Earnings Transcript for GRCLF - Q2 Fiscal Year 2015

Executives: David Akers - IR Manager Mark Palmquist - Managing Director and CEO Alistair Bell - Group CFO

Analysts: James Ferrier - WilsonHTM Ramanan Sooriyakumar - Goldman Sachs Grant Saligari - Credit Suisse Jonathan Snape - Bell Potter

Operator: Thank you for standing by and welcome to the GrainCorp Half Year Results Investor and Analyst Briefing. All participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. [Operator Instructions]. I must advise you that this conference is being recorded today the 14 of May, 2015. I would now like to hand the conference over to your first speaker today, Mr. David Akers, Investor Relations Manager. Please go ahead.

David Akers: Good morning everyone and thanks for joining the briefing. The briefing for investors and analysts is being webcast live and a recording will be made available later today on our website. The result materials related to the ASX this morning are also available on our website. On the call this morning is our Managing Director and Chief Executive Officer Mark Palmquist and our Group CFO, Alistair Bell. There will be an opportunity to ask questions at the end of the briefing. Let me hand over to Mark to start the briefing.

Mark Palmquist: Thanks David. Good morning everyone and thank you for joining the call. The agenda for today is that I’ll present the result overview and I’ll talk about the segment performance and then I’m going to hand it over to Alistair and he is going to walk through the balance sheet and CapEx items for the half. And then I’ll conclude with a quick update on your outlook for the rest of the year and also a couple of other updates from announcements that we have made. I also want to point out we are hosting an Investor Day in Geelong next week and we will provide a thorough update on all our initiatives at that time. Part of our results and also looking at our safety and on slide four we had good performance and I am very pleased with what we’ve done and want to thank our employees, our contractors and our customers for really being focused on safety. The performance continues to be better but we certainly have ways to go and we are going to keep working on this and trying to achieve our vision of zero harm and safer life. Moving on to slide five, this is just the result overview and I just want to just kind of headline the earnings we achieved EBITDA results of a $136 million and NPAT result of $35 million for the half. I’ll just tell you after being seven months on the job I feel pretty good at where we are at. Obviously we are dealing with a shorter crop which has put pressure on the grain side of the business. But we are really out the fact that diversification is really working for this company, in particular when you go on, you look at the importance of the earnings from the malt and oil divisions, some really great decisions being made about diversifying downstream into the processing businesses, really highlighted in this year when you have great volumes in Eastern Australia being below normal, higher level of competition and definitely demand for Australian grain being weaker than expected. What’s interesting is that over that three quarters of our EBITDA has come from our processing businesses so that’s been a tremendous change as you look over the past five, six years. Also want to highlight the Board has declared a dividend of $0.075 per share for the first half and that represents a 49% payout ratio. And I am going to walk through the business unit in a little more detail as we go through some of the slides but I just want to highlight few things and that is most really have been performing well, very consistent level of utilization of capacity. We’re implementing very well on a lot of our strategic initiatives. We also had a favorable foreign exchange rate which has helped for the first half of the year and our team has just done a great job working through some of the lower quality issues that we had in North America. From oil side, very nice crush margins for this year and from the food side we are stabilizing that business in terms of our volumes. Margins are little compressed but we are working through that but we’ve got good utilization on the crush business. And the terminal liquiding business continued very good utilization of capacity and we’re getting some contribution into the first half from some of the recent expansions that we’ve had and very good solid contribution from our commodity businesses, particularly on the [indiscernible] side of things. For S&L again stories about the lower carry outs or carry ins and below normal grain production definitely has brought down volumes in our country receivables, particularly when you think about on lower crops, the domestic demand gets fed first and so the exportable supply is definitely down for the year. That’s also had an impact on marketing as well, just less grain available for trading into the export markets, bigger reliance in terms of satisfying domestic market and looking for other sources from Eastern Australia, looking West south and also non-Australian origination points. And I do want to highlight and Alistair will talk about this little bit more we’re just really pleased with the funding that’s been established from a construction base but also the refinancing on the term debt that really has some tenure upgrade so 4.5 years to seven years just really puts us on good footing to continue our strategic initiatives. Going on to slide six, just giving a quick highlight on the benefits of diversification. Again you can really see the change over the last seven years. And when you look at the left hand chart and the EBITDA chart and you can just see the profile has just changed significantly over this time period. The shift has been quite dramatic. We shifted from 95% being an S&L and marketing into, in fiscal 2009 to two-thirds in the processing business in fiscal ‘14 and again that is - reflects the challenging years we’ve had due to the smaller crops, but it also highlights the fact and you can see it in the trends that the EBITDA has been growing for our processing business through the past three years as well. If I just look at the split over the prior year period the diversified earnings from malt and oil has provided almost half of the earnings for GrainCorp. Moving on to slide seven. And this is just a waterfall so you can see changes from first half fiscal ‘14 to first half fiscal ‘15 and you can definitely see where the processing has kicked in for us with malts and oils having an improved half result. You can just see the increases coming pretty dramatically has really helped try to offset the experience of a very challenging period for the grains businesses and S&L and marketing. And also we’ve seen volumes down again which is contributing to challenging earnings on the grain side as well. All the other items for the period are basically largely what you would expect concerning the corporate cost, G&A and the results of taxes being lower on lower results. Going on to slide eight, just want to talk about dividend here a little bit. You can see again our diversified earnings is supporting our ability to be able pay dividend out here. We have declared a fully franked interim dividend of $0.075 per share for first half, that’s a payout ratio of 49% off of the NPAT. And that fits in very well inside of our dividend policy of looking to do a payoff between 40% to 60% NPAT through the business cycle. And again we keep targeting to pay an ordinary dividend each year. Also want to highlight on the right side just the dividend dates, owners on record July 3rd, payment being on 17th of July. So that's the results overview. I just switch