I'll now hand the conference over to Robert Spurway, Managing Director and Chief Executive Officer. Please go ahead.
Thank you and good morning, everyone. Thank you for joining us. We're presenting to you today from Sydney, and I wish to acknowledge the Gadigal people of the Eora Nation and pay our respects to elders and leaders past and present. This morning, you'll hear from me with just some brief opening remarks, including our half year performance and the operating context. I'll then hand to Ian Morrison, our Chief Financial Officer, who will talk through the detail of the first half financial performance and drivers, an update on our balance sheet and capital management. Then I'll round out the conversation with an update on strategy and the progress we're making and some comments on the outlook. As I work through the presentation, I will update you on the pages we're on for those of you following online.
Starting with the summary of the results on page six. It's been a disciplined half of execution and effective risk management and resilience in the current environment. Our half year underlying EBITDA of AUD 136 million was reported today, delivered through strong operational performance across multiple areas of the business. We have a remaining strong balance sheet, and importantly today we're reaffirming our guidance. As we've said before, we have seen a global oversupply of grains which have constrained margins in the first half of 2026. We've also seen the evolution of the Middle East conflict, and today we wanna share with you that there is sufficient fuel and fertilizer available for planting, despite input pricing remaining elevated. We'll make some comments on that shortly. Importantly, GrainCorp's supply chain is operating as normal despite these geopolitical events.
Well, I update you today on our strategy to deliver and drive long-term value creation. We continue to grow and diversify our earnings capabilities in bulk materials and animal nutrition. We're progressing release one of our business transformation program, and we'll provide some updates on that. We're seeing positive momentum in the Agri-Energy growth initiative. These and many other examples are areas that we capitalize on the attractive long-term fundamentals to create through the cycle value for shareholders. As I said at the start of this slide, today we are reaffirming our FY 2026 earnings guidance of between AUD 200 million and AUD 240 million. Moving to slide seven, the numbers slide, which you can all read faster than I can keep up with you on. I'll just call out some of the highlights on that.
We've talked about the AUD 136 million in underlying EBITDA for the half. We've also today, the board has declared an ordinary interim dividend of AUD 0.14 per share, fully franked. The operating highlights are important in terms of the metrics because they're, in many cases, the areas that we can control, particularly if you look at our oilseed crush volumes at 277,000. Continued strong performance in terms of the volume and inputs in that part of our business. We've increased bulk materials handled from 1.2 million-1.5 million tons, and animal nutrition sales continue to grow, up to 390,000 tons from 370 in the previous corresponding period.
On page eight, I wanna take a moment to talk to you about how we're responding to the evolving markets and controlling what we can control to manage risks and importantly, to capitalize on opportunities. As we've previously communicated, the global grain markets have seen a cyclical oversupply of grain and resultant lower prices that have reduced grower selling activity and compressed margins across the value chain. The Middle East conflict saw some short-term disruptions of diesel and fertilizer, which have now stabilized, and as I said earlier, we're pleased to see good volumes available for the planting season now well underway. GrainCorp's supply chain, as I said earlier, continues to operate normally and will continue to work with government, industry, and other stakeholders to monitor developments emanating from that conflict.
In terms of the outlook, which I'll come back to at the end of the presentation, weather, of course, remains a key driver of growing planting decisions. Planting is now well underway for the 2026 and 2027 East Coast winter crop with good soil moisture levels in Southern New South Wales and Victoria, but rainfall required in Northern New South Wales and South Queensland. How are we responding to the current environment? Reaffirming what we said at the full year and indeed at the AGM, we are continuing to focus and accelerate cost reduction programs. We're driving operational efficiency to lower cost and improve performance across the business. We remain very focused on capital discipline, ensuring that capital is deployed in the areas where it can return the greatest results. We do continue to target investments in growth opportunities and diversify earnings.
In terms of our portfolio optimization, we announced at the full year the sale of our GrainsConnect Canada joint venture. We expect that to complete and close in the second half of financial year 2026. We continue to review opportunities to improve returns across our portfolio. In summary, I'd say GrainCorp absolutely has a track record of demonstrating resilience and navigating disruptions, including the current disruption that we see in the Middle East. We've demonstrated that over the years, and both continue to manage the downside and identify and capitalize on opportunities as they arise. Just turning to health and safety on page nine.
Whilst of course it's frustrating to see our lost time injury rate up slightly and our overall injury rate broadly flat, we do remain absolutely committed to zero harm, and it's something we manage not just on the half but daily, weekly, and monthly as we track our performance and focus on some of the lead areas and inputs, including reinforcing the fundamentals of pre-start site inspections and hazard identification and reduction. Sustainability on slide 10 for those of you following. It's been a half of good progress. We announced our commitment to the Science Based Targets initiative, and in the half we've released our first annual progress report demonstrating a 4.3% reduction in Scope 1 and 2 emissions from the 2022 baseline year.
