cross selling 7
DESCRIPTION
projects services cross sellingTRANSCRIPT
1
Investor presentation January 2004
2
Contents
• The strategy
• Landmark – the acquisition
• The growth opportunity
• Outlook
• Appendices:
1. About AWB
2. Financial performance 2002/03
3. Landmark- the acquisition
4. Global market outlook
3
“The strategy”
4
Corporate strategy
Vision: “Australia’s leading global manager of agricultural commodity assets, services and flows”
Australian other grains
Australian other commodities
Australian wheat
International wheat
International other grains & commodities
Producers Relation-
ships
End-users Relation-
ships
Rural Services
Agricultural inputs and technology
Finance & Risk Mgmt.
Acquisition & Trading
Supply Chain
Milling & Processing
Pool Mgmt.
Val
ue
add
ing
pro
du
cts
an
d s
ervi
ces
Agricultural Commodities
In
teg
rate
d V
a lu
e C
ha i
n
Shipping
5
AWB’s financial objectives
Return on equity - 15% return on equity in the medium term
Solid EPS growth (including Landmark)- EPS accretive (pre-goodwill, post synergies, post one-off costs) in 2003-04- More than 35% EPS accretive by 2005-06
Stable dividend payment- Expect to maintain dividend payment at current levels for 2003-04
Efficient capital management- Surplus capital utilised to part fund the acquisition of Landmark- Appropriate credit rating
Improve quality of earnings- Reduce exposure to crop size- Reduce proportion of earnings subject to principal risk
6
Group Structure
AWB LimitedPooling operationsCommercial operations
Supply Chain & Other Investments
Supply Chain & Other Investments
Pool Management Services
Pool Management Services
Finance & Risk Management Products
Finance & Risk Management Products
Grain Acquisition & Trading
Grain Acquisition & Trading
Grain TechnologyGrain Technology
LandmarkLandmark
7
Business Streams
Pool Management Services
• Base Fee
• Out-Performance Incentive
Supply Chain & Other Investments
• Chartering
• Domestic Investments
• Offshore Investments
Finance & Risk Management Products
• National Pool Harvest Payments
• AWB Basis Pool
• AWB riskassist
• Treasury activities
Grain Acquisition & Trading
• Grain Contract Acquisition Products
• Domestic Trading
• Non-Wheat Exports
• Global Trading Operations - Geneva
Grain Technology
• Agrifood Technology
• AWB Seeds
• Research & Development
Landmark
• Finance
• Real Estate
• Merchandise
• Fertiliser
• Livestock
• Wool
• Insurance
8
“Landmark – the acquisition”
9
Landmark strengthens AWB’s core wheat business & achieves substantial diversification in rural & financial services
• Integration, extraction of synergies and building of growth platforms will be a major focus in 2003-04
• Landmark distribution network and Rabobank relationship will be growth enablers in Financial Services
• AWB will continue to strengthen its grain business by seeking arrangements with bulk handlers allowing competitive access to ports and by securing end user demand
• Strong focus on cost and capital management will help prioritise business opportunities, whether in existing business streams or beyond
10
The acquisition of Landmark creates a unique ‘one stop shop’ for the farmer
Enhanced access to global markets for Australian agriculture • Access to over 40 countries around the world
Cross-selling• Cross-selling of products and services to farmers and international
customers
Overhead cost savings• Consolidation of AWB and Landmark corporate, head office and network
functions, where appropriate
Supply chain cost savings• Consolidation of procurement functions
• Leveraged logistical capability
11
AWB and LandmarkDistribution Network
• Acquisition of Landmark dramatically expands AWB’s foot print across rural Australia
- Better able to service customers and complement Single Desk marketing / risk management activities
- Platform to leverage growth for AWB financial services business
AWB office locations (49)
Landmark outlets (430)
12
AWB and LandmarkProfit Opportunities
