jp morgan conference
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JP Morgan Conference. October, 2004. 2003. 2003. Where we have come from …. “Australia’s Leading Agribusiness”. AWB acquired Landmark from WES. Landmark acquisition. 2001. WES acquired IAMA, merged it with Wesfarmers Dalgety to form Wesfarmers Landmark. 2001. Listed on ASX. 1999. - PowerPoint PPT PresentationTRANSCRIPT
1
JP Morgan ConferenceOctober, 2004
2
2001 WES acquired IAMA, merged it with Wesfarmers Dalgety to form Wesfarmers Landmark
2003 AWB acquired Landmark from WES
1993 WES acquired Dalgety Farmers, merged it with Wesfarmers Rural to form Wesfarmers Landmark
1985 Wesfarmers Rural expands to eastern states
1984 The Cooperative listed on ASX as Wesfarmers Limited (WES)
Frederick Dalgety began servicing farmers in western Victoria; the well known Dalgety business eventually covered all States
1840
1950 The Cooperative diversified with a rural focus
1914 Westralian Farmers Cooperative established
“Australia’s Leading Agribusiness”
2003 Landmark acquisition
2001 Listed on ASX
1999 Privatised- Wheat Industry Fund converted to B
class shares
- A class shares issued to wheat growers
- Government guarantee of AWB borrowings removed
1998 Corporatised
Domestic market deregulated and Wheat Industry Fund established
1989
Australian Wheat Board establishedas a statutory authority
1939
Where we have come from …
1915 Australian Wheat Board created during World War I
3
B class shareholders:
Market capitalisation:
Shares on issue:
Shareholder’s equity:
Index inclusion:
$1.6 billion
342 million
$1 billion
S&P/ASX 100 (75% IWF)
A class shareholders: 28,605
64,134
Institutional investors:
Growers / retail shareholders:
Employee shareholders:
25.96%
73.06%
0.98%
What we have achieved …
2.50
3.00
3.50
4.00
4.50
5.00
5.50
Aug-01 Nov-01 Feb-02 May-02 Aug-02 Nov-02 Feb-03 May-03 Aug-03 Nov-03 Feb-04 May-04 Aug-04
AWB S&P/ASX 200
4
• 90th largest company in Australia with market capitalisation of $1.6 billion, and revenues of $9 billion (incl Pool revenue) shareholder funds of $1 billion
• Consistently out performed the S&P / ASX 200 since listing
• Top quartile TSR (total shareholder return) last three years
• Weathered the worst drought in 100 years
• Success in Iraq – 1.2m tonnes renegotiated (2003)
• AWB constructed 21 grain centres with a total capacity of over [3m] tonnes (2003)
• Positioned to tap into growing Asian markets
• Nationalisation of the Landmark structure (2003)
• New strategic focus on customer management, introduction of CMS system (2002)
• Progressive business expansion
What we have achieved …
5
Merch
$1.2bsales
430 outlets
2,500 employees
Finance & Insurance
$2.0b loan book
$300mon deposit
$120m premium
100,000 customers
RealEstate
$800m sales
Wool
500kbales
Livestock
2.0mcattle
11m sheep
Fertiliser
1.2mtonnes
Grain
$5-$6brevenue
What we are today …
6
• Markets approx. 18 mmt wheat internationally representing 16% of total world wheat trade
• Largest supplier of farm inputs and rural merchandise
• Handles approx. 20% of national wool clip
• Handles approx. 20% national livestock trading
• Annual turnover in excess of $4.0b
• Finance Loan book in excess of $2.5b
• Over 2,500 staff in Australia and overseas
• US/ Euro commercial paper issued this financial year totals USD3.8b
• FX spot transactions (ytd Sep 03) totals USD20b
Australia’s leading agribusiness
What we are today …
7
AWB Limited
Pooling operationsCommercial operations
Supply Chain & Other Investments
Pool Management Services
Finance & Risk Management
Grain Acquisition & Trading
Grain Technology
Landmark
Group structure
8
Financial objectives
Return on equity - Achieve 15% return on equity for the AWB Group in the medium term
Solid EPS growth- Landmark acquisition to be more than 35% EPS accretive (pre-goodwill, post synergies, post one-off costs) by 2005-06
Stable dividend payment- Expect to maintain dividend payment at current levels for 2004-05
Improve quality of earnings- Reduce exposure to crop by achieving more than 20% of PBT not related to
Australian wheat by 2004-05
9