This year, of course, we will report at the end of the year against the ASRS standards, and we're well equipped and prepared for that. We've also joined the Climate Leaders Coalition demonstrating, I think, the opportunities that exist for agriculture alongside the obligations that we have. GrainCorp Next is a really good example of that, where we align commercial and sustainability outcomes together. We're in year three of that program. We continue to expand the number of farmers engaged in it, and we'll look to do so in the year ahead. In a nice intersection of one of the venture investments we've made, we've launched BioScout units into that program. Just to remind you, BioScout is one of those initiatives that identifies disease early on farm, improving crop outcomes and therefore sustainability.
We're delighted to see in the social areas the recognition of 10 years of silo art, especially across the communities we live and work in in regional Australia. We continue to support those communities through our GrainCorp Community Foundation. I'm now gonna hand to Ian Morrison to talk through the details of our financial performance in the first half, some of the drivers behind that. Over to you, Ian.
Thanks, Robert, and good morning all. I'll now move on to slide 12 with a summary of our financial performance for the first half. At a headline level, our agribusiness segment result was lower year-on-year, and that's mainly as a result of lower tons handled and margins in our East Coast Australia business. That was partially offset by an improved result in our international business. In Nutrition & Energy, a lower reported result year-on-year. Part of that reflects mark-to-market timing impacts on derivatives in the first half, and I'll come back to that more later. Also we did see lower edible oil sales volumes and a lower Agri energy contribution. I'll come back to a more detailed update on the two segment results shortly.
Pleasingly, our underlying corporate costs were in line with the prior period as we look to maintain a strong focus on costs in general. There are two items highlighted here that we've excluded from underlying EBITDA as we'd highlighted in our earnings guidance back in February. The first one being the business transformation OpEx costs of AUD 17 million and broadly consistent with the prior year half. Also in this half, we've recognized an estimated AUD 16 million loss on the exit of our stake in GrainsConnect Canada, which we expect to complete in the second half. Just other call-outs on this summary, our interest expense was lower in the first half, and that's as a result of lower commodity volumes, but also a commodity mix that on, in, on balance had lower values.
I'll now move on to slide 13 and our agribusiness segment, starting off with East Coast Australia. We saw total grain production of 34.9 million metric tons reported by ABARES for 2025/2026, and that's in line with the 34.7 from the prior year. Carry-in of 2.3 million tons was in our network was slightly lower than the prior year, and overall total grain handled was 26.5 million tons. A key feature of this year's volumes and overall performance has been the strong global grain production and associated low pricing for grain. This had an impact on grain being brought to market and being delivered to our network, seeing lower receivables year-over-year. It's also had an impact on margins in our ECA business.
Despite these headwinds from market impacts, our ECA business operational performance has been really strong in the half. In particular, I'd like to call out our ports that executed 3.3 million tons of exports in the half, and that's actually ahead of the prior year half of 3.2 million tons. Also to call out in the ECA results, it includes an impact, a P&L impact of AUD 8 million from the crop production contract, AUD 6 million of that being the annual premium, and AUD 2 million being a fair value movement. Just as a reminder, there was no cash payout against the contract over and above the premium as we've reached the cumulative cap under that last year.
Finally, in line with our strategy, we continue to focus on diversifying our revenue streams through the utilization of our ports for bulk material handling. It's pleasing to see in the first half another strong performance from that part of our business with an increase in volumes from 1.2 million tons up to 1.5 million tons this year. I'll now move over the page to slide 14 and our international business. A record West Australian crop resulted in an improved financial contribution from our international business. In particular, we capitalized on a good opportunity off the back of strong demand for barley out of WA in the half.
Moving on to GrainsConnect Canada, as I touched on earlier, back in December, we signed a sale agreement to sell our 50% share of GrainsConnect Canada following the completion of a strategic review of that business. The transaction is now nearing completion, which we expect to occur in the second half of 2026. I'll now move on to our Nutrition & Energy segment on slide 15. We've continued to see strong crush volumes in the half with 277,000 tons of canola crushed, and that's in line with the prior half year. In terms of margins, underlying crush margins are relatively flat year-on-year. However, the timing of mark-to-market movements on derivatives has impacted the reported results in this half. You may recall me last year referencing timing impact in the opposite direction.
I'll just briefly explain what's driving that. At this point in the year, we will have bought the seeds for crushing for the full year, and we'll also have largely sold the meal for the year. We would still have a portion of oil to sell. To hedge that risk against unsold oil, we would enter into derivatives to, in essence, hedge that price risk. Under accounting rules, we mark-to-market the derivatives at the point in time based on the values. The unsold seed and oil we hold at cost. With the rise in values we've seen over the last couple of months, that's led to a mark-to-market loss being recorded on the derivatives.