• Total EBIT enhancement opportunities, derived primarily from finance growth opportunities, assessed at A$5 - A$10 million in FY2004 increasing to A$30 - A$40 million by FY2006
• Detailed implementation plan has been established to pursue opportunities from Day 1
(A$m) 2004E 2006E
EBIT Growth Opportunities 5 – 10 30 – 40
AWB Management NPAT Forecastfor Merged Company1 110-120 na
EPS Accretion from Acquisition2 2%+ 35%+
Notes:1. Net profit after tax, pre goodwill amortisation including all one-off costs2. Based on AWB forecasts for FY2004 and FY2006, pre goodwill amortisation, includes all one-off
costs for FY2004
13
Landmark integration
• Detailed integration plan being implemented, including consolidation of corporate functions to optimise service efficiency and costs
• On track to achieve Year 1 financial services growth, cost and revenue synergies
- Landmark Rural Finance Managers trained to sell Harvest Loan products
- Products already being sold and new customers serviced
- Renegotiation of supplier agreements (direct and indirect)
- Network offices are being re-branded and consolidation of network has commenced
• Cross selling opportunities for fertiliser, merchandise, insurance are being pursued. Bundled product offerings being piloted in SA
“Total EBIT enhancement opportunities, derived primarily from finance growth opportunities, assessed at $5 - $10 million in
FY2004 increasing to $30 - $40 million by FY2006”
14
“The growth opportunity”
15
Harvest finance market
• Environment becoming increasingly competitive‑ Traditional players – NAB, Rabo, BHC’s
‑ Others players– WBC, ANZ, Regionals
‑ AWB product enhancements for 2003
• Performance & take up rates‑ 70% market share
‑ Majority Harvest Loan, but other product use increasing
• Cross sell opportunities between AWB & Landmark‑ Product bundling
‑ Landmark finance staff to sell AWB Harvest Finance
16
The opportunity
Segment ‘C’
5,000 Corporate Enterprise$8b loans
Segment ‘B’65,000 SME agribusiness
customers$20b loans
Harvest finance to grain growers
Small<$200k
Finance to all agribusiness
Medium$200k-$1m
Large>$1m
Turnover
‘Farmers’ ‘Corporations’Product set
Segment ‘A’30,000 Grain / Broadacre
$2b loans
$30b of agribusiness lending in three broad segments
Source: ABARE, ABS, RBA, APRA, Jun 2002. Neil Clark & Assoc.
17
Competitive opportunities
Competitors vary in their primary focus of attention
Profitability HighLow
Small
Large
Value Proposition #2:Finance led
Major BanksRabo
ERB
Oppor-tunity 1
Oppor-tunity 2
• 60 RFM/RFO’s• Understanding of
agribusiness risk• Rural distribution• Product bundling• Brand appeal to
agribusiness• Balance sheet
strength, funding, liquidity capacity
Value Proposition #1:Commodity led
• 300 agronomists• Broad product range• Rural distribution• Product bundling• Brand appeal to
agribusiness• Balance sheet
strength, funding, liquidity capacity
Landmark
Regionals
18
Growth in Agribusiness lending
0
10
20
30
40
50
1997 1998 1999 2000 2001 2002 2003(f) 2004(f)2005(f) 2006(f)
10% CAGR
$Bn’s
Source: ABARE, ABS, RBA, APRA, Jun 2002. Neil Clark & Assoc., Bank Annual Reports. (f) = forecast
19
“Outlook”
20
AWB is well positioned for 2003/04
• Crop size- Australian wheat production rebounds to 22-24mmt
- Positive impact on all business streams
• Financial Services- Four Pool Payment Options available this year; forecast 70% take up of
total tonnes available for these options
- Cross selling between AWB Loan products and Landmark products to customers has commenced
• Grain Centres- All 21 Grain Centres will be operational for the coming harvest; forecast
throughput of at least 60% capacity
• Chartering- Pool tonnes chartered to double in 2003/04
2003-04 NPAT forecast is $110-$120 million (pre goodwill amortisation including one off costs)
21
AWB is well positioned for 2003/04 (continued)
• Rebound in merchandise and fertiliser
- Demand for farm inputs and fertiliser expected to recover due to increased availability of land after the heavy de-stocking during drought.