into and just talk about the segments a little bit and go through the performance. I'm going to slide 11 and I just wanted to talk about - it's just really a good first half. We're really pleased where we're at. We're still driving sales, you can see consistent with last couple of years, 620,000 tons which really means we're doing high capacity utilization, which of course is definitely helping the margins and the earnings. And I want to call it again on just what a great job our team did in dealing with some trying quality issues on barley in North America. I just got to tell you it's one of the lowest quality malt crop that I've seen in North America. You got to go back probably two-three decades, so they really had to go through some great challenges. And we're getting through it, we're almost through it, we got a little ways to go but again I just think the team did an outstanding job. So if you look at the underlying improvement and if you back out the compensation payment received and some of the minor favorable foreign exchange translation that comes in to the profit statement which are monitored somewhere between $3 million to $4 million, we're still seeing very strong underlying improvements across the business. We're going after our initiatives very well. We're really focused on the business and driving down our production cost. There is been good water efficiencies, utility efficiencies and another costs that we've been able to bring down really taking down our per unit cost in terms of producing malt. And we continue to drive a very strong position in the North America crop segment. I’ll just tell you in the U.S. we continue to grow at double digit increases and we're also seeing some very good growth coming in the emerging growth places that we recall for craft, that's going across a wide spectrums of different countries. We're seeing it in Mexico and South America but also Australia is growing and places that you would think could be mature marketplaces like UK and Germany is also seeing great craft growth. Going on to slide 12, let's talk about oils a little bit. We had very good solid first half, real pleased with the results there. The crushing business side as I mentioned we actually saw higher sales volumes but we also saw higher margins from first half '14 to first half '15. In our liquid terminals business we're utilizing a very high capacity rates very good stable earnings. We have completed two expansions in the first half. So there is a partial contribution coming from those expansions in Fremantle and Port Kembla. And our project at Brisbane is on track and should be completed on time. On the foods business side, a little bit more challenging. It's really related to some of the customer segments that we have, some of the higher margin business as lines decline a little bit as there is delays in some of those markets in both the department [ph] and spreads. But that appears to be a stabilizing as well. And so feel really good about where we're positioned on the food side and feel good about it for the second half of '15. Just want to make mention that our expansion in West Footscray is going well and should be completed in fiscal 2016. Moving on to slide 13, here we talk about storage and logistics a little bit again. And this is really about just the lower grain production and lower carry-in, just resulting in lower volumes for us. So it was a tough first half for us now. We have grain production in Eastern Australia down about 6% year-on-year, about 1 million tons. So it really effectively reduced the exportable surplus by about 15%. So our volumes are down and a lower market share of the overall crop also as well. And again that's because domestic demand gets fed before the exportable demand does, so it make sense that our volumes and our market shares be down a little bit. If you go back to recent high production here, since 2011 and compare with where we are now crop is a third smaller and the exportable surplus is half the size. So that just results in lower accounts receivables, and more receivables direct to port and the grain exports being down is inevitable. So throughput is down about 20% lower than last half year and so that's down about 2 million tons. But I don't want to think this as being doom and gloom. We understand the [indiscernible] of our business and has very variability because of weather. So we're comfortable with that. But what's important is that we're seeing sustainable improvements in the business through the initiatives that we've been working on to enhance the efficiency of the market. We have integrated our country supply chains into four clusters and then that worked very well as we went through last year's harvest and we saw great improvement in efficiencies and customer performance as well. And we've also put together and announced our first tranche of some of the work and capital spend, $60 million we announced back on May 11 and so we're going to get rolling on those and the great majority of it completed in time for our - the coming winter. Moving on to slide 14 and talking about marketing and marketing is very similar profile for storage and logistics, being affected again by the lower grain production. But also additionally there has been very good strong international competition that has come in. And so with this smaller crop and stronger competition we certainly have lower earnings for the year, but we are making sure and very pleased with our team has been very disciplined in executing strategies, looking at trading positions and not taking undue risks. So despite our sales volume as you'll see in the lower half of the chart, earnings are down because there is pressure on margins, again with grain volume to flow first to the domestic market and then have an additional competition from areas overseas. That competition from overseas is really the result of a number of things going on, that's making it tough for Australian grain to be competitive on a consistent basis, would be the big changes in foreign currency exchange rates. We're seeing competition coming from other suppliers around the world, notably when you talk about Russia, Ukraine, Argentina as examples that even with the Australian dollar weaker against the US dollar their currencies are even weaker than ours. And then also the combination of what oil prices has dramatically reduced the cost of ocean freights, which has then dramatically reduced some of the ocean freight spreads that created natural advantages for Australia being the region where the biggest demand base is. So it is definitely for competition from a global base. But I'm very pleased to see that we see an increased contribution from our international offices and the activity that we've had in Western Australia and Southern Australia that has really helped us keep our volumes there and really try to support the customers overseas. But we have a ways to go to really achieve that multi-dimensional origination that we're going to need to stay relevant to our customers. Moving on to slide 15, just a few comments on Allied Mills. They're dealing with a challenging retail market. The pressure on pricing on fresh breads has really reduced the in store baking volumes. And so that has a negative impact on our mix business. But we continue to diversify into more value added products and so the expansion at the Tullamarine bakery is great example in terms of the frozen artisan bread and then also our starch business getting ramped up at [indiscernible]. So overall we feel good about really the huge initiatives going on inside of Allied Mills. So with that, that sums up the business performance. And I'll hand it over to Alistair and he will talk about balance sheet, and CapEx.

