Thank you for standing by, and welcome to the GrainCorp Limited fiscal year 2022 results briefing. All participants are in a listen only mode. There will be a presentation followed by a question and answer session. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Mr. Robert Spurway, Managing Director and CEO. Please go ahead.
Good morning, everyone. As said, I'm Robert Spurway, Managing Director and CEO of GrainCorp, and together with Ian Morrison, our Chief Financial Officer, we look forward to taking you through the FY 2022 results, some commentary on our strategy and our outlook. Before we start, though, I do just want to acknowledge the traditional custodians of the land on which we meet. For those of us here in Sydney, that's the Gadigal people of the Eora Nation. We pay our respects to their elders, past, present, and emerging. I also will follow through on the pack for those that are following on screen and refer to the page numbers. While we'll start on page six, I just want to highlight the fact that at the start of the pack, we've got some background slides on About GrainCorp.
That's particularly there for the benefit of those of you perhaps joining for the first time, and all of those slides have been shared in previous investor updates. My reflection on those slides would be it really highlights the strength of this business, the quality and integrated nature of our infrastructure assets, our processing division, and the way our people work to produce such strong results as we've seen in financial year 2022. Just turning over to page seven. It is a record result for GrainCorp, with outstanding performance and AUD 703 million in EBITDA. We've benefited from the second consecutive bumper crop on the east coast of Australia. We've delivered strong supply chain performance and demonstrated resilience in a year of many challenges for others.
In short, we have made the most of the opportunities that have been there and the strong demand for Australian grain around the world. Underpinning the strength of the result is our return on invested capital at a very strong 27.9%. We've seen strong payback on the additional capacity investments we've made in the east coast of Australia, both recently and historically. We've seen record oilseed and food volumes, and we're seeing growth in our agri- energy area, particularly the used cooking oil part of the business. We are driving our assets harder and doing what we said we would. That is delivering significant value for shareholders. Dividends of AUD 121 million in total in the 22 year, and that includes a final dividend declared today in total of AUD 0.30 per share.
It's an addition to the AUD 50 million share buyback that we completed in July, and all the same, leaves us with a very strong balance sheet with core cash of AUD 177 million. Again, we're doing what we said we would. We're positioned strongly to invest in growth and continue to deliver returns to shareholders. Just on page eight, it's an opportunity to recap on the numbers, and I think the slide speaks for itself. AUD 703 million in earnings before interest, taxes, depreciation, and amortization, up from AUD 331 million in 2021. Net profit after tax, AUD 380 million, up from AUD 139 million. Return on invested capital at 27.9%, up from 11.1%.
In terms of the areas that our teams have contributed to across the business, total grain handled a very strong 41.1 million tons, keeping our supply chain moving throughout the year. We've lifted our oilseed crush volumes to 471,000 tons, up from 459,000 the prior year. As I said earlier, our core cash at balance date is AUD 177 million, up from a core debt of AUD 1 million at the close of the previous year. The business is performing incredibly well. Today, we also launched our sustainability report for financial year 2022. That builds on our sustainability commitment, and we're proud of the progress we're making and the commitments we've made into the future.
Just in some of the highlights in that report, we have mapped our Scope 3 emissions, and we've progressed mapping the roadmap to adopt the TCFD recommendations. That allows us to develop further emission reductions plans across Scope 1, 2 and 3 emissions as we look to rapidly decarbonize by 2030. Importantly, the social aspects in our people are also an area we're performing well in. We've made progress on inclusion in our diversity action plan. Importantly, those people that contribute to the GrainCorp results are feeling satisfied and engaged with scores of satisfaction up to 87%. That's important not just in this result, but the confidence we have into the future with those people supporting us. In terms of our integrity, we've underpinned the progress we're making and the commitments we've documented by establishing a governance structure that supports that.
We have a new board sustainability committee, and we've appointed a new head of sustainability, supporting the wide group of people in GrainCorp that contribute to this area. Just looking at a bit more detail at an important social aspect, our safety performance on page ten. We're pleased to see the improvements in reportable injury frequency rate, particularly through the second half of 2022, as we were able to roll out behavioral safety programs and spend more time with our people post-pandemic. Clearly, across the board, we've still got some distance to go to achieve our commitment to zero harm, and there are many initiatives in the business every day aiming for that goal and improving our performance. Just on page eleven, many of you will have seen this slide before.