- Forecast merchandise and fertiliser earnings to be at least 10% higher than previous year
• Slower recovery on livestock
- Due to major de-stocking during drought, it will take a few years to recover to pre drought levels
- However, livestock prices forecast to increase by at least 5%
• Global wheat outlook- Major exporters to rebound in 2003/04, approx. 80% of world wheat trade- Non-traditional exporters not a threat during 2003/04 - Global Stocks-To-Use remain the tightest ever in recent memory- Wheat prices reasonable
Appendix 1: About AWB
• Introduction
• AWB Evolution
• Share ownership structure
• Corporate structure
• Risk allocation
• Share price performance
• Ring fence
• AWB Limited (AWB) is Australia’s leading agribusiness and one of the world’s largest wheat managing and marketing companies. Having evolved from the Australian Wheat Board, which operated as a government statutory marketing authority for 60 years, AWB is now a listed, S&P/ASX 100 Australian company.
• AWB is the exclusive manager and marketer of all Australian bulk wheat exports through what is known as the Single Desk system.
• With the acquisition of Landmark, AWB now offers a unique one-stop shop for Australian farmers, providing finance and risk management solutions across a wide range of agricultural enterprises, and having a considerable investment in rural and regional Australia.
Market Cap: A$1,478.1 million (A$4.40 09/01/04)
Shares on issue: 335.9 million
Shareholder’s equity: A$932 million (as at 30/09/03)
ASX listing: 22 August 2001
Index inclusion: S&P / ASX 100 (75% weighted)
Average daily volume: 408,500 shares (average since listing)
Introduction
24
AWB Evolution
2001 Listed on the ASX
1999 Privatised
1998 Corporatised
1989 Domestic market deregulated and
Wheat Industry Fund established
1939 Australian Wheat Board established as a statutory authority
— Wheat Industry Fund converted to B class shares
— A class shares issued to wheat growers
— Government guarantee of AWB borrowings removed
2003 Acquisition of Landmark
A class shares (28,811 shares) B class shares (338m shares)
• Can only be owned by current wheat growers
• One share per wheat grower with weighted voting dependant on tonnes delivered (currently 28,811 A class shareholders)
• Non-transferable
• Not entitled to receive any dividends
• Ability to elect 7 of 12 Directors (a majority of the Board)
• Shares listed on the ASX
• Can be owned by any investor, subject to 10% ownership limit (currently 64,545 B class shareholders)
• Entitled to receive dividends
• Entitled to elect up to 4 of 12 Directors over time
• 21% of issued capital owned by Institutions
Dual Class Share Ownership Structure
26
Risk allocation
National Pool Financing Principal trading / other
• Final net pool return
– final sale price
– foreign exchange
– credit risk
– supply chain
logistics
(including
execution)
• Credit risk manage-
ment outcomes
• Chartering and Quality
Assurance costs
Grower risk AWB risk
• Underwriting risk if Pool return falls below guaranteed return
• Size of pool impacts revenue derived from products and services
• Margin on loans
• Underwriting fees
• Fees from basis pool contracts
• Principal positions in wheat and other grains
• Multi-varietal and fixed grade contracts
• Credit risk management
• Trade execution management
• Grain centres management
• Riskassist advisory services
• Incentive in pool management fee
27
Share price performance since listing
2.50
3.00
3.50
4.00
4.50
5.00
22-A
ug-0
1
23-O
ct-0
1
24-D
ec-0
1
24-F
eb-0
2
27-A
pr-0
2
28-J
un-0
2
29-A
ug-0
2
30-O
ct-0
2
31-D
ec-0
2
3-M
ar-0
3
4-M
ay-0
3
5-Ju
l-03
5-S
ep-0
3
6-N
ov-0
3
7-Ja
n-04
(AU
D)
AWB S&P/ASX 200
28
Ring fence of National Pool operations
• Ring fence structure effective from 1 October 2003
• Ratings post 1 October 2003
- AWB Harvest Finance
S&P: A1+ (s/t) AA- (l/t) stable
Moodys: P-1
- AWB Commercial Subsidiaries
S&P: BBB stable outlook
Appendix 2: Financial Performance 2002/03
• 2003 full year results highlights