Alistair Bell: Thank you Mark and good morning everyone. Turning to slide 17, just a number of points to highlight here. Our balance sheet shows we're in good condition and position to handle the capital investment program that's underway and we'll continue to spend this CapEx ahead of new earnings coming on stream, so it's about ensuring we got the right liquidity within the Group. So just as a reminder we use our debt facilities matching our asset life. So we look at our core debt as our long-term liquidity funding and we generally fund our commodities inventory with short-term facilities as these are seasonal and turnover annually. So if we look where we are at the end of March our core debt of 595 has increased in-line with our expectations and reflects the implementation of the strategic CapEx projects and during the half we spent $85 million on CapEx as well as paying dividends of $11 million. So our balance sheet shows we’ve got good liquidity as well as a maturity profile that extends well beyond the commissioning of the strategic initiatives. Working with our Australian and international banking group in November we established a $210 million construction facility to fund the Australian projects. It’s also pleasing to announce today we have just refinanced our other term debt facilities which were due to expire in 2016 with maturities in the range of four and half to seven years with an average tenure of 5.3 years. So whilst we talk about core debt our bank covenants are different. It’s a good measure core debt is a good measure of ensuring we maintain appropriate headroom on all our banking covenants. You will see at our Investor Day we expect to talk about net debt gearing it’s a metric, a key international industry metric for maintaining appropriate investment ratings. So as we move forward we are going to be talking more about that because it’s an additional metric that’s important for the industry. So turning over to the next page you are all familiar with these slides and I don’t propose to go through the detail. But what it does show is the seasonal fluctuations in the levels of commodity inventory and how we are matching that in our funding activities. So as we go into the second half of the year and we outline and sell off the grain that we purchased we expect that to reduce out for the year end position. So moving on to slide 19 and this just summarizes the capital expenditure and the D&A over the periods with the CapEx we split Australian business from our growth CapEx and this is the third year for oils and we envisage our Australian business capital remaining around the $70 million mark for the full year. Relation to growth capital over the last two and half years just shy of $170 million CapEx that’s been incurred relating to the strategic initiatives. So all these projects remain on track and with the two big ones remaining being the terminal stuff at [indiscernible] and the relocation and manufacturing from Murarrie to Victoria due to be completed and commissioned in fiscal year ‘16. We expect to incur additional $85 million to $105 million of growth CapEx in the second half giving a full year growth CapEx in the range of $145 million to $165 million. The depreciation is up in-line with the raising CapEx program. That just summarizes the balance sheet and I will hand back to Mark.