Our strategic priority is to drive higher return on invested capital, something where we've seen great progress this last year. That strategy is deliberately split into two clear areas. What we call strengthening the core, lifting returns, driving existing assets harder, and leveraging our capabilities. That sits alongside our focus on some very targeted growth opportunities, and I'll update you on those over the next couple of slides. On page 12, I think it's important to just reflect on the global trends in the environment in which we operate. To call out four of those, population growth and changing demographics, decarbonization, disrupted global supply chains, and technology and digital acceleration. In each one of those areas, GrainCorp has thoughtfully considered the areas where we have a right to win and our response and how we'll access those opportunities.
Our multi-origin strategy, our leading position in East Coast of Australia, and indeed, the proximity of our production areas to the major markets around the world. On decarbonization, I've touched on the commitments we've made in our sustainability report and the progress we're making there. Importantly, we continue to partner with others, not just to improve our own performance, but to make a meaningful impact on the agriculture sector in general. While many have faced the impact of disrupted global supply chains around the world, GrainCorp has demonstrated incredible resilience. Our end-to-end supply chain has operated well, meaning that we've met our customers' expectations through the year and made the most of the demand opportunities that exist. We're pleased with the platforms we have in the digital space.
We're continuing to invest in areas like advanced and data analytics that will drive results and improvement into the future. We've also got our GrainCorp Ventures, which allows us, in a very targeted way, to partner and invest in opportunities into the future. We are strongly positioned as a food and agricultural business. Over to page 13. Just to give you the context of this slide, for those of you that followed our investor presentation back in 2021. About 18 months ago, we committed to a range of activities that would lift our earnings by AUD 40 million through to 2023, 2024. As we touched on partway through this year, we are well on track to deliver that. In fact, we would say the examples here demonstrate it's been fully delivered.
I'm not gonna go through all the detail on this slide, but this spells out some of the examples of the sorts of initiatives we spoke about when we launched this program. Our investment in each East Coast capacity to leverage the opportunity of bumper crops has certainly returned well. We've upgraded our mobile fleet to make sure that we're servicing the needs of our growers and improving the efficiency in the way we operate. We're continuing to diversify our assets, and in particular, our port assets with a new sand contract at Queensland, among other initiatives that see us handle a range of bulk materials through our ports business. As I touched on earlier, we're controlling the areas we can control, lifting our performance in crush volumes and driving our assets harder with increases in food volumes.
We've completed the full end-to-end supply chain in our Canadian business, and we're looking forward to continued improvement in our international business and the delivery from that area of the business. We're building capabilities. I touched on it in the strategic area around advanced analytics, improving the planning outcomes across our large and integrated supply chain. Our customer experience focus will underpin the reliability of those initiatives into the future, ensuring that we're using insights and data to respond and get ahead of the trends that our customers and growers expect from us. In a nutshell, we're doing what we said we would and delivering strongly. Just to expand on page 14 on the pipeline of future growth initiatives that we're exploring.
We've touched on these over a number of previous investor presentations, particularly the themes around animal nutrition, alternative protein, agri-energy, digital and ag tech, and grower services. I think most of you are aware of our investment in the FutureFeed business designed to commercialize Asparagopsis and reduce methane emissions from the beef and cattle industries. We've continued to collaborate with CSIRO, v2food, and others from our fats business to ensure that we're providing solutions to those participating in this exciting new market. We're increasingly pleased with our performance in the agri-energy area and indeed the opportunity that presents for growth. We continue to explore areas to take advantage of those growth opportunities, and I'll touch on that in a bit more detail on the next slide. We've got partnerships that support decarbonization of agriculture and growing the connection that we have with our farmer growers.
Just moving to page 15. The agri- energy area is growing strongly, and we're seeing really strong interest in renewable fuel feedstocks and the capability that GrainCorp has in that part of the market. On the right-hand side of the page, we're already a leading supplier in used cooking oil across Australia. Our Auscol business has more than a 50-year history and is upcycling in excess of 22 million liters of used cooking oil per annum. We're seeing great returns from that business. We are Australasia's largest crusher of canola seed, and this year have achieved over 47,000 tons of capacity through our plants. Indeed, we collect and consolidate tallow for customers around the world. On the left-hand side of the page, we're looking at opportunities to transform and grow that part of our business.
We see strong ongoing demand, as demonstrated in the table at the bottom left of the page, and we continue to explore growth opportunities in terms of how we meet that demand, grow our feedstock supply, and increase our capacity. At this point, I'm going to hand across to Ian Morrison, our CFO. Ian will talk through the financial performance in a bit more detail and the strong performance we've seen across all segments of the business. Ian.