• Statement of financial position
• Statement of financial performance
• Capital expenditure
• Business operations
30
Full year results reflect severe drought conditions
• Net profit after tax of $43.9m, down 59%, whilst export volumes down 75%
• Total operating revenue of $2.2b, down 5%
• Earnings per share of 15.9 cents, down 59%
• Final dividend of 11 cents per share
• Drought impacted wheat crop of 9.7 million tonnes, down 61% from the previous year (24.9 million tonnes)
• Loan book peaked at $1.6b in December 2002
• Gross Pool Value of $1.3b
31
Statement of financial position
$million As at 30-Sep-03 As at 30-Sep-02
Assets
Cash 54.7 69.9
Receivables 1,012.6 2,141.1
Intangibles 583.6 0.2
Investments 12.9 17.0
Inventories 185.4 134.1
Property, plant & equipment 300.4 170.5
Other 266.2 108.3
2,415.9 2,641.1
Liabilities
Payables 336.1 122.7
Interest bearing liabilities 1,062.9 1,637.5
Provisions 52.4 41.8
Other 32.6 49.6
1,483.9 1,851.6
Net Assets 932.0 789.5
32
Statement of financial performance
$million
For the year ended
30-Sep-03
For the year ended
30-Sep-02 Change
Revenue from ordinary activities 2,211.9 2,319.6 (5%)
Cost of sales (1,889.2) (1,926.3) 2%
Borrowing costs (70.5) (98.6) 28%
Depreciation & amortisation (29.9) (14.3) (109%)
Other (163.4) (127.2) (28%)
Operating profit before tax 58.9 153.2 (62%)
Net profit 43.9 107.2 (59%)
33
Capital expenditure
$million
For the year ended
30-Sep-03
For the year ended
30-Sep-02 Change
Grain centres construction 71.0 53.0 33.9%
System Development &
Other Plant & Equipment
18.9 28.7 (51.9%)
New Building 3.2 - n/a
Total 93.1 81.7 14.0%
Depreciation 27.4 14.3 91.6%
1
1
1 Includes Landmark
• Level of capital required to support future growth plans
• No major capital expenditure for 2003-04
• Expected maintenance capital expenditure of approximately $20-$30 million per annum (to 2005-06)
34
Business operations
$million
For the year ended
30-Sep-03
For the year ended
30-Sep-02Change
Pool Management Services 23.3 17.4 34%
Grain Acquisition & Trading 29.7 68.6 (57%)
Grain Technology (5.1) (3.0) (70%)
Supply Chain & Other Investments 3.5 30.3 (88%)
Less: Interest expense (29.6) (23.6) (25%)
PBT Sub total 21.8 89.7 (76%)
Finance & Risk Management 64.1 88.5 (28%)
Rural Services (Landmark) 5.0 - n/a
Goodwill Amortisation (Landmark) (2.4) - n/a
Corporate (29.6) (25.0) (18%)
Operating profit before tax 58.9 153.2 (62%)
Net profit after tax 43.9 107.2 (59%)
35
Pool Management Services
$million (EBIT)
For the year ended
30-Sep-03
For the year ended
30-Sep-02Change
Pool Management Services 23.3 17.4 34%
($million)
For the year ended
30-Sep-03
For the year ended
30-Sep-02
2001/02 Pool
2002/03 Pool
Total 2001/02 Pool
Total
Base Fee 6.0 41.8 47.8 54.0 54.0
Out performance 14.0 15.3 29.3 14.3 14.3
Administration costs - (53.8) (53.8) (50.9) (50.9)
Total Pool Mgt Services
20.0 3.3 23.3 17.4 17.4
Breakdown of fees paid to AWB based on export tonnage of 19.6mt for 2001 Pool and 4.5mt for 2002 Pool:
36
Grain Acquisition & Trading
$million (EBIT)
For the year ended
30-Sep-03
For the year ended
30-Sep-02Change
Grain Acquisition & Trading 29.7 68.6 (57%)
• Trading activity declined due to drought
- Domestic wheat trading volumes of 2.8mmt for 2002/03, down by 40% compared to last year
- Trading volumes in other grain (sorghum, barley, canola) also down by over 60%
• AWB Geneva executed over 1.5mmt grain sales
37
Grain Technology
$million (EBIT)
For the year ended
30-Sep-03
For the year ended
30-Sep-02Change
Grain Technology (5.1) (3.0) (70%)
• EBIT loss due to drought. Net expenditure of $3.3m on R&D
• R&D will continue to be a major expenditure element in protecting future revenue streams
• Opportunity to review technology and R&D operations across the Group with the view to consolidating the businesses and achieving scale benefits
38
Supply Chain & Other Investments
$million (EBIT)
For the year ended
30-Sep-03
For the year ended
30-Sep-02Change
Supply Chain & Other Investments
3.5 30.3 (88%)