We would expect that to unwind in the second half as we effectively realize a higher margin on the sale of oil in the second half. Overall, we'd expect our reported FY 2026 crush margins to be broadly in line with 2025. Also in human nutrition, though, we did see edible oil sales volumes lower than the prior period, and that's off the back of some softer customer demand in particular for bulk oils. Moving over the page onto Agri Energy and Animal Nutrition. Our Agri Energy sales volumes were lower in this half, and that's off the back of demand into renewable fuel sector amidst U.S. biofuel policy uncertainty, and that's also had an impact on margins in the period.
The Middle East conflict has seen oil refining margins globally rise, and the U.S. has also announced its biofuels policy, and both of those factors have seen sentiment improve for the second half in the Agri-Energy segment. Moving on to animal nutrition. It's pleasing to report record sales volume in the half, which have increased 5% year-on-year, and that's off the back of a larger herd size in Australia, boosting demand for liquid feed supplements. We're also continuing to see strong demand from the dairy sector in New Zealand with the continued strong milk price. I'll now move on to balance sheet and capital management, starting off on slide 18.
We finished the half with a core cash position of AUD 163 million. That's down on the balance at prior year-end, but remains in a strong position overall. Year on year, our core cash is lower as a result of investment in the business. Noting the strong ongoing capital returns we've delivered to shareholders over the past 12 months. On the right-hand side, you can see a graph of net working capital. As is typical at this time of the year, you can see that we'd have the peak of the working capital cycle at the half year point. That's partially reflecting the strong export program I talked about earlier that we've seen in recent months. We'd anticipate this net working capital balance to unwind in the second half of FY 2026, similar to what we saw last year.
Overall, our balance sheet remains in a strong position and gives us the flexibility to continue investing for growth and providing returns to shareholders. Moving on to CapEx and D&A. Firstly, with CapEx, AUD 30 million in the first half of 2025. That includes sustaining CapEx of AUD 15 million, slightly lower relative to the prior half in ECA, and that's off the back of lower receivables partly. For the full year, we're expecting total CapEx across the group to be in the range of AUD 85 million-AUD 90 million, off the back of various investments across the business. That AUD 85 million-AUD 90 million includes the upgrade underway at West Footscray that we provided an update on back at our year-end results in November.
On the right-hand side, in relation to D&A, the first half of 2026 is slightly below what we saw at the first half last year, with some assets rolling off their useful life, things like tarpaulins, which have shorter useful lives. In terms of looking ahead to the second half, we'd expect D&A to be modestly up from the first half. Moving on to slide 20 and shareholder returns. As Robert noted earlier, the board has declared an ordinary dividend of AUD 0.14 per share, fully franked for the half. In line with our capital management framework, that ordinary dividend is based on through-the-cycle earnings, the declaration of that AUD 0.14 per share continues our strong track record of capital management and returns to shareholders. We'll continue to assess capital management against growth opportunities in line with our capital management framework.
Just moving on to slide 21 and a summary of the half year results and update. Our teams delivered a strong operational performance in a challenging margin environment, that's allowed us to report the AUD 136 million of underlying EBITDA for the half. Our balance sheet remains strong with AUD 163 million of core cash at the half. We continue our strong track record of shareholder returns by declaring a AUD 0.14 ordinary dividend for the half. Finally, we are reaffirming our FY 2026 earnings guidance for underlying EBITDA of AUD 200 million-AUD 240 million and underlying NPAT of AUD 20 million-AUD 50 million. With that, I'll now hand back to Robert to give an update on strategy.
Thank you, Ian. At page 23 in our pack, we've reiterated our strategy house, which I expect many of you are familiar with. It highlights our ambitions in enhance, expand and evolve. Over the next few slides, I'll share some progress points, proof points and examples in our program with you. First, on page 24, I do wanna remind you of the very attractive long-term fundamentals that GrainCorp is exposed to. In the top left-hand corner of that chart, you can see the growing population in Australia's 20 largest grain export markets. For those of you that follow us closely and see that chart, you'll notice that the population has increased significantly over what we've reported previously, and that's a result of growth in export flows to India and inclusion of India in that top 20.
I think that underpins and highlights the excitement we have about the growing population and the very strong correlation, of course, between population and demand for our products in food, feed, and biofuels. Supply is also increasing, as we've said, in the bottom left-hand side of the chart. Despite volatility in Australian crops, the long-term average remains very solid at 2.9% annual growth over a 10-year rolling average. The chart here goes back about 30 years. It shows the consistency of that growth over time, and it's testament to the investment that farmers make and the capability they have managing the environment and producing better yields and better crops. On the top right-hand side of the slide, we have diverse and attractive end markets.