Thanks, Robert, and good morning, everyone. I'll now move on to slide 17 to summarize the financial performance for FY 2022. It's pleasing to report record earnings across all parts of our business, and I'll touch more on the details of the agri business and processing segments shortly. Just firstly, on the corporate segment, we've included here on this slide just a specific line highlighting the impact of the loss of AUD 24 million on the UMG investment, and that's really just to aid compatibility of the corporate results. The underlying corporate cost is tracking slightly higher than the long-term run rate spoken about previously, and that's mainly due to the impact of increased investment in some of the pipeline of growth initiatives and also the impact from higher incentives off the back of record results this year.
Also on this slide, note that depreciation and amortization increased year-on-year, and that's largely due to the impact from some shorter life assets, and that's associated with the large harvest with items such as tarpaulins and mobile equipment. Lastly, on this slide, we also saw an increase in interest, and that's off the back of higher commodity inventory holdings along with those higher commodity values and also, of course, interest rates. I'll now move on to slide 18 to provide some further detail on the agri business segment, starting off with our East Coast Australia business. FY 2022 saw a record crop production of over 33 million tons on the East Coast. Combined with the high carry-in from last year's bumper crop, this led to an increase in grain tons handled through our supply chain up to 41.1 million tons this year.
Outstanding execution by our teams saw our ports operating at close to full capacity in exporting 9.2 million tons of grain. That's our largest year of exports in the last decade. We've also seen very strong domestic outload, especially in the second half, with customers turning to our network as they seek reliable supply of grain. Another feature of the result is the exceptional margins for our East Coast business, particularly in the first half, demonstrating the value of our supply chain assets. Finally, for ECA, it was also pleasing to deliver strong returns from the investments we made over the last year in additional capacity to handle the large crop. Now turning to slide 19. Our international business delivered a strong result this year off the back of good margins from Western Australia following their large crop.
Our international business continues to play a key role in connecting both West Coast and East Coast grain to global demand. This customer focus saw GrainCorp as the largest exporter to a number of key destination markets, including Vietnam, Japan, and China. Turning to Canada, although our GrainsConnect Canada joint venture was impacted by drought in FY 2022, we look forward to improved volumes and margins as production normalizes in that region. As Robert touched on before, we now have the full end-to-end supply chain completed following the opening of Fraser Grain Terminal earlier this year. Now just touching on feeds, fats, and oils business. On the fats and oils side, we've seen continued strong results from ongoing demand for renewable fuel feedstocks, and that has more than offset the lower demand for liquid feeds across East Coast Australia.
Now moving on to our processing segment, starting with oilseeds. As you can see in the graph on the right-hand side of this slide, FY 2022 has seen a continued trend of improved crush volumes with an ongoing focus on operational efficiency and maximizing the utilization of our assets. We also saw excellent crush margins in oilseeds continue into the second half of FY 2022, and that's led to a record result for our oilseeds business. The supply of canola seed in the East Coast of Australia, as well as the increasing demand globally for vegetable oils, that's what underpinned those strong margins. Turning to our foods business, we saw an increase in sales volumes of 11% year-on-year, with good demand for refined vegetable oils. We're also really pleased to see the innovation pipeline in our foods business delivering strong results with our customer base.
I'll now turn to slide 21 and through the cycle earnings. Before moving on to the balance sheet, I did just wanna spend a few minutes talking about through the cycle earnings. As a reminder, this was a concept we introduced at our Investor Day back in March 2021. Through the cycle represents a view of earnings in a theoretical average year of grain production, with typical conditions and margins. Based on those assumptions, we forecast EBITDA in a theoretical through the cycle year being in the order of AUD 240 million. As Robert noted earlier, we're confident we've delivered on the initiatives that underpin that AUD 240 million by FY 2023/2024.
On the graph, the TTC year of AUD 240 million is represented by the blue line, and you can see how this compares to the last three years of earnings since demerger. You can see that GrainCorp has significant operating leverage in large ECA crop years, as demonstrated in FY 2021 and FY 2022. We're also confident we've protected the business on the downside by variabilizing costs and through the crop production contract. You can see that from the severe drought year in FY 2020. The key message from this slide is the ability to deliver substantially higher earnings in large ECA crop years from that operating leverage supports longer term average earnings being greater than a through the cycle year. Now moving on to the balance sheet on slide 23.
We finished the year in a very strong position with a core cash balance of AUD 177 million. We've also seen a decrease in net debt year-on-year, with a closing net debt of AUD 540 million. I'm just noting that this does remain above our longer term average at year-end due to the elevated working capital and commodity inventory balances with the ongoing export program. Overall, our balance sheet is in a very strong position which provides significant flexibility. Moving on to slide four and capital expenditure. Similar to FY 2021, we saw higher CapEx, mainly to support additional capacity increases across our network to handle the large harvest, and we're delighted with the returns from those investments.