Targets will be achieved by implementing three dominant business strategies
AWB’s overarching goal is to implement an
Integrated Business Model...Leading position in
Australian rural services
Leading rural financial
services and insurance
provider
Australia’s leading global grain trading
business
People and
Capability
10
Three growth areas
Leading position in Australian rural
services
Leading rural financial
services and insurance
provider
Australia’s leading global grain trading
business
• Fertiliser and merchandise are the main areas targeted for growth
• Cross selling• Leverage buying power in the network• Improve merchandise and supply chain effectiveness
• Increase product base – build on AWB’s natural advantage to provide a wider range of products, better interest rates, and streamline credit processes
• Specific areas targeted for growth include lending, deposits, wealth management and general insurance
• Continue to focus on mandate to maximise grower returns
• Expand the suite of commodities, origins and risks managed
• Strengthen the differentiated position for Australian wheat
11
Integrated Business Model will position AWB as Australia’s leading agribusiness
our Vision … AustraliaAustralia’’s leading agribusinesss leading agribusiness
Chartering Risk Management
Financial Services
Insurance Merchandise& Fertiliser
Agronomy Wool Livestock Real Estate
Grain marketing
and handling
Primary producer
Business partner of
choice
End consumer
Seeds and R&D
Farm Inputs
Domestic Supply chain
Acquisition and
TradingFreight
Offshore Supply Chain
End use demand
Milling and Processing
delivered by a … comprehensive product / services offering
managed through an … integrated value chain
to ensure AWB is the …
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• Strengthen core business, in particular preserve and enhance the value of the Single Desk system
• Grow and diversify to improve the quality of the earnings base and reduce wheat harvest volatility
• Acquisition expected to achieve target 15% ROE by FY2005
• EPS accretive in FY 2004 and by more than 35% in FY2006
• % of PBT not related to Australian wheat: >20% in 2004/05
• Landmark will diversify AWB’s earnings base and reduce volatility of AWB’s earnings
• AWB Group will achieve 15% ROE in the medium term
“To be both the primary producer’s and end-use consumers’ business partner of
choice”
The way ahead …
13
APPENDICES
1. Financial results Slide 14
2. Rural services Slide 27
3. Network operations Slide 41
4. Wheat prices, futures & global supply Slide 52
5. Financial services Slide 61
6. Trading Slide 69
14
APPENDIX 1: Financial Results as at 31 March 2004
15
$million
For the 6 months ended
31-Mar-04
For the 6 months ended
31-Mar-03 Change
Revenue from ordinary activities 2,945.9 1,030.3 186%
Cost of sales (2,584.1) (883.0) 193%
Borrowing costs (60.1) (42.7) 41%
Depreciation & amortisation (37.6) (12.2) 208%
Other (185.3) (49.6) 274%
Operating profit before tax 78.8 42.8 84%
Net profit after tax 54.1 29.9 81%
Statement of financial performance
16
$million
For the 6 months ended
31-Mar-04Profit from ordinary activities before tax 78.8
Depreciation & amortisation 37.6
Tax paid (9.6)
Finance options for growers (net) (1,168.6)
Purchase of property, plant and equipment* (18.3)
Purchase of investments * (22.8)
Increase in cash & short term deposits (191.7)
Dividends paid (25.1)
Proceeds from issue & ordinary shares 76.0
Changes in working capital (417.7)
Change in debt – (increase) / decrease (1,661.3)
* Net of proceeds
Change in debt position
17
$million
For the 6 months ended
31-Mar-04
For the 6 months ended
31-Mar-03 Change
Grain centres construction 3.8 40.7 (91%)
System Development &
Other Plant & Equipment 10.71 8.3 29%
New building costs
7.2 - N/A
Total 21.7 49.1 (56%)
Depreciation 22.71 12.7 79%
1Includes Landmark
Capital expenditure
18
$million As at 31-Mar-04
As at 30-Sep-03
AssetsCash 28.8 54.8
Receivables 2,523.4 1,012.6
Intangibles 576.9 583.6
Investments 16.2 12.9
Inventories 332.9 185.4
Property, plant & equipment 296.9 300.4
Other 520.0 266.2
4,295.1 2,415.9Liabilities
Payables 444.2 336.0