Not only are they growing, but that diversity provides optionality for companies like GrainCorp, and we do a good job at capitalizing on those opportunities as they come along. Finally, on the right-hand bottom side, the demand for growing nutrition and, in particular, protein consumption across the globe and in particular in the markets close to us across Asia, has seen an increase in the cattle on feedlot in Australia. The demand for feed for those cattle, but also demand for feed into markets in Asia that are consuming that protein. Very strong and attractive fundamentals. We go to page 25 and some examples of how GrainCorp is capitalizing on that.
I touched earlier on the growth we've seen in our bulk materials handling, up to 1.5 million tons in the half as we continue to enhance and fully utilize the port assets that we have and identify opportunities to increase on-site capacity and product offerings to customers in that space. Ian mentioned briefly the AUD 30 million upgrade that we're completing on key equipment at our West Footscray plant that will complete through FY 2027. That will lower our ongoing operating costs and improve product quality for customers and create a more sustainable operating footprint. Finally, on Animal Nutrition, we've flagged before our expansion at Kyneton in Victoria. Our Animal Nutrition portfolio is supported by those strong industry fundamentals and GrainCorp, our assets, and importantly our team are capitalizing on that, demonstrated through the growth we've seen in volumes half on half.
Our business transformation on page 26. Just to recap on the overall rationale for the program, we're looking at our business end-to-end, looking at how we unlock efficiencies and drive returns, and we're also using it as an opportunity to address an end-of-life version of SAP, and upgrading that. In terms of progress in the half, the technical build of the SAP upgrade is complete with testing now underway ahead of deployment. We expect deployment in the second half of 2026. Importantly, the business-wide program is designed to deliver savings, and we flagged at the full year our expectation of a run rate exit from 2026 of AUD 5 million-AUD 10 million savings. I'm pleased to confirm today that that is well on track.
Overall, we expect to deliver AUD 20 million-AUD 30 million in EBITDA uplift on our through the cycle earnings following the program completion. We've been able to accelerate those benefits through running them in parallel with the build of the technical program and leveraging the capability and learnings we make as we look at all parts of our business. Finally, in terms of key strategic initiatives, renewable fuel understandably has had a lot more focus over recent months, as we look to the importance of sovereign capability and sustainability in Australia.
We already are exposed to significant opportunities in agricultural waste products and feedstocks, including the used cooking oil we handle, and we were encouraged by the announcements in the federal government budget earlier this week around a commitment to introduce demand-side measures for low carbon liquid fuels. Of course, ARENA's open to applications in their AUD 1.1 billion cleaner fuels program. Specifically, our progress in that space is leveraging our existing position as a leading supplier of Australian feedstocks. We're working closely and strongly aligned with our MoU partners, Ampol and IFM, to develop a renewable fuel refining supply chain, and the business case for that is being developed to underpin the initial investment. In summary, the conditions are strong, the fundamentals are there, and we're working hard with our partners to bring that to fruition.
I wanna just finish on some comments around our outlook. We are today reaffirming our earnings guidance of between AUD 200 million and AUD 240 million at EBITDA and underlying net profit after tax of between AUD 20 million and AUD 50 million. As we've said, we have seen a market that has seen strong supply of grain and oilseeds. We'll be watching how that develops, evolves, and changes over time. Our grain and oilseed prices have increased following the outbreak of conflict in the Middle East. That's reflective of commodity markets recognizing the higher input costs and providing resilience in terms of the model that GrainCorp operates in. Favorable planting conditions exist in Victoria and Southern New South Wales. Planting is well underway in those regions.
We do expect that Northern New South Wales and Queensland will require ongoing autumn and winter rainfall, we are encouraged by the short-term forecast and along with growers, we'll be looking for more follow-up rain in those regions in the coming weeks and months. ABARES provide their first estimate of the 2026, 2027 crop on the 2nd of June. Of course, the weather between now and harvest remains, as always, important. Just on page 30, I do want to finish by reminding you of our through the cycle track record of earnings and in particular, the very significant upside leverage that we have when conditions allow.
We've demonstrated repeatedly our ability to access those opportunities and deliver the results. We have confidence in our through the cycle average earnings of AUD 320 million as we look forward from where we are today. In closing, on page 31, GrainCorp has demonstrated its ability to respond to variable conditions. We have very attractive long-term fundamentals in the markets in which we operate. Our strategic infrastructure assets are of extraordinary value as we capitalize on those opportunities. We've demonstrated supply chain resilience. We have a strong balance sheet, disciplined capital management, and a track record of shareholder returns. Thank you for your time today. I'll now hand back to the moderator for any questions.