On the right-hand side, on D&A, as I noted earlier, we did see an increase as a result of those shorter asset life CapEx associated with harvest. We expect to see FY 2023 at similar levels to FY 2022 before D&A continues to reduce over time. Now turning to slide 25, the key message here is we're delivering significant value back to shareholders. The strength of our balance sheet, current performance, and confidence in the future enabled the board today to declare a final dividend of AUD 0.30 per share, fully franked. That comprises a AUD 0.14 per share ordinary dividend and a AUD 0.16 per share special dividend. The increase in the ordinary dividend to AUD 0.14 per share reflects the board's confidence in average earnings being greater than those stated through the cycle earnings I touched on before.
We completed a AUD 50 million on-market share buyback in the second half of FY 2022, and along with the interim dividend of AUD 0.24 per share, that equates to total capital return to shareholders of AUD 171 million through FY 2022. This demonstrates our commitment to both investing in the business and delivering returns to shareholders. Further capital management will continue to be assessed in FY 2023 against growth opportunities and as franking credits accumulate. On that note, I'll now hand back to Robert.
Thanks, Ian, and I'll just make some closing remarks on the financial year 2023 outlook. Just starting with that, conditions throughout the year have supported an above average East Coast winter crop for 2022/2023. In fact, ABARES, in their September report, are forecasting a very strong and well above average 27 million tons. I think everyone's aware that ironically, as good as that weather has been for the crop, it's also created some devastating flooding, and that's impacted some regions and delayed harvest by several weeks. We do expect the impact of that flooding to impact on both yield and quality in parts of East Coast Australia, and we're certainly seeing a higher level of feed grade receivables.
In light of that flooding and the delays, GrainCorp is continuing to support growers with the logistical challenges presented by that flooding, and we're focused on ensuring that our sites are well prepared for the delayed harvest. When the harvest does arrive, we will be ready and our teams are working hard to make sure we're supporting growers in any way we can. I do just want to acknowledge that for those that have been directly impacted by flooding, and indeed for those, including our staff and others working in communities involved in the flood prevention and recovery effort, our thoughts and support are with you. Despite the flooding, we've already received over 1.1 million tons into our network, and our year-to-date exports are already 600,000 tons. The supply chain is continuing to operate.
Just in terms of the global outlook, as expected, the exceptional margins we saw in the first half of 2022 have moderated in the second half, and that's as supply in the northern hemisphere has improved. We do anticipate continued good demand for Australian grain and oilseeds throughout financial year 2023, and that includes the feed grades that are gonna be a feature of this current harvest. We will provide earnings guidance at our AGM on the 16th of February in 2023, similar to the cycle we used last year, by which stage we'll have much greater visibility over the harvest and the outlook for the year. Just turning to the last slide of the main part of the deck, page 28. In conclusion, you've seen GrainCorp produce record financial results for financial year 2022. We are doing what we said we would.
We're delivering on our commitments. We're doing that in a way that executes against our strategy. Our teams are working hard to improve the resilience of the business and do what we said we would. That is generating significant value for shareholders. We have a number of slides that follow through on our commitment to improve disclosures and transparency of our reporting contained in the appendix. But at this stage, Luke, I think we hand back to the moderator for any questions that might be there. Look forward to answering them.
Thank you. Ladies and gentlemen, if you wish to ask a question, please press star then one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star then two. If you're on a speakerphone, please pick up your handset to ask your question. Also, we ask that you please limit your questions to two per person. You may then rejoin the queue for additional questions. Today, we'll come from Richard Barwick with the CLSA. Go ahead.
Good morning, guys. I just wanna talk about the international business within agribusiness and just trying to get a sense of the variation that we might see from year to year. 'Cause you look at it, the contracted grain sales are down, revenues up materially, obviously associated with the commodity prices. Obviously this, you know, we've got some history if you go back long enough to go look at the old marketing business. I guess my question is, when we think about the earnings contribution from that international part, should we be thinking about it more as a sort of a dollar profit per ton, or should we be thinking about it in terms of a margin applied to the revenue?
Thanks for the question, Richard. I'm happy to take that one. In terms of our international business, there are a number of components to it. You've got the WA side, and then you've got GrainsConnect Canada. We've got our business in the U.K., Saxon, and then we've also got origination from a number of other locations. Probably the best way to think about it is on a more margin, similar to what you said before, Richard, about how you thought about it in the past. In terms of the performance we've seen this year, that's been a lot stronger off the back of the strong crop in WA. In the appendix slides, we have included an earnings bridge, and you can see a bit of the detail on the uplift there.
