operations is included in the directors report on page 30. This financial report was authorised for issue by the directors on 25 November. The Company has the power to amend and reissue it. 29