Your first question today comes from Owen Birrell from RBC. Please go ahead.
Good morning, guys. A few questions from me. The first one, I just wanted to focus on your core cash position. It looked like it was somewhat lower than, you know, we and I guess the broader market was expecting. I can acknowledge the lower EBITDA initial impact there. I'm wondering if you could talk a little bit more about I know you've talked about the derivative impact in terms of the mark-to-market. Can you firstly just confirm that you expect, or how much of that impact you expect to revert in the second half? Can you also talk to the working capital movement in that core cash? Cause, you know, what is that representing? Because given that inventories are excluded from the core cash definition.
Yeah, I can take that one, Owen. Thanks for the questions. I'll start off with the core cash. Back on slide 18, if you look at the networking capital graph on the right. You're right that commodity inventory is excluded. Remember that once the inventory comes out of effectively our commodity inventory funding facilities and moves into effectively an export task, that is still typically up to a 21-day period where you've effectively got export sales to be collected. It moves into the debtor book effectively. That's where you see that cyclicality of networking capital.
As I touched on earlier in the call, the strong export program we saw in the first half, that means we do have a high arc typically, and that is normal at the half year. You can see on the right-hand side of page 18, it was pretty similar last year, in terms of the working capital balance, then you can see a fairly significant unwind into the second half, last year, and we'd expect to see that again into the second half. I think that covers off the core cash question. In terms of the mark-to-market of derivatives, we'd expect that to fully unwind into the second half. The year-on-year movement is more exacerbated because last year we had the opposite effect.
You might recall me calling out that actually the first half results for Nutrition and Energy was slightly stronger than expectations as a result of, in essence, values being lower over the period into the half and therefore having gains on the derivatives. We actually had a, relatively speaking, a heavier weighting to the first half than typical in N&E last year. This year, in Nutrition and Energy, we'd actually expect to see a stronger second half overall, which isn't typical, and that's just the impact of the derivatives and the unwinding of that.
Can I also ask, there's something new impact from the business transformation costs in the period, in terms of cash flow. Are there any other sort of one-offs that you're expecting to come through into the second half that we should be aware of?
No, just the two items we've identified of business transformation and GrainsConnect.
Okay. Excellent. Just second question from me, just on the agribusiness. I guess your trading updates through December and into February was sort of highlighting the increase in on-farm storage and then the lack of those grains coming to market because of softer global pricing. Robert, you mentioned that global pricing has been improving. Just wondering whether that has instigated some of that on-farm storage to come to market, or is it likely being offset by higher freight costs and therefore the margins to the farmers are just not attractive yet?
It's a little bit of all of the above and other factors, Owen, including the outlook for next year and the decisions farmers will make around that. I think it's a little bit early to, you know, call what's actually happening there. As Ian said, we're seeing strong export volumes. We are seeing the market switch more to domestic demand in Australia, which is as we expected. I think, you know, it'll be over the next number of weeks and arguably the next couple of months as the outlook for the crop develops and becomes more certain, where you'll see where the market in Australia heads. There's still been a reasonably strong correlation between Australia and global markets, as you'd expect, because the conflict in the Middle East, of course, impacts all markets.
As I touched on, we'll also be watching the outlook for the Northern Hemisphere crop. Just earlier in the week, USDA came out indicating some dryness in North America. They are the sorts of early signals we'll look at as to the timing of effectively the cyclical return to a more normal supply-demand balance, which fundamentally drives prices and therefore margins in the grain sector.
Can I ask just on that supply side from Australia. We're seeing higher diesel costs, we're seeing higher ferts costs. Have you seen any or have you sort of witnessed any change in the way that farmers are planting in the early period in Victoria and Southern New South Wales in terms of the types of crops they're planting or the acreage that they're planting as a result of those impacts?
Again, it's a little early to have that view. We'll be seeing what intel that ABARES might have on that. We are very well connected, of course, directly to farmers. You know, the short answer would be no material changes in that. As I said, the reports are that they all have sufficient fertilizer to cover planting. Late March and early April have abated. There's plenty of diesel. Certainly the farmers I've spoken to directly in the last couple of weeks have been well underway in southern regions with a full plant and a typical rotation of the sort of crops that they put in. We're encouraged by the resilience of the sector in that respect.
That's great. Thank you.
Thank you. Your next question comes from Apoorv Sehgal from Jarden. Please go ahead.
G'day. Good morning, Rob and Ian. Just on the Nutrition & Energy segment, please. Through the cycle, EBITDA for that segment is about AUD 117 million, roughly. That's what's implied from your pie chart. The AUD 46 million in the first half, clearly there's a material impact from the derivative mark-to-market, which sounds isolated. You've got canola board crush margins at pretty strong levels at the moment. The agri energy policy might be a bit better short term. Ian, is that AUD 117 million through the cycle outcome actually achievable for FY 2026 with a stronger second half? Do you think we still fall a bit short?