Interest bearing liabilities 2,740.0 1,062.9
Provisions 49.0 52.4
Other 28.2 32.6
3,261.4 1,483.9Net Assets 1,033.7 932.0
Statement of financial position
19
$million
For the 6 months ended 31-Mar-04
For the 6 months
ended 31-Mar-03 Change
Pool Management Services 11.6 8.3 40%
Grain Acquisition & Trading 29.8 15.0 99%
Grain Technology (2.2) (2.5) 12%
Supply Chain & Other Investments 29.8 2.8 964%
Less: Interest expense (16.0) (18.6) 14%
Profit before tax 53.0 5.0 960%Finance & Risk Management 21.6 35.5 (39%)
Rural Services (Landmark)
Goodwill Amortisation (Landmark)
Corporate
29.6
(14.9)
(10.5)
-
-
2.3
-
-
(557%)
Operating profit before tax 78.8 42.8 84%Net profit after tax 54.1 29.9 81%
Business operations
20
$million (EBIT)For the half year ended
31-Mar-04
For the half year ended
31-Mar-03Change
Pool Management Services 11.6 8.3 40%
($million)For the half year ended
31-Mar-04For the half year ended
31-Mar-032002-03
Pool2003-04
PoolTotal 2001-02
Pool2002-03
PoolTotal
Base Fee 4.6 28.6 33.2 - 20.9 20.9
Out performance 4.1 - 4.1 12.6 - 12.6
Administration costs - (25.7) (25.7) - (25.2) (25.2)
Total Pool Mgt Services
8.7 2.9 11.6 12.6 (4.3) 8.3
Pool Management Services
21
$million (EBIT)For the half year ended
31-Mar-04
For the half year ended
31-Mar-03Change
Grain Acquisition & Trading 29.8 15.0 99%
• Trading activity increased with improved seasonal conditions
- Domestic wheat trading volumes of 2.8 million tonnes, representing an increase of 64% compared to the previous half year
- Trading volumes in other grain (sorghum, barley, canola) increased by 39%
• AWB Geneva executed around 1.0 million tonnes of grain sales
- Chartering business successfully traded a long position in the rising freight market
Grain Acquisition & Trading
22
$million (EBIT)For the half year ended
31-Mar-04
For the half year ended
31-Mar-03Change
Grain Technology (2.2) (2.5) 12%
Grain Technology
• Reduced loss in comparison to the previous half year due to improved seasonal conditions
• Net expenditure of $2.1 million on R&D ($1.9 million spend last half year)
• R&D will continue to be a major expenditure element in protecting future revenue streams
• With the acquisition of Landmark, AWB is reviewing its technology and R&D operations across the Group with the view to consolidating the businesses and achieving scale benefits
23
$million (EBIT)For the half year ended
31-Mar-04
For the half year ended
31-Mar-03Change
Supply Chain & Other Investments 29.8 2.8 964%
• Receivals through the Grain Centres were 1.8 million tonnes
• Grain throughput at Melbourne Port Terminal increase by 63%
• Chartering made a strong contribution due to:
- Successful deployment of a long trading strategy whilst ocean freight market rallied
• Contribution by offshore investments (Five Star Flour Mills in Egypt and AWB Zennoh in Japan)
Supply Chain & Other Investments
24
$million (PBT)For the half year ended
31-Mar-04
For the half year ended
31-Mar-03Change
Finance & Risk Management 21.6 35.5 (39%)
• Impacted by reduced contribution from Group funding due to surplus capital utilised for the acquisition of Landmark
• Contribution by Financial Services increased 50% to an EBIT of $14.8 million mainly due to seasonal conditions
• The level of underwriting revenue and take up of products increased significantly
Finance & Risk Management
25
• Merchandise volumes influenced by weather conditions and increased competition
• Fertiliser sales have been strong in Queensland, Western Australian and South Australia
• The continuing high average price per head for both cattle and sheep is a reflection of supply and demand and there have been a number of vendors in the market with quality cattle for sale
• Real Estate strong due to improving turnover achieved in rural property
$million (PBT)For the half year ended
31-Mar-04
For the half year ended
31-Mar-03Change
Rural Services (Landmark) 29.6 - -
Rural Services (Landmark)
26
• Combination of head office costs offset by miscellaneous revenue items
• Dividends from Futuris of $3.7 million
$million (PBT)For the half year ended
31-Mar-04
For the half year ended