• Receivals through the Grain Centres down by 70% due to the drought
• Grain throughput reduced at Melbourne Port Terminal
• Chartering made a strong contribution due to:
- Favourable margins from physical freight
- Successful deployment of a long trading strategy
39
Finance & Risk Management
$million (PBT)
For the year ended
30-Sep-03
For the year ended
30-Sep-02Change
Finance & Risk Management 64.1 88.5 (28%)
• Impacted significantly by lower tonnage
• Level of underwritten loan draw-downs was significantly lower than for the previous year
• Decrease in underwriting revenue by 76%
• The size of the 2002/03 harvest has also had an impact on the average loan book, which is smaller than in the previous year
40
Corporate
• Net increase of $5m due to:
- Integration and restructuring costs associated with Landmark
- Write off of system development costs
• Dividends from Futuris of $3.6m included in result
$million (PBT)
For the year ended
30-Sep-03
For the year ended
30-Sep-02Change
Corporate (29.6) (25.0) (18%)
41
Landmark
• PBT contribution for September is $5m, mainly due to:
- Increase in cattle numbers and average price per head
- Increase in fertiliser sales due to improving conditions and drying paddocks
- The above increases were offset by reduced sales in merchandising due to ongoing dry conditions in QLD and NSW
$million (PBT)
For the year ended
30-Sep-03
For the year ended
30-Sep-02Change
Rural Services (Landmark) 5.0 - n/a
Appendix 3: Landmark- the acquisition
• Details of the acquisition
• Overview of Landmark operations
• Overview of Landmark by business unit
• Key strategic issues
43
Details of the acquisition
• $718m paid. Purchase price represents good value for AWB given the cross sell opportunities between AWB and Landmark
• No other company positioned to benefit from the synergies as AWB – Landmark was worth a lot more to AWB than other companies
• Funded via cash, debt and new equity:
- Debt facility arranged before announcement
- Institutional placement $152m, Share Purchase Plan $43.8m and Dividend Reinvestment Plan $35.9m
44
Merch
$1.1b Sales
Merch
$1.1b Sales
430 outlets430 outlets
1,890 employees1,890 employees
Livestock
1.9mCattle
11mSheep
Livestock
1.9mCattle
11mSheep
Wool
600kbales
Wool
600kbales
Real Estate
$730msales
Real Estate
$730msales
Fertiliser
1.2mtonnes
Fertiliser
1.2mtonnes
Finance
$815mbook
Finance
$815mbook
Insurance
$119m premium
Insurance
$119m premium
100,000 customers100,000 customers
Landmark: a snapshot
45
Overview of Landmark
Landmark is Australia’s leading rural distribution network with national coverage and significant growth opportunities
• Largest merchandise and fertiliser distribution business in Australia
• Well diversified earnings base across regions, agricultural commodities and business activities
• High growth finance business that can be further leveraged by AWB
• Strong insurance agency business
• Extensive branch network throughout regional Australia with 430 outlets and over 100,000 customers
• Lower risk agency model relative to peers
• Experienced management team which has presided over previous successful acquisitions and significant earnings growth
46
Wool Livestock
• Landmark handles approximately 25% of the National Wool Clip (600,000 bales)
• Provides traditional broking / auction selling services as well as a comprehensive range of Risk Management products
• 50% interest in Australian Wool Handlers (with BWK), 40% interest in Arcadia
• Not involved in any downstream processing
• Handles approximately 20% of livestock trading in Australia
• Provides saleyard auction services and private treaty services for livestock producers
• Supplies processors, supermarket chains, lot feeders and live export markets
• Landmark do not own feedlots or abattoirs
Overview of Landmark by business unit
47
Real Estate Insurance
• Markets large rural properties, residential real estate (regional towns) and clearing sales in country areas throughout Australia
• Real estate sales of in excess of A$700 million in 2003