Thanks, Apoorv. I can take that question. Probably we'd expect to be lower than through the cycle in the second half, although crush margins are probably pretty similar year-over-year, and really the impact in the first half is more timing. Crush margins would still be a bit below through the cycle. We called that out at the time of guidance in terms of effectively the lower canola crop in southern regions, and the impact that has. You are seeing pretty strong crops globally from canola and soybeans. That was the kinda backdrop for this year and a lot of that has been set. In terms of looking forward, though, you're right that the fundamentals are definitely improving.
You're seeing values improve and demand into the renewable fuel sector improve off the back of just energy prices. That's certainly a positive. Cropping conditions in the south have got off to a positive early start, that's also favorable in terms of canola planting and canola crop. It's also pretty early to talk to 27 and what the margins might look like. Hopefully that kind of covers the crushing side. In terms of Agri- Energy, the first half was a weaker result. We would expect better performance in the second half with sentiment improving and that improved clarity on biofuel policy in the U.S.
The first half lower earnings, relative to prior year and relative to through the cycle, we probably wouldn't expect to fully recover that in the second half, unless margins improve quite considerably. Hopefully, that gives you a little bit of color of the main drivers and where we'd expect things to come through into the second half.
Sure. And just on the crush margins, like the canola board crush margins are powered to like record highs and some of the producers there are talking to a pretty positive outlook. Are you seeing that improved crush margin outlook in the last two months, like, as we speak? Or is it a case that, you know, what's happening in the northern hemisphere is one thing, but it's all about the domestic East Coast crop over here, and we've had a bit of tightness. We have to sort of wait and see what the upcoming canola crop here looks like.
Yeah. It's probably more of the latter. Like, at this stage, you wouldn't have a good visibility of actually being able to buy any real amount of new crop seed. Just from a liquidity point of view and point of view in the year, you can't really quite get ahead to FY 2027 crush margins. It's just too early. That's just point of year. Certainly from a global perspective, you're definitely seeing improved crush margins in all of the northern hemisphere regions, which is certainly positive. The East Coast conditions and how things develop in terms of new crop, demand points at that point in time in terms of into export markets, that will have a bigger bearing on crush margins as we look into 2027.
Okay. That's great. Can I pivot to the ERP business transformation program, please? Release 1 spend in total, if I sum up the numbers in your presentation, it looks like it's gonna be about AUD 105 million, like from the start of when you began Release 1 to the outlook. I'm curious on Release 2. When does spending begin for that, and how is the spend likely to compare versus release 1? I think in the past, if I'm not mistaken, it's been suggested that Release 2 could be a bit above the Release 1 spend number.
I can take that one, Apoorv. We hadn't indicated that previously in terms of being above. At this stage, we're just fully focused on delivering release one and having put in place the firmed up plans for Release 2. We'll definitely take a measured and disciplined approach to how we tackle that. As Robert touched on earlier as well, we're very much focused on how we deliver benefits from overall business transformation over and above just what we would get from an ERP implementation. We'll certainly take a much more measured, disciplined approach and be careful about how we commit to future releases of the overall implementation.
Hmm. But is it likely.
Well, the fourth.
Yeah, sure. Sorry, Rob.
We're very focused on leveraging the investment to deliver the results, which is why we're, you know, comfortable to signal the AUD 20 million-AUD 30 million in our confidence in that as we complete certainly the major part of the program in Release 1. As Ian said, any further investment in Release 2 is still subject to business case, and that business case would obviously need to identify the, you know, fundamental reasons why we'd progress it on on what basis and cost and therefore what returns we'd be able to achieve. That's how we're looking at it.
Yeah. As a base case though, is Release 2 likely to actually go ahead at all?
Look, I think if we look at where we're at now, it's not likely to be a big feature of the next 12 months. As Ian said.
Okay
Our focus is on Release 1 and benefits, realization. Of course, you know, all subject to business case. You know as we've said, Release 1, you know throughout its journey has taken a little longer than we originally envisaged and therefore cost a little more, which has allowed us to, you know, really learn from that, but focus on accelerating the benefits. I, you know, I think that's the confidence we have, that we've approached it in a measured and risk managed way to ensure that the benefits are there. We're pleased today to be able to reiterate that run rate exit from 2026 and our confidence in the forward full savings and benefit of our overall transformation.
Okay. One final quick one just for Ian. Ian, just to follow up from an earlier question, the net working capital balance. You said that'll unwind into the second half, similar to what we saw last year. Are you indicating that the net working capital position at September should be like broadly stable year-on-year, or is it still gonna re-reflect a reasonable step up? Just trying to get a sense for how the net cash position should look like by September.