That does include the uplift from international and feeds, fats, and oils, but a reasonable proportion of it is on the international side of the business. Hopefully that gives you a little bit more of the context behind it. Similar to what we've talked about with East Coast Australia, in previous reporting periods, the structural margins will be impacted by supply and demand dynamics. It's difficult to put a specific view of a dollar per ton margin on any given year, just with some of those dynamics changing.
I think in that respect, it's important to reflect back, sorry, Richard, just on the strategy that it does provide for reliability of supply to customers, so they're not fully exposed to the Australian drought cycles and drought years. But it also provides some diversification, where we can access margins, in years where the Australian crop's not so strong. So I think strategically, we're very happy with the way that business is performing and operating in line with our expectations.
Okay. Thank you. My second question is going back to that slide 21. Just interesting, there's a little bit in here. I guess the suggestion here is that your downside in a poor crop year like FY 2020 is less than your upside in a good crop year. That AUD 98 million of EBITDA in FY 2020, is that the number you'd sort of stand by going forward on a similar sort of volume scenario? I would've thought there might have been a bit of upside to that given the AUD 40 million EBITDA uplift. And obviously, I understand that's the AUD 40 million is probably premised on an average crop year. That AUD 98 million, is that the number you'd steer us towards as in the downside, or is there, you know, is there more color you can add on that?
I'll make a couple of general comments, and then I'll hand to Ian on that one, Richard. Couple of things to remember. Financial year 2020 was the end of three years of drought. I think we've said before, it's about as bad as it gets, in terms of just the cascading effect of drought rather than a first year. Secondly, you're right. That is before many of the operating initiatives that have been put in place, which obviously have leverage in a larger crop. You know, it's hard to lock that in at all stages of the cycle.
But, also, in 2019 and 2020, we hadn't fully finished the variabilization of costs, the variabilization of the rail contracts, and some of the other cost-out initiatives that we'd spelled out and have now fully delivered from the demerger scheme booklet. So, you know, I think the context of that result and the timing of that is important. Ian, you might like to add a little more color to that.
Yeah, no, I think Robert's covered it pretty well. Certainly, we saw that as, you know, pretty much the double drought scenario at the low point in the cycle. It is a good barometer. As Robert touched on, we've been working pretty hard since then to make sure we are well protected for that drought year and continue to deliver improvements in the variabilization of costs. The revenues that aren't as exposed to the East Coast business through some of the initiatives that we touched on earlier, like the non-grain and other bulk materials we handle. That continues to be a focus, and that aim is to continue to lift that low scenario number.
Okay. All right. Thank you, guys.
Our next question will come from David Pobucky with Macquarie. Please go ahead.
Good morning, Robert, Ian, and Luke. Congratulations on the record result. The first question is on the rainfall, the disruptive rainfall that we've seen on the East Coast. Do you think that it creates downside risk to the current ABARES's estimate of 27 million tons, or does it just cap potential upside to some extent? Just trying to understand whether it's more of a quality downgrade impact as opposed to a volume impact.
Look, that's a very difficult question to answer, David. What we do know, as I said, is that it has certainly delayed the harvest. We also know that it has impacted, and reduced quality, and we've seen that coming through. It's much harder and perhaps unwise to talk on behalf of growers, other than to say that if we look across the more than 6 million hectares planted on the East Coast of Australia, as devastating as the floods are for those that have, low-lying areas, there are plenty of traditionally drier areas or, undulating country, where the crops are looking, pretty strong. I guess, you know, that's one of the reasons that we're keen to get through the next number of weeks, working with growers to see where the volume, ends up.
As you know, in the past, we've avoided speculating on the ABARES's number as a single source of the truth. We've seen pretty strong harvest numbers coming in where harvest has started in Queensland and Northern New South Wales. I think the other thing I would say is it depends a little bit on the weather patterns from here. You know, a number of weeks of dry weather will certainly improve the situation for many and indeed all growers. Ongoing weather will only make it harder for some of those that have already suffered flooding.
I think the key issue and something that we work not just with growers on, but local councils and indeed government, is making sure that roading and logistics are repaired and recovered as quickly as possible so that farmers are able to move their grain around, and indeed, get it to sites and out through the export channel. We expect that'll be something we're working with them on through what's gonna be quite an extended harvest.
Thank you, Robert. Just the second question. As you noted, exceptional margins achieved in the first half, moderated in the second half, as you expected. What would you need to see for margins to move higher or lower over the next year from current levels? Just trying to understand, where margins in that marketing business are currently sitting relative to, you know, more average margin, please.