Mark Palmquist: Thanks, Alistair. So I am going to move on and just talk about the fiscal ‘15 outlook and just have you look at slide 21 and I would just tell you there is no real material changes in the outlook since we had our guidance announcement in February. Just a few items in here, one is from a sorghum aspect a pretty good crop. We getting through the harvest but we are doing some exports but we are seeing a fair amount being held for feed, just to replenish the feed stocks in the region. We are also working through our rail freight issues again, we have take or pay fixed cost contracts with the smaller export tasks in front of us because of the lower exportable surplus, it means we're getting lower rail freight utilization so we're working on that. And then also just with the lower carry-in we have out there and the lower stocks inventories around the network that certainly has some complexity in terms of getting grain in the right position and also have the right quality in the right places. From a marketing aspect already talked about the just the competition from the alternatives origins, issues with the Australian [ph] freight, again we getting good traction on implementation of our origination route in other areas outside of Eastern Australia. Moving on to slide 23, just want to highlight again in the processing side there is really not a lot of changes here. Just that we really are seeing our malt just doing great job just working it’s ways to support quality. They're getting their contracted acreage in place. And so we're feeling really good where we're at. We obviously have more work to do to finish of the year but they're on a very nice trend. So I just want to finish up on that in slide 24. And just highlight again there is no update to our guidance. Our numbers are unchanged from February. We feel really good about the ranges that we're quoting. I just want to point out, just feel the variables here that could have an impact on us on the last half of '15. And then as we're still working through seeing what our sorghum receivables are going to be, how much of it's going to be exported versus how much it's going to be held back for domestic demand. And what does that mean for us in terms of our stock movements and what we do in terms of positioning and carries that we have with the local level. We're still obviously waiting to see what our new season opportunities will be for marketing and in the fourth quarter, which on a traditional base typically is a good quarter for us but again we have to wait and see what the crop looks like as go forward. The foreign exchange movement is having a big impact on us in the first half. So we just have to understand what that could be for the last half, certainly it’s a benefit to malt but it’s certainly is where the competition on the export coming out of the Australia. And of course and as always our volumes [ph] determined for our processing business will be impacted by crop sizes and by prices. So just switching over to couple of other issues that I want to talk about and update you and I am on slide 26. And of course the winter crop for 2015, 2016 is going to be pretty critical to us. We have favorable range late April and May into Australia but it didn't happen everywhere and kind of the more Western regions of Eastern Australia it is still dry. Planning is underway, but obviously having rain at critical periods during the crop is going to be very important to us, between the growing season is going to be very important to us. And as no doubt we've seen the Australian Bureau of Meteorology is forecasting a linear [ph] event. I don't want to dismiss the warning in that there is some concern with it but I don't to be too bearish with it at this point in time and we've got long season to go on. And really timing of rains is really the important part for us in terms of what the crop outlook will be. So we've got quite a ways to go on the season before that determination can be made. And I just want to highlight before I finish up here it, just some of that recent announcements that have come out. One, the announcement we had our network revitalization that first tranche again that we put out on May 11 and we're excited about this. And we're going to learn from this. This is no different than what we did and how we reposition ourselves in the four clusters and integrating our supply chain as we go forward and we do the capital improvements we're going to learn from that and take those learning and imply them out into the future. Again we want to make sure that every dollar as we commit is a good dollar spend and we're going to keep a good focus discipline on that. I also want to make notice about the favorable draft drilling and he exemption for Gelong [ph]. We're pleased to have that we still have ongoing consultation on our facility at Portland. And we have filed our exemption application for Port Kembla - and have process has commenced. And I just want to come back and highlight again I'm just really pleased from capital management aspect what Alistair and has team have got done and this sets us up well so that we can continue for our strategic initiatives and still deal with the volatilities that we have in earnings but stay on track. So with that I want to thank you for the opportunity to just give you outlook here on GrainCorp. So we would be very happy to take any questions. So I will ask the operator to please put those through now.