Yeah. We'd probably expect the closing position to be broadly in line with what we saw last year. Look, I'll always caveat that though with it depends on export vessels. One individual vessel can be anywhere between AUD 30 million and AUD 60 million, depending on the commodity and value. I'm always wary of calling a specific lens on it, but typically we'd expect the balance we finished last year end to be about a normal balance at a 30 September date.
Thanks, guys. Appreciate the time.
Thank you. Once again, if you'd like to ask a question, please press star one on your telephone and wait for your name to be announced. Your next question comes from Richard Barwick from CLSA. Please go ahead.
Thanks, and good morning, everybody. Can I just ask, I wanna ask a really basic question. Just thinking about the, you know, the change in volumes handled within the agribusiness. Just in your comments, you talk about, you know, reduced grower incentives to deliver grain to market negatively impacting margins. Can you just step through the, I guess the moving parts there, and give us a description of how that sort of translates through into lower margins just within that part of the business, please?
Sure. I'll make some opening comments then hand to Ian. Richard, it really is driven by the global dynamics first and foremost. That is, you know, as we talked about at the AGM, looking at wheat alone is in the order of a 20 or 22 million ton surplus on average production and consumption of circa 800 million tons. That cyclical surplus because demand is growing year on year. Supply generally is tracking that pretty closely. Just over the last 12 months or thereabouts, we saw all production areas perform well with no global droughts, created that oversupply of grain. What that means is that customers of grain are not particularly concerned or acting with urgency to acquire grain in the forward period because they know there's plenty of it there.
The commodity markets are acting as they're designed and as you'd expect, which are actually, you know, saying to sellers that, you know, the grain is more likely worth more in the future. Markets are in carry. As a result, prices are lower than you'd expect in terms of long-term averages. That means that Australian grain in global markets is having to compete with grain from all those other production areas, and the margins become compressed as we do that. Coming back to Australia from the supply side, point of view, growers and sellers of grain are not particularly excited about the prevailing prices, and therefore are tending to, you know, wait and see what happens and, you know, hold their grain, hoping prices might improve or demand supply might change.
In answer to your question, it is driven by the global dynamics, but also impacted by the selling decisions at a domestic level of the Australian grower. I'm not sure, Ian, you can add much more to that. It, you know, it's a fundamental question, Richard. I'd never describe it as a basic question, but there's a lot of complexities go into it. You know, to a large extent, you'll never see us forecast, forward grain prices. We take a very conservative approach to hedging and not taking positions on physical markets and where they may or may not move in the future.
Well, can I just jump in before Ian does? My question is probably a little bit more pointed around the impact, for, you know, GrainCorp and their margin and your margins. If you're breaking it down in terms of what is literally your, the old, grains handling business on the East Coast. You know, we know that the, your carry or your receivables was lower, you know, despite the higher crop tonnage. Just to really to talk through the mechanics of what that actually means for you, and why the, you know, ultimately leading to a weaker earnings outcome.
Yeah. Maybe just to follow up, Rich, there's probably two things there. Firstly, in terms of the volumes being brought to market being lower, that's just off the back of what Robert was talking about. If you're a grower and the market's at in carry, which is effectively the price of grain is worth more in the future than it is today, then you are more incentivized to hold on to grain than you might otherwise be, especially when you view the price as, you know, on a historical basis, relatively low. That just incentivizes people to hold back grain more rather than deliver it, just based on price alone. That's typical of, I guess, any market that moves up and down with low and high prices.
That's a farmer's perspective, not the GrainCorp perspective. I want you to step through and say, "Right, we've got less grain being delivered," how that translates through to lower margins for GrainCorp.
Well, firstly, I'll just explain the lower volumes. When you come to margins, ultimately, the margin for grain that we take ownership of is the difference between what we're paying the grower upcountry and what we can sell it into an end international market. When you've got strong supply globally and lower prices, the margin in between the price you're paying the grower upcountry New South Wales relative to delivered to end destination market, because there are so many competing supply points, so many global growers who can sell into that export channel, margins get compressed because of availability of supply, basically. Like you'd see in really any market, just the volume of supply, not just East Coast, but globally, impact margins right across the supply chain, including for supply chain operators like ourselves.
Okay. Then the last one I just wanted to check. Are you actually willing to give the number, the mark-to-market, around the oil derivatives, what the impact was this year versus last year? Because obviously it's a big swing factor and makes this result look pretty poor compared to last year.
In the bridge in the appendix, we've spelled out the movement year-on-year on crush of AUD 12 million for the half. That we would view as fully timing. More than half of it is the derivative impact of this half year. Of it was last year's first half actually being stronger as a result of derivatives the other way, m ore than half of the 12 is sitting in this year's first half as a negative. A portion of that 12 movement is positive at last year's half.
