ANNUAL REPORT 2012 CO-OPERATIVE BULK HANDLING CO-OPERATIVE L IMITED IMITED ANNUAL REPORT 2012 CREATING AND RETURNING VALUE TO GROWERS 2012 WAS THE AUSTRALIAN YEAR OF THE FARMER AND WE CHOSE THIS THEME FOR OUR ANNUAL PHOTOGRAPHIC COMPETITION. A NUMBER OF THE PHOTOS CONTAINED IN THIS REPORT ARE THE WORK OF THE MANY GROWERS, EMPLOYEES AND RURAL COMMUNITY RESIDENTS WHO SUBMITTED ENTRIES. 01 02 03 YOUR YOUR YOUR NETWORK MARKETER INVESTMENTS PAGE 14 PAGE 21 PAGE 25 CONTENTS 2 OVERVIEW 28 YOUR SUPPORT 3 yOUR cHAIRMAN’S REPORT 31 YOUR PEOPLE 7 YOUR Ceo’S REPORT 36 YOUR COMMUNITY 10 FINANCIAL AND OPERATIONAL 44 YOUR ENVIRONMENT SUMMARY 46 yOUR BOARD OF DIRECTORS 12 SUMMARISED REVIEW 50 yOUR EXECUTIVE 14 YOUR NETWORK 52 CORPORATE GOVERNANCE 21 YOUR MARKETER 60 DiRECTORS REPORT 25 YOUR INVESTMENTS 64 FINANCIAL REPORT 04 05 06 07 YOUR YOUR YOUR YOUR SUPPORT PEOPLE COMMUNITY ENVIRONMENT PAGE 28 PAGE 31 PAGE 36 PAGE 44 CBH GROUP ANNUAL REPORT 1 OVERVIEW The CBH Group is an integrated grain storage, handling and marketing co-operative controlled by growers for their benefit and the benefit of the 4300 grain industry in Western Australia. We are Australia’s GRAIN GROWER biggest co-operative and a leader in the Australian ENTERPRISES grain industry, with operations extending along the value chain from grain storage, handling and transport to marketing, shipping and processing. Owned and controlled by around 4,300 grain grower 1000 enterprises, the core purpose of the CBH Group is to PERMANENT create and return value to growers. EMPLOYEES Since being established in Western Australia nearly 80 years ago, CBH has constantly evolved, innovated and grown. The Group currently employs approximately 9 1,000 permanent employees supported by up to 2,000 casual employees during harvest months. These REGIONAL employees are located across the state at one of our OFFICES nine regional offices, 197 receival site locations, four ports, our engineering workshops or at our head office in West Perth. 197 Our marketing division, aided by additional offices in Eastern Australia, Hong Kong and Tokyo, is responsible RECEIVAL for exporting a range of grains to more than 20 markets LOCATIONS across the world. >20 GLOBAL MARKETS CINREAT G AND RETURNING VALUE TO Growers PROCESSING VALUE SHIPPING MARKETING AND TRADING STORAGE AND HANDLING GWSRO ER 2 CBH GROUP ANNYOURUAL NETW REPORORKT CHAIRMAN’S REport 2012 MARKED THE UNITED NATIONS INTERNATIONAL YEAR OF CO-OPERATIVES. IT IS TIMEly THAT THIS EVENT FOLLOWED THE PREVIOUS YEAR’S OVErwHELMING support FROM you, OUR GROWERS, FOR THE CBH GROUP TO REMAIN A CO-OPERATIVE WITH A MODERNISED structurE AND CONSTITUTION THAT ENABLES US TO RETURN VALUE TO GROWERS IN THE WAY you VALUE MOST. Fittingly, in 2012, the CBH Group retained its ranking The past year has reinforced my belief that as Australia’s largest co-operative in the Top 100 co-operatives can be just as successful as Co-operatives, Credit Unions and Mutuals listed by corporate entities and, in our sector, can do Co-operatives Australia, which includes businesses better, provided they adapt to their changing from agriculture, financial services, insurance environment and the changing needs of their and retail. members. Indeed, in the aftermath of the Global Financial Crisis, it is clear that many corporations Throughout the past 12 months, I have had the are now learning from the co-operative model opportunity to meet with many other representatives by taking longer term views and aligning their from co-operatives around the world and one of the values and actions with social good. main things I have taken away from this experience is greater confidence in our co-operative model being able to continue to grow and deliver value back to Creating and Returning Value to Growers our growers. Your Board and Management are fully engaged in continually exploring mechanisms for returning value to growers and the benefits to growers of our co-operative structure were clearly evident throughout the past year. CBH GROUP ANNUAL REPORT 3 Rail Investment Our decision to invest in new rail infrastructure is another way we are providing real value to our growers and we are confident that the acquisition on your behalf of 22 new locomotives and 574 new wagons will deliver real reductions in freight rates to port, minimising the cost of getting your grain to market. The benefits of the acquisition are already evident in our estimated freight rates for the 2012-13 season, which include an average reduction of around seven per cent in rail freight rates. Investment in the Network Maintaining and enhancing your storage and handling network remains a priority for your Board, and this year, CBH reinvested another $125 million in capital expenditure and maintenance on the network to ensure it can continue to meet the needs of growers, now