Sure. Again, I'm not sure I can give you an exact answer to that, but I can talk about the fundamentals that have endured for some time and we expect to prevail into the future. That is one of a world with growing population and demand for grain products. That's further supported by the fact that global inventories of grain still remain at record low levels. Not only have we got strong underlying demand, we've got countries likely to start to build strategic levels as inventory levels recover. Fundamentally, in the outlook, we see a picture of a very strong demand and supply struggling to keep up.
It's very clear over the last year, we've seen some particularly perhaps unforecasted supply shocks, particularly the conflict in the Black Sea, and the impact that that's had on global supply chains, you know, overall. You know, look, going forward, it's too early to call what the next Northern Hemisphere crop is going to be.
But we would say that prevailing La Niña conditions over the last couple of years have typically created very good production across Australia and created more downside risk in drought conditions across other large growing areas, including Argentina, you know, admittedly in the Southern Hemisphere, but certainly impacted by La Niña conditions and the U.S. and Canada, which has seen an improved crop this last 12 months but remains to be seen what that looks like going forward. Hopefully that gives you a bit of color on the way we think about it. Overall demand for Australian grain remains strong. We expect that to continue. I think if anything, there's more risk of supply side risk and downside than there is a deterioration in demand, which is there for good fundamental reasons.
Thank you, Robert. Appreciate it.
Our next question will come from Owen Birrell with RBC. Please go ahead.
Yeah, good morning, guys. Yeah, good on you guys for the record result again. Now, I just had a question around the through the cycle commentary that you've put there on slide 21 of AUD 240 million. I just wanna confirm that that's a sort of an underlying earnings for the group and not just the Australian agribusiness. How does the AUD 40 million from initiatives play into that AUD 240 million number? Should we be adding that to the AUD 240 million?
I'll answer quickly and then hand to Ian if he has anything to add. First of all, yes, it is for the group, so it's a total bottom line number. To reiterate what Ian said, it is on a very specific set of assumptions. It's an average year with average crop production, average carry in and carry out, so no sort of movement or benefit from year to year. The AUD 40 million builds on back when we announced this 18 months ago, we were saying that the underlying business was probably at around AUD 200 million at that point.
The AUD 240 million includes that AUD 40 million that we've spoken about, but it doesn't include any further upside of ongoing momentum and the continued work we're doing to find further efficiencies and improvements in the business. Ian, have you got anything to add to that or does that cover it?
No, I think that covers it well.
Yeah. Hopefully, that answers your question, Owen.
No, that's very clear. I guess a follow-on question to that is around the sensitivity of the underlying business to cost inflation. You know, you talked about increasing the variabilization of costs. I'm just wondering, does that play out negatively in a high inflation environment? I just wanna get a sense of, you know, how the business is positioned as we move into sort of high inflation over the next couple of years.
Yeah, sure. We can both make some comments on that. I think our cost control over the last 12 months has been a good feature of the result and something we're very pleased with. Despite the very high activity in the network, the teams at all levels have done a good job to manage the cost base through that. As you'd expect with the high volumes, we've seen in many cases significant improvements on a cost per unit or cost per ton basis, and we continue that culture across the business. More fundamentally, in terms of labor, we have a whole range of agreements that mostly have already been agreed and have got anywhere between one and three years to run.
We're not immediately exposed in totality to any type of wage inflation or pressure beyond the normal course of business and renewals of those agreements as they come around. Finally, I think structurally across our business, we'd describe ourselves as extraordinarily resilient in an inflationary environment, and that's because commodity prices, you know, are set by global markets, and therefore we're not even having to do anything to pass on the inflationary pressures. The vast majority of inflationary costs are set and included by the market, including the financing cost of commodities, and that's baked into every sale and purchase that we do in the commodity part of the business. You know, again, I think that sets us in a very strong position in an inflationary environment.
In the light of the fact that we are a staple product, people always need to eat, that provides a fair bit of resilience as well in the sector we operate in. Ian, anything to add?
No, that covers it really well. Across our business, a lot of the contracting is done on an ongoing basis off the back of the crop. It's not the scenario where we've got multiple years of revenue locked in and then having to tackle the cost pressures. It's able to be built into the commodity price effectively that you're paying for grain or what you're selling to an end customer. That really does provide a lot of protection, both on the cost inflation, but also on interest. Over and above that, what we are focused on is cost control, regardless of that. It's all about being the most competitive and low cost supplier and supply chain we can be so that we're in a strong position relative to other supply chains, not just locally, but globally. So, that's really the focus.
Can I just confirm that the labor agreements that you mentioned, you know, you said they've got what, two to three years left to run. Are they inflation indexed, or are there sort of fixed escalators in those labor contracts?