Operator: Thank you. [Operator Instructions]. Your first question comes from James Ferrier with WilsonHTM. Please go ahead.

James Ferrier: Good morning Mark thanks for the update this morning. Two questions from me, firstly on the dividend and secondly on the canola crop for ‘15-16. On the dividend in the past GrainCorp has set a stable ordinary dividend and used specials to flex up - to hit the target payout ratio. It looks like you are now rebasing the ordinary dividend to that $0.15 per annum level. Is that the case or have you stopped using specials altogether and you are now just going to flex the ordinary up and down to make the target payout?

Mark Palmquist: No, it’s not a change at all. So if you are looking at the numbers that would just be coincidence. I am really looking more at our policies in that 486% [ph] range is something that the Board takes a very good look at and really wants to try to be consistent with our policy and continue to pay an ordinary dividend. In terms of your second question on that canola not sure where that’s all going to be at, so it’s premature for me to answer on that. The canola a lot of it is already put in. We are still trying to ascertain if it’s going to end up being an increase or decrease in terms of what the total acreage being planted and that will become more evident as we work forward here over the next 30 to 40 days.

James Ferrier: Okay. And then what are implications that you would see from the Goodman Fielder sale in terms of the food business?

Mark Palmquist: Again we have new orders coming in on that. So we’ll have to see what that is. We have good engagement with the new management, that’s in place. We’re actually very, very pleased in terms of that engagement and where that is at. We have our supply agreements with them on the oil side and Allied Mills also has it from the flour side of the business and we anticipate that, that will continue going forward.