and in the future. The Board has taken a long term view on re-investment into the network and last year, we committed to a regular annual spend of $85 million on NEIL WANDEL, CHAIRMAN CBH GROUP capital expenditure. We are confident that we can maintain this spend in both good and bad years and the greater predictability of Storage and Handling Fees investment will actually maximise the value of the invested Maintaining competitive storage and handling dollar. In addition, on the back of the record harvest, we fees remains the key priority of your co-operative. have committed to invest an extra $40 million over the In September 2011, we advised a modest increase next three years, specifically targeted at improving site for the 2011-12 harvest, after three years of keeping turnaround times. charges flat. Limiting that increase to only five per cent Grain Express continues to deliver benefits of scale in three years resulted in our charges being materially by combining the export freight task managed by your lower than equivalent bulk handling services elsewhere co-operative for the overall benefit of growers and the in Australia. industry. At the time of writing, we are still awaiting the In 2012-13 we have again kept charges flat, with the Australian Competition Tribunal’s decision on our appeal record 2011-12 harvest positioning us to absorb cost against the ACCC’s revocation of the exclusive dealing increases and avoid passing them on to growers. This notification for Grain Express. is our primary way of value return to growers and we will continue to benchmark ourselves to ensure CBH Reward Program remains the lowest cost supply chain in Australia. In September 2012, CBH announced plans to reward growers’ patronage of the co-operative through a new Freight Rates program to offset future receival fees. As with storage and handling fees, we announced a Under the program, growers in Western Australia who minimal increase in freight rates of two per cent for the marketed grain through CBH Grain in the 2011-12 2011-12 harvest. This figure was below CPI and a very season will receive a rebate which will be offset against positive result, given the increases in operating costs future CBH receival fees. experienced by the co-operative. This initiative is another way in which your co-operative The size of the 2011-12 harvest contributed to us being can uniquely create and return value to our growers and able to reduce the final freight rate per tonne compared we anticipate this new program will deliver total savings with our initial estimate, so freight rates in real terms of more than $6 million to growers delivering to us in were lower than the previous year. As a co-operative, the 2012-13 harvest. we did not hesitate to pass back to our growers the freight savings that eventuated as a result of the record Board Update harvest. The CBH Group welcomed two new Board members in 2012. Trent Bartlett joined our Board as an Independent Director, bringing a wealth of experience from his previous senior executive roles with Capricorn Society and Peter Stannard Homes. Trent replaced Peter 4 YOUR CHAIRMAN’S REPORT Peter WATERHOUSE, LATHAM COLIN TUTT, CBH EMPLOYEE Knowles, who provided a valuable contribution to the I extend my thanks and recognise the significant co-operative through his commercial experience and contribution of the outgoing Councillors Darrin Lee expertise, clarity of thought in decision making and of Mingenew; Ruth Young of Calingiri; Donna Lynch sound judgement. of Hyden; Rory Graham of Salmon Gums; Mark Roberts of Cascades and Ray Harrington of Darkan. Brian McAlpine joined the Board as a Grower-elected I particularly thank Ray, who completed 21 years of Director from District 1, replacing Rod Madden. A former service for this organisation including on the Grain Pool member of our Growers Advisory Council, Brian is an Producers Council, as a Grain Pool Board Member and experienced grain farmer from Maya who brings youth, as the inaugural Chairman of the GAC. education and experience to the Board. I thank Rod for the significant contribution he made during his six years on the Board. Creating and Returning Value to Growers Finally, it was pleasing to see John Hassell re-elected The decisions your Board has taken this year have to the Board in 2012 by grower members in District 3. continued to progress your co-operative towards its goal of being a sustainable, competitive player In April 2012, the Board announced a new Deputy in a rapidly changing industry. Chairman in Clancy Michael, who has been a member of the Board since 2008. Mr Michael replaced Wally Central to that is putting growers at the centre of our Newman who had been Deputy Chairman since May business. We exist for your benefit and that of your 2008 and chose not re-nominate for the position.