Okay. All right. Thank you.
Thank you. Your next question comes from Ben Webb from Macquarie. Please go ahead.
Hi, Robert. Hi, Ian. Thanks for taking the question there. Maybe, Robert, just one for you on back to slide eight there, and apologies, maybe I talked through this. My line just cut out there. I'm just interested in any further color you might be able to give around portfolio optimization, as it does pertain to that last bullet point there of improving returns across the portfolio. That'd be great. Thanks.
Yeah, sure. Nothing that we specifically wanna call out other than it's a reflection and demonstration of what we've repeatedly done. We've highlighted in the point above the Canadian joint venture and the action we've taken on that. If you go back in the previous 12 months, we had a similar rationalization of our manufacturing footprint between Australia and New Zealand and our foods business. On an ongoing basis, we look at all parts of the business and ensure they're meeting our internal hurdles on return on invested capital and that we're investing in them appropriately and where necessary, modernizing the business, you know, through rationalization.
I think our focus more broadly is on the growth areas at the moment, including the ones I've called out, around momentum and bulk materials and in particular, in animal nutrition. In answer to your question, Ben, don't overthink that bullet point. It is a reflection of our commitment, our ongoing commitment, but also our track record of taking action where required.
That's great. Thanks, Robert. Maybe just on the grain volume outlook for the year ahead there, which you provide in the appendix. Just noting the export volume guide has come down a bit there, 5.2-6.2 versus prior 5.5-6.5, I think. Any key drivers? I mean, obviously the first half, which was stronger than the PCP, so your expectations for that second half and why that come down will be great. Thank you.
Part of it is year to date and an update to that. Also just the way we're seeing the market develop and the demand coming from domestic market versus international or global export markets. I think that's a factor of some early concern around dryness and then strong consumption of animal feed. You know, really where that number ends up will depend on how the crop that's going in the ground at the moment develops.
Yeah, great. That makes sense. Thank you. That's all I have now. Thank you.
Thanks, Ben.
Thank you. Your next question comes from James Ferrier from Canaccord Genuity. Please go ahead.
Morning, Robert and Ian. Thanks for your time. First question, just to clarify something I think Owen asked at the top of the call there, significant items in the second half. There'll obviously be some transformation costs, but will there be anything in relation to Canada or is that all accounted for in the first half?
All accounted for in the first half. It is an estimate at this stage, but that should be materially it. It shouldn't vary much from this point, given we're closer to completion on that.
Yep. There's been a bit of talk about the sort of short grain position in Southern Queensland, Northern New South Wales, where there's a pretty big domestic feed market. Do you think there's an opportunity ahead in the near term for some trans shipments and some import of grain into that market? If so, you know, what role can GrainCorp play there?
Certainly the way the market is pricing it, that is likely that you'll see, you know, in the order of one vessel volume, so, you know, let's call it broadly 50,000-100,000 tons of demand not satisfied. There's probably not a huge role that we will play directly in that unless we're able to see the margin in that. You know, we're always looking at where we can sell grain and get the best possible return for it. I think, you know, fundamentally it creates an interesting dilemma around how much grain is really on farm versus the estimates that were established. You know, only history will prove out that point.
You picked up on an interesting point that the way the market is pricing, it certainly would create a dynamic or close to creating a dynamic where an import of grain from likely W.A. into the Brisbane Port Zone for northern New South Wales and southern Queensland would make commercial sense, which it follows. There's therefore not the grain that's sitting on farm that others might expect there is. We'll be watching that closely, James.
Yeah. Very interesting. Lastly from me, and you've sort of reiterated it again today, you've clearly got very high levels of conviction in through cycle earnings. I'm curious as to why GrainCorp hasn't been a bit more active with its buyback of late?
Look, we're not gonna comment specifically on our strategy around buyback, you know, other than to note we have the buyback in place and the availability of that. We also said previously that we do carry net debt as part of funding of grain, and that typically is at its high point through the, you know, second part of the first half. As Ian said, as working capital and inventory funding goes down, it gives us more optionality. I, you know, I'd reiterate today that we continue to provide returns to shareholders through franked dividends, including the AUD 0.14 declared today.
Understood. Thanks for your time.
Thanks, James.
Thank you. Unfortunately, that concludes our time for further questions today. I'll now hand back to Mr. Spurway for any closing remarks.
I'll keep it very brief, seeing as we're on time. Thanks for joining us today, and we look forward to catching up with many of you this afternoon and over the course of the next few days. Thanks for your support and interest in GrainCorp.
That does conclude our conference for today. Thank you for participating. You may now disconnect.