James Ferrier: Okay, thanks a lot.

Operator: Thank you. Your next question comes from Ramanan Sooriyakumar with Goldman Sachs. Please go ahead.

Ramanan Sooriyakumar: Hi guys, just a question from me on the marketing division earnings. There seems to be a sharp drop off in the EBIT per ton and I am just trying to understand how much of that is just because of the lower crop volume and how much of that is because new competitors have beefed up in that division. So if can just help me understand what you are looking for in terms of or what you are targeting for in terms of earnings per ton over the forecast period?

Mark Palmquist: Yes, so it’s a combination of all, they go hand in hand really. It’s the lower production is obviously going to compress the margin because your export surplus is down. So that’s a component of it. So the other part of it is that we are trying to feed in and bring in more of non-Australian origins in orders stay in front of our customers and stay relevant. So I don’t have the forecast for you in terms of what that split is going to be for the first half. We are still working through the rest of the export market, our export program for us through the end of fiscal ‘15.

Alistair Bell: I will just add something as well if you follow the market, the grain markets in addition to the competitiveness of the Australian grain on the international say the markets have been - the volatility in markets have been more of side of smooth, so when you are trading the basis it tends to not create the opportunity and that’s been the place for about the last 12 months.

Ramanan Sooriyakumar: All right, thanks.

Operator: Thank you. Your next question comes from Grant Saligari with Credit Suisse. Please go ahead.

Grant Saligari: Thank you. Look, in that result I didn’t see a few surprises there. I guess my question is more around the capital expenditure program and some of the benefits that should flow through from that. So if I look at the oils plant optimization, so the integration of refining crushing plants in Footscray, something you said in the past is you've actually talked about the EBITDA uplift, I think [indiscernible] from that CapEx. And that pretty material given the amount of cash flow you are putting into the business. I just wonder whether you could comment on the benefits that you still see flowing through from that expenditure.

Mark Palmquist: Yeah hi Grant. Yeah we think we're on track and so the number that you're quoting with the 20, I think you said $25 million. I look at it’s kind of more like $25 million EBITDA uplift on that $125 million cap spend. We still feel that we're on track for that. The project is on track. It's on budget and we still believe that we're going to capture that EBITDA uplift. So it does a dozen number of things for us. It's not just expansion of capacity but it's also improvement in terms of our cost things and then also gives us a better profile for performance with our customers.

Grant Saligari: Yeah, also on the oils business, could you talk more about where the EBITDA uplift came from because I thought there was a quite a good outcome from a business that as of the last update was obviously struggling a bit in terms of, so competitors with some of the canola cost and the like.

Mark Palmquist: Yeah we definitely saw an improvement on the crush side of the business and it came from both volume and margin. So we have better utilization of our crush, also have been able to improve I'll say the efficiencies and expansion on that side but the margins were better as well. So that made a difference. So it's mainly along the crush side of the business where we received the improvements.

Grant Saligari: Okay and finally from me just on the balance sheet, actually I do, I think it's good recognition of the tenure or the date which sort of underwrites the current expenditure program. But I guess one thing I was add is you do see a little constrained in terms of doing much more from - much more in terms of particularly expansion rate CapEx rate beyond what you're currently got on your plate. So I don't know where you comment at this stage on your thoughts on some of the origination expansion you spoken of in the past as a potential strategy for GrainCorp.

Mark Palmquist: Yeah, Grant we feel very comfortable that we can continue to pursue the I’ll call the network improvements that we can make. It's a component that first of all we have announced spending roughly $200 million back last summer, we're doing the first tranche of $60 million. We'll get our learnings from that and understand what that means but we are very confident that we can experience $5 a ton savings in the improvements that we're making. So that gives us return against that capital. We have that capital put into our forecasting and have it fit into our capital forecasting as well but Alistair is anything you want add to that in terms of headroom.