No, they are all fixed, and agreed amounts at the time they were negotiated. To put it in context, we've got several tens of agreements across the broad aspect of our business. The point I'm making is we're not exposed to any one single major enterprise agreement coming up for renewal.
Okay, that's great. Thank you.
Our next question will come from Apoorv Sehgal with UBS.
Good morning, Rob, Ian. Just one question from me, please. Just to what extent do quality downgrades to grain actually impact GrainCorp in a negative way? Like, my understanding is access to volume is the key driver. Just explain how downgrades to quality can impact you. I'm also just curious if the changes in quality we're seeing could actually create any arbitrage opportunities for GrainCorp.
It's difficult to answer that in one single answer, but I'll try to give you some color on it, Apoorv. Generally speaking, it doesn't have any direct impact on us because the cost is borne by the grower or the customer. Pleasingly, and on an ongoing basis, there's very strong demand for feed grades. So that, you know, can, you know, help support the business into the future, particularly in an environment where there is such strong volume.
Operationally, there are probably some benefits around the edges in terms of it simplifies the segregations that we need to operate at sites. If you've got, you know, an overwhelming majority of the grain we're receiving, it allows us to reduce the operational cost by consolidating that grain at our bunker sites. Ian, you've seen a number of these sorts of events over the years. Have you got any color to add to that?
Yeah. No, I'd agree with those comments. The volume is definitely the much bigger driver than what the quality of grades come in at. Really that's the main focus.
Okay. Thanks guys.
Our next question will come from Grant Saligari with Credit Suisse. Go ahead.
Good morning, and thank you. I've got a question around the sales volumes in foods. There was a really strong step up, as you noted, in food sales volumes to 236,000 tons. I guess two aspects to the question. One is how close to capacity does that then put you in terms of thinking about further opportunity? The second part to that would be just thinking about the stickiness of that volume. Can you comment, you probably don't wanna mention specific customers, but the market segments that that volume is going into and therefore the stickiness of that potentially, in subsequent years, please?
Yeah. Look, in general, we have a number of key contracts with customers, and we won't name or specifically talk about individual customers. In addition to those contracts, we continue to work with innovations and new applications for those products and customers that we have, including the reference I made to some of the applications for plant-based fats being used in the growing area of plant-based foods. In terms of your question on capacity, if you look at the major food sites, we have our West Footscray facility in Melbourne and our New Zealand foods business. It varies across the different lines and production lines. Each of those sites have a number of production lines, usually linked to the type of packaging that we're doing in typically spreads or oils type products.
We can tweak capacity by relatively small investments in the packaging formats and the lines that we do. You know, what we would say overall is that particularly our West Footscray facility is running at a very healthy utilization rate. It would require some modest investment to see significant step ups in the volume through that plant in particular. That's off the back of the hard work we've done to attract and retain the customers that we have.
And speaking about that volume, should the expectation be that that volume is sustained into 2023 approximately?
In short, yes. We have strong contracts in certainly the short to medium term and a very long track record and history with most of those customers over a number of years.
Okay. I have a second question, if I could, just around the domestic grain sales, which stepped up quite a lot on the prior period and sort of led to a lower carry-up than I'd been forecasting. Just wondering whether there's any additional color on the domestic sales volume, because presumably it would have been economically better if the grain was suitable to hold it over for an export pathway. Any color you can provide on the step up in the domestic sales volume would be helpful, please.
Yeah, sure. That's the 6.4 million tons you're referring to.
Yes.
And indeed-
That's correct. Yes.
We did see strong growth in demand for that in the second half. Look, you know, first of all, in terms of your comment on the margin of that versus future uncertain margin or demand for it, the pricing, you know, takes into account those considerations when we commit to those sales. I think the factor most likely driving that stronger demand that we saw in the second half was the reliability of our supply chain. We've seen, you know, many of the other channels to market, particularly on farm, disrupted by the fact that individual operators are struggling to access transport.
I think it again shows, not just the strength of our assets, but also the strength and the scale of our network, that we're able to reliably satisfy our customer demand, both domestically and in the export channel. I think, you know, they were a healthy contribution to the business in the period, and we'd expect ongoing good demand in the domestic markets as well.
Okay. Thank you. That's very helpful.
Our next question will come from John Campbell with Jefferies. Go ahead.
Hi, guys. Congratulations on a really strong result. Just a follow-up question related to the downgrading of at least some of the 2023 or 2022/2023 crop into feed grade. Does that mean that, well, presumably that the feed grade product is supplied only locally? There's no export market for feed grade product?
