Graincorp growing efficiencies to tackle competition


Transcription of Finance News Network Interview with Graincorp Limited (ASX:GNC) Executive Chairman and Interim CEO, Don Taylor
Lelde Smits: Hello I’m Lelde Smits for the Finance News Network and joining me from grain logistics company Graincorp Limited (ASX:GNC) is its Executive Chairman and Interim CEO, Don Taylor. Don, welcome to FNN.
Don Taylor: Thank you for having me.
Lelde Smits: The company’s share price has not fully recovered since Archer Daniels Midland’s $3.4 billion takeover of the company fell apart at the end of last year. What do you think will support the company’s share price moving forward? 
Don Taylor: Well a couple of things. Obviously the company’s performance is related to the seasonal conditions. Last year was a particularly dry year, particularly in Northern Australia. So, that’s one area where I’d like to see some rain obviously. Seasonal conditions in the south are quite good at the moment but it’s still quite dry in the north. And secondly, just getting some of our projects that we have underway further along the pipeline would certainly help us.
Lelde Smits: Talk has recently resurfaced suggesting Graincorp may again be a takeover target. Hypothetically Don, what would need to change politically in order for a foreign takeover to get the green light?
Don Taylor: Look, I think any public company is subject to takeover any day so I don’t think we’re any different to any other company. But, given our particular circumstances, I think it is unlikely this government will actually revisit a transaction during this term of government. But past that, I mean it’s really up to the government to decide.
Lelde Smits: Graincorp’s last CEO Alison Watkins resigned just days after Treasurer Joe Hockey blocked the failed takeover bid last year. When do you expect to appoint a new chief?
Don Taylor: We’re well down the track. I did say that we’d have it done by the middle of the year, well it’s about the middle of the year and we’re not there. So, it’s taken a little bit longer than I would have liked. But, I’m very pleased with where we’re at and we’ll be making an announcement to the market as soon as we can. But, I’m relaxed about the candidates we’ve interviewed.
Lelde Smits: Looking closer at your operations now - Graincorp has just embarked upon a $200 million initiative called Project Regeneration. What are you aiming to achieve?
Don Taylor: Really looking at improving the efficiency of our network, particularly the transportation leg, which is moving the grain from our country depots to the port. We’ve seen 2 million tonnes move off the rail onto trucks in recent years, and that’s really related to the conditions of the tracks in some part but also to the arrangements at our depot.
So, we’re going to invest $200 million over three years to improve our side of the network and we’re looking for government to co-invest in rail siding so that the growers can receive the benefit of reduced costs.
Lelde Smits: Graincorp has just scored a regulatory win for your Newcastle bulk grain facility. Why do you believe that you were disadvantaged before, and how has the ACCC’s [Australian Competition and Consumer Commission] latest decision aided your cause?
Don Taylor: We’re very pleased with that decision, obviously, because it recognises there is competition. And, I think the solution the ACCC has come up with is entirely appropriate. We are of course concerned going forward because we have a mandatory code coming into practice, the draft form is out now. And, we’d like to see the Newcastle exemption broadened to other ports where we have substantial competition.
For instance, Port Kembla, we see a new terminal proposed to be built there. And, that entrant was able to structure that arrangement such that it avoided all the regulations that we have to go through at our depot, at our terminal, which didn’t apply to theirs. And, we think there should be equality in the rules. There can’t be two sets of rules.
Lelde Smits: As you mention, Quattro Grain is poised to start operating at your largest  port, Port Kembla in 2016. How do you anticipate the Quattro Grain JV will impact your operations?
Don Taylor: Well, any terminal that’s built will take capacity away from us, so we have to recognise that we’re going to lose some volume to that new entrant. Whether it’s profitable or not we know we’re going to lose volume. And, part of Regeneration is actually adjusting our cost base in the country to reflect that lower volume. But, it certainly will affect us. But competition is good, but we’d just like to compete on an equal, level playing field. Because, the arrangements that actually facilitated that construction by Qube Holdings Limited (ASX:QUB) are arrangements that would be illegal for my company to enter into. And, we just don’t that’s a reasonable set of rules to play by.
Lelde Smits: When do you believe the government will provide its final position on the mandatory code of conduct?
Don Taylor: Look, it’s going to be relatively quickly. There was a relatively short four week period for submissions. We’ve made a submission in terms of a response to the draft code. And, certainly we’d expect within the next six to eight weeks that the government will come out with a final position.
Lelde Smits: Finally Don, what are the company’s priorities at the moment and how would you like to see Graincorp positioned by the end of this year?
Don Taylor: Obviously I’d like to see a good crop, that would be the most important thing. But certainly, just to make us very efficient in terms of the way we do things. We’ve got to look at our costs, there’s no easy dollars out in business today, so it’s about making sure the business has the best cost-base to work from. So everything we’re focussed on at the moment is actually trying to taking unnecessary costs out of the business so we become competitive in the world environment.
Lelde Smits: Don Taylor, thank you for the update from Graincorp.
Don Taylor: My pleasure, thanks very much for having me.