Alistair Bell: Yeah, that's a good summary Grant. When we hit the size of our facilities and obviously the maturities, big benefits because it puts in a future rate wise out on the commissioning of projects. We also factor in head room to accommodate further organic growth as and when projects become feasible and approved by the Board. So we have ways up to build that headroom in.

Grant Saligari: Okay thank you. That's it sort of, it's good results, so no surprises, thank you.

Mark Palmquist: Thank you.

Operator: Thank you. [Operator Instructions]. Your next question comes from Matt Glugenichi with MG Research [ph]. Please go ahead.

Unidentified Analyst: Hi good morning Mark. There was a question asked on the balance sheet I couldn't hear very well but I just wanted to ask you on your financing costs for long-term debt versus your short term inventory, what there is financing costs are. And also the second question on storage and logistics obviously the EBITDA margin is nine percentage points lower half-on-half. Is a lot of that also due to that fixed cost relating to transportation.

Mark Palmquist: Yeah, good morning Matt. I'll answer that second question first. Yeah it is definitely part of that mix. So from a lower volume aspect we're certainly missing the revenue cycle in the country and on the export side but it's also utilization of those spring contracts that we have, those are obviously a set up well for handling export movement or reports. And so that just raises our cost on the freight side because we just got a fixed cost we are spreading over a lower amount of ton so yes you are right that is part of it. Alistair why don’t you answer the first question.

Alistair G. Bell: Matt, we are not proposing to share our credit margins with the new facilities but the debt markets have been favorable conditions in the debt markets and fair to say that they are improved turns across all of those maturity dates in the three tranches that were listed there.

Unidentified Analyst: Okay all right, thank you very much.

Operator: Thank you. Your next question comes from Jonathan Snape with Bell Potter. Please go ahead.

Jonathan Snape: Yes, just a couple of question. I mean first of all just around the balance sheet, again and the CapEx program it looks like you are going to end up $250 million on next year you got to spend on these growth initiatives on top what you already spent and your gearing’s now up to that 25% level which I think historically you have always said you target core debt gearing ratio in 25% are you starting to shift that number up because if you add an average to below average crop next year it looks like you certainly going to go well over that sort of number?

Alistair G. Bell: Jon Alistair here. Your estimate for next year’s growth initiative sounds like you are including a lot of the storage and logistics region capital in it we’ve just announced the commitment for the first 13 sites for $60 million so and we’ve got relocation from Mary to Victoria plus also the think about terminals project which is $45 million and the completion of the 125. So as you think about ‘16 CapEx being just like you to be mindful of what you are assigning or assuming around the second wave of spend on region. In terms of the gearing the core debt has always been a really important metric for GrainCorp as we’ve talk investors because it’s important metric for the as we think about valuation. From a banking market the probably more appropriate metric here is the net debt gearing and that’s the one that the rating agencies look at and the banks assess and it’s normally a quarterly rolling average and I think as I mentioned in my speech at the Investor Day we will be bringing that and sharing that as a metric just as importantly around the core debt. The core debt one of 25% was shared with investors, goes back about five years ago and that was before we had started to have the advantage of the growth and the diversification of our earnings. So overtime it make sense that we will revisit whether the 25% is appropriate level but a key thing to think about and Jon we have talked about this there is significant headroom between the core debt metric and where our banking covenants are and the net debt gearing is in the middle of both of those.

Jonathan Snape: Yeah I guess from the net debt side though it will move around with the marketing books, so you have a good marketing really into that capacity. So I guess I am just trying to think about it because you gave in this, recently this last result you are still talking a core gearing target of below 25% and we are sort of already there. But just going to the CapEx side then if we are pushing out that capital program you are obviously going to be pushing out some of the earnings benefits you are expecting to come through from that as well do you guys have a revised timeline of how the CapEx program now looks and how the earnings benefits from that capital program now looked that you can help us out with?