No, absolutely not, John. There's very strong demand globally for feed grade. Indeed very good pricing for that. I think that's one of the mitigating factors for growers. They're seeing very high decile pricing for feed grades, and that's off the back of that strong global demand for feed grades. You know, I do urge some caution in thinking that, you know, feed grade is a downgrade necessarily. It's just a change in terms of a greater portion of feed grade than we might see in any given year. But that certainly doesn't change the dynamics or the market opportunity that is prevailing for that product.
Yeah, I mean, I guess it was reading the that outlook slide. It seemed to be suggesting you were calling it out as a negative event, and now on the call, you're sort of essentially saying not, it's not the case.
Yeah. I certainly don't think we're calling out quality as a negative event, you know, other than, you know, bearing in mind the very important stakeholders here being growers, while they're getting record prices for feed grade wheat, in particular. You know, it's kinda one of those things that if it were milling grade, it would be worth even more. You know, the farmer weighs the cost of that in an environment where the input costs have been pretty high. You know, it is pleasing that feed grade still is providing good returns to growers. To be clear, in terms of the impact on us, it's more an objective statement around, you know, on either negative or positive sentiment. The positive aspect of it is there's very good ongoing demand.
As I said in answer to Paul's question, it does in some respects simplify and help us manage our cost base as well, you know, as part of an overall feed harvest.
Yes, got it. Obviously you've already said it's just too early to call exactly what the impact of floods and extensive rain will be on that ABARES forecast. So that's fine. You've already answered that part of my question. The other two questions I had, what are you seeing in terms of Ukraine's grain production status? And secondly, in terms of their export and their port operational status, I mean, are you getting a sense of how much it's been impacted both on the production and the shipping capabilities?
Yes, we are. We still have people on the ground in Ukraine, but it, you know, it's fair to say we rely heavily on some of the externally available data as well. You know, couple of things. There has been quite a strong Russian production crop, and that is still finding its way to some markets across the Middle East and Africa in particular. The areas of Ukraine that are under Russian control include some pretty significant growing regions as well. You know, therefore, it makes it much harder on a like-for-like basis to determine or forecast the Ukraine production in isolation. Typical numbers we're hearing are in the order of 50%-65% of a normal or average crop.
I think the greater challenge and difficulty for Ukrainian growers and supply chains is the ability to get that to market. While we're seeing some grain come out through the UN-brokered grain corridor, that has been quite volatile, as you've probably read in the news. It's fair to say that most of the major grain traders and operators, including ourselves and indeed the vessel operators, are not falling over themselves to go into the Black Sea, where significant risk and in many cases lack of insurance makes it a, you know, highly speculative and risky business.
Our view, and we've said this before, is we would see significant disruption from Black Sea disruption for at least the next two to three years. I think even with a moderate recovery in that, supply is still well short of where global demand is at. that you know, that fundamentally sees us in a good position on the global supply-demand situation.
Yeah, absolutely.
Just one-
Oh, sorry, Rob. Go on.
One final comment I wanna make, just in relation to feed grades. Be very clear, there is still a significant volume of milling grade wheats that we would expect to come through, satisfying both domestic and international demand, and we've seen that in the harvest that's already been received in. It's not all feed grade there are, it's just a higher portion. We are running up against time, John, but I think you've got one more question which we'll try to answer quickly.
That question will come from Liz Wells with Grain Central. Go ahead.
Hello. Oh, thank you. I've got a question about rail. It's been impacted by La Niña. Moree-Narrabri is still closed when it was originally scheduled to open on November the first. The Hunter line was closed by flooding. Kembla was out for some months. Is GrainCorp taking any steps to up its rail capacity or lobby for better resilience or efficiencies in the rail network?
Yes, we continue to work with our partners who operate rail for us, also the various track owners in the different states, to ensure that ultimately we're representing the needs of growers in being able to efficiently move grain to export ports. I think the issues you referred to, and in particular the Port Kembla one, and the line out through flooding there for a number of months is included in the exports that we've done. I think the 9.2 million tons that we've exported over the 2022 year demonstrate the reliability of the GrainCorp supply chain, irrespective of some of the disruptions, including the reduction in rail capacity through that period of disruption.
In answer to your question, we continue to work with our partners to ensure we maximize the amount of grain going on rail, and we're comfortable that that'll be a strong feature of the year ahead as well, keeping grain moving and maximizing the opportunity of the export program.
Thank you.
Paul, I think that brings us to time.
Gonna turn it over to you for closing remarks.
Look, again, I just wanna thank everyone for joining us. We are delighted with the results. We look forward to catching up with many of you one-on-one over the next number of days for further questions and answers. Thank you, everyone, for joining. Good day.
Call concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.