31-Mar-03Change
Corporate (10.5) 2.3 (557%)
Corporate
27
APPENDIX 2: Rural Services
28
A period of change
2001 & 2002Merger Dalgety & IAMA
• Achievement synergies
• Maintain revenue in existing businesses
• Establish new brand identity
• Capture merchandise and logistics opportunities
2003Growth phase
• Nationalised structure
• Merchandise sales recovery
• East Coast fertiliser expansion
• Drive wool and livestock growth and productivity
• National finance and insurance expansion
2004Integration and growth
• Capture cost and revenue synergy benefits
• Centralise head office function
• Expansion of financial services and growth
• Drive wool, livestock and merchandise growth and productivity
• Network optimisation
• Account management
OBJECTIVE 2004-05: Integrated Business Model
29
• Merger of Wesfarmers Dalgety and IAMA in 2001 resulted in Landmark becoming Australia’s largest rural merchandise distributor
• Stores across Australia stock a range of animal health, cropping, fencing, fertiliser and farm hardware product
• Merchandise products are distributed via 230 company owned branches, 47 franchises and 120 members and agents, and supported by over 200 agronomists Australia wide
Merchandise
30
Merchandise overview Competitive environment Key opportunities• Intense price competition
• Commoditisation of products
• Rationalisation of suppliers, particularly in the chemical sector
• Channel proliferation leading to increased competition in distribution
• Low demand for cotton inputs due to lower production, irrigation cuts and biotechnology
• Livestock carrying numbers reduced following drought with expected impact on Animal Health and management sales
• Cotton prospects improved with increased water availability
• Commoditisation of products – 75% of chemical products expected to be off -patent by 2005 – Generic products are becoming a bigger part of the farmer’s decision making process
• Operational improvement opportunities
• Meet all price points
… a generic strategy will be important
31
• Significant supplier of fertiliser distributing over 1 million tonnes per annum, as well as retailing liquid, trace element and specialist fertilisers
• The major fertiliser products are globally traded commodities, resulting in:
– Limited scope for differentiation between retail outlets; and
– Importer traders ensuring world price movements rapidly flow through to domestic price (i.e. volatility)
Fertiliser
32
Fertiliser overview
Competitive environment
Key opportunities
• Limited product differentiation
• Large number of agents and dealers competing locally
• Requirement for logistics services in some markets
• Ongoing rationalisation of industry players
• Market volumes increasing
• Nitrogen use increasing
• Local prices driven by world prices
• Increased market share through acquisition of independents
• Cross sell bundled product offering
… growing market share and volume
is important
33
• One of Australia’s largest marketers of livestock
• Operating in all States and Territories throughout Australia
• Handles 20% of livestock trading in Australia
• Core business is sale of livestock through saleyards - 70% sold via auction
• Livestock trading is also a part of the business
• Landmark supplies processors, supermarket processors, lot feeders and live export markets
Livestock
34
Livestock overview
Competitive environment Key opportunities• Pressure on core agency business
from increased direct selling to processors
• Major competitors involved in vertical integration
• Private agents cutting commission rates to gain share
• Rationalisation of saleyards
• Increase business into grain fed markets
• Strong meat and live export markets
• Productivity improvements, saleyard rationalisation
… prices are expected to remain strong
35
• Handle approximately 25% of the National Wool Clip (500,000 bales)
• Provide traditional broking / auction selling services as well as a comprehensive range of Risk Management products
• 50% interest in Australian Wool Handlers ‘AWH’ (with Elders) –wool handling
• Not involved in any downstream processing
Wool