Alistair G. Bell: Jon not sure we are pushing out the capital program, so I would just like to clarify that. What we said is with Regen [ph] as we are rolling out HY in time for the harvest we will continue to meet our customer requirements as we did last time and as Mark shared with you we are really pleased with how our market share held up and that’s allowed us to work with the various site governments to fund the right sites to invest in, in time for the next harvest site. So I am not thinking we're pushing out any, we're not pushing out any projects and we're not saying that we're seeing any drift in, in the earnings uplift either.

Jonathan Snape: Okay and just lastly and obviously the benefits of the program you can start to see them coming through in the oil's business you seeing coming through in the malt business you said, pretty good results in this set of numbers and that's a great job. And I'm just wondered the storage and logistic side through and I guess the volumes hits in operating leverage in the business but what I'm trying to understand is if I look at sort of your throughput volumes back in the first half of 2010 [ph], is pretty similar to where we are now. The revenue a ton so that throughput is up north of 20%. But over that same time your EBITDA tons dropped almost to $3.50 [ph]. So I'm trying to get or understand I guess the capital program that you're putting by the previous management because the invested capital base is gone up a lot over that time. And where the actual benefits coming through because looking at those numbers it looks like the business has actually gone backwards 40% in terms of returns it’s generating even though the capital base has gone up.

Mark Palmquist: Yeah, so the components that you've got to think about we are showing our volumes handles a big component of a revenue for us is really on the export side. So it's really an exportable supply issue. So our ports are running at little over the rate than what they were going run back then and then I also highlight that we had a [indiscernible] the other question so we're also dealing with our fixed rate contracts that is really driving. So there is great transportation contracts to have when the volumes are more normalized but it definitely is great - with the lower exports.

Jonathan Snape: Yeah but I think the exports are somewhat identical in terms of grain tons and almost double or they're up actually 500,000 tons in terms of grain. So further not seeing is the export side which is and understand that it might be the take or pay bit but that - I guess you got to get an understanding of how big that take or pay volume is on Israel because if that’s the hit, it's pretty material.

Mark Palmquist: Yeah, I think it's just get coming back to the fixed cost low that we have that we have to deal with and so when the volumes are down it definitely has the compression on margins and it has a compression on earnings and I think that's what you're seeing here as we are looking and particularly on both '14 and '15. It's just that reduction on volumes. The other component that I would also add in here is that if you track the difference between rail and road movements over the past six years, there’s been a dramatic change of the shipped tons through the road versus what the rail is. And for us the rails have never set up on the export side of the business. That's the reason why we're making the improvement on the project region and it's the reason why we're working with the government is trying to get a 1 million of grain quite honestly back on the rail and off the road. So all of that is having an impact in terms of all the oil hurdle rate are.

Jonathan Snape: Yeah I guess and I'm looking at that, so I think pretty similar in terms of export volumes and pretty similar in terms of, I guess the volumes in terms of the throughput. And it looks like the fixed cost base might have jumped up $50 million annualized in that five year period. Is that about sort of right?

Alistair Bell: So Jon I don't have your analysis in front of me. We, David or I can come back to you after which I'm not sure that's how we're seeing it. Just to add on that what Mark saying is part of the region and working with our customer groups on the outlier side which is also export direct. And that's really a timing issue during the year as their export program is undertaken. But it allows us to work with them closely on getting the grain report on time, it allows us the efficiency of utilizing that fixed cost in the train contracts.

Jonathan Snape: Okay thanks.

Operator: Thank you. We are showing no further questions at this time. I will now hand back to Mr. Palmquist for closing remarks.

Mark Palmquist: Thank you very much and again I really appreciate you joining the briefing and thanks everyone for the questions that came up. And of course if you have any follow-up questions please don't hesitate to reach out to us and you can definitely bring it in through annual follow up or whatever you bring in. Also just want to mention I'm really looking forward to our investor day next week and hopefully I'll get a chance to meet with many of you when we are there. Thank you very much.