• Landmark offers a range of insurance cover options for rural businesses and households
• Landmark acts as an agent for WFI and CGU
• The current arrangements with WFI and CGU will remain in place
Overview of Landmark by business unit
48
• Supplies a broad range of agricultural inputs, including agricultural chemicals and veterinary products, to all major agricultural sectors
• Distributed via 230 company owned branches, 50 franchises and 150 members (ie non-Landmark merchandise stores)
• Provides agronomic advice for cropping, pasture and cotton enterprises
Merchandise
Network characteristics
Branch Core regional town, full service
Franchise Smaller regional town with committed local operator
Member Wholesale supply, may be branded or non-branded
Overview of Landmark by business unit
49
Fertiliser Finance
• Acts as an agent for CSBP (owned by Wesfarmers) and others in WA; IncitecPivot and Hi-Fert on the east coast
• Landmark provides a range of financial products for rural producers including seasonal and term loans, term deposits, cheque accounts and credit cards
• Acts as an agent for Rabobank and receives a proportion of the net interest on each loan and a share of a ‘bonus pool’
• Landmark is responsible for loan approvals, however there is one Rabobank credit manager in the Landmark credit team
• Landmark still ‘owns’ the client
• 50 Rural Finance Managers located throughout Australia
Overview of Landmark by business unit
50
• Other Sales and Gross Profit are derived from the following businesses
Other
Big N Anhydrous ammonia distribution75% of other income
JRT2Cartage of sugar cane, fertiliser and
merchandise
OtherInterest margin on Deposit Notes and debtors,
rent recovery and car sales
25% of other income
Overview of Landmark by business unit
51
Key strategic issues
• Business sustainability- Commodity market cycles - Variable seasonal conditions - New product technologies- Security of member and agency structure
• Productivity and performance culture- Sales productivity consistency - Network configuration optimisation - Evolving performance culture
• Growth- Internal focus has diluted growth initiatives
Appendix 4: Global market outlook
• Global supply & demand
• Major exporters
• Non-traditional exporters
53
Global supply and demand - wheat
• World Production in 2003/04 is forecast at 552.7mmt, which is 14.1mmt lower than 2002/03.
• World Consumption is forecast at 602.4mmt for 2002/03 and 590.8mmt for 2003/04.
• Carryover stocks are at relatively low levels, representing approximately 2.5 months supply. * 2002-03 & 2003-04 – estimated (Source: USDA)
500
520
540
560
580
600
620
1999-002000-01
2001-02
2002-03*
2003-04*
Pro
du
ctio
n &
co
nsu
mp
tion
(m
t)0
50
100
150
200
250
En
din
g s
tock
s (m
t)
54
Major exporters (2003-04)
• Australian, Canadian and US wheat crops expected to rebound significantly
• 2003-04 total exports by major exporting countries forecast to increase to 78.6 mt, an increase of 16.3mt from 2002-03
• Major wheat exporting countries continue to face competition from non-traditional exporters in 2003-04
Major exporters - 2003-04(f) (Source: USDA)
USA39%
Australia22%
Canada20%
EU9%
Argentina10%
55
Non-traditional exporters• Non-traditional exporters have increased their export program over the last two years due to good
production, large carryover stocks and increased investment in transport and infrastructure.
• However, projected 2003/04 production for non-traditional exporters is projected to be massively lower than 2002/03 as a function of the FSU crop disaster. This in turn will limit non-traditional exporters ability to undercut prices to gain market share into the new campaign.
* 2002/03 & 2003/04 – forecast ( Source: USDA)
Non-traditional exporters - total exports
0
2
4
6
8
10
12
14
Russia
Ukrai
ne
Kazak
hsta
n
Easte
rn E
urop
eIn
dia
Pakist
an
(mt)
2002-03*
2003-04*
5 year average
56
www.awb.com.auFor more information contact:
Delphine Cassidy
Head of Investor Relations
T: +61 3 9209 2404
F: +61 3 9670 1723