36
Wool overview
Competitive environment Key opportunities• Strong competition for a record low
volume of wool (sheep numbers at 96 million in 2003-04)
• Small, low cost regional brokers have increased market share
• Ongoing price discounting
• Rationalisation amongst brokers to occur
• Move from wool to meat likely to continue
• Fall in wool production has created an opportunity for industry rationalisation and consolidation
• Good prospects for sheep meat will assist building flock numbers
• Low levels of supply will provide support to wool prices
… increased throughput is the key
37
Landmark real estate has two main activities:
Real Estate
- Rural property sales
- Residential property sales
38
Real Estate overview
Competitive environment Key opportunities• Metro and town real estate agents
moving into small farm areas causing margin pressure
• Sophisticated players with marketing and sales representatives
• Low market share in residential real estate
• Limited capital
• Variable pay structure
• Outlook is for steady growth
… good platform to grow residential market share
39
Extending and creating value and building the Integrated Business Model
Growth
Day 1 – August 29 2003
TransitionIntegration Planning
Transaction
Integration Project Management
Integration
June 30 2004
Full completion/transition has now occurred of all Landmark accounting, finance, treasury, business development, HR, risk, corporate insurance, IT, marketing services, stakeholder relations and legal functions within AWB functions
Network, IT and HR Integration are on going
Integration
September 30 2004
Synergy Benefits
Completion and
Signing
Integration of Landmark
40
Outlook
• Opportunities exist to grow in most activities
• Commodity prices expected to remain strong
• Real Estate values expected to plateau
41
APPENDIX 3: Network Operations
42
Branches
Members
Franchises / Agents
Staff = 293
35 47 29
1946 1
Staff = 363
43 19 11
Staff = 239
281437
Staff = 350
31857
Staff = 455
Network structure and rural footprint
43
• Account Management
• Network Optimisation
• Integrated Business Model
as well as…….
– Training & Development
– Profitability Improvements (financial services & merchandise / fertiliser)
– Operational Excellence
Network operations will focus on
44
The number of activities utilised by each customer of Landmark is low
Fert Ins L/Stock Merch Wool
Fert
Ins
L/Stock
Merch
Wool
Activity – Key Customers
Pen
etra
tion
acro
ss
othe
r act
iviti
es (%
)
High cross sell growth opportunities
Account management – cross sell opportunities
45
• Utilising data to segment Landmark & AWB’s customer base • Developing appropriate service level protocols & disciplines• Improving differentiation in service levels
Account management – customer relationship management (at branch level)
46
1. Institutionalise the customer knowledge historically maintained with individual employees.
2. Evolve the culture from an activity specialisation focus to a customer relationship focus, and build an account management philosophy.
3. Increase “share of wallet” from our existing customer bases.
Key strategies for account management
47
“right store, right presence, right stock, right time, right price!”
425 outlets
218 branches 89 franchises & agents
108 members(118 outlets)
Network optimisation
48
Improve profitability, capture growth and improve return on capital
Optimise current branch /franchise
options
Optimise network footprint
Optimise network format
• Branch categorisation • Outlet design and standards
• Identification and analysis of growth opportunities
Network optimisation (continued)
49
Mar
ket S
hare
Average size
Corporate Branch Market Share vs Market Size
Market Potential
Identified opportunities within each geographic segment and branch catchment area
Profit contribution by outlet is variable due to a number of factors
50
BranchFranchise
Size of circle indicates value of channel partner’s revenue
• Three distinct channels to market• Leveraged properly, provides a competitive advantage
Principal’s share of channel partner’s product category sales
Cha
nnel
par
tner
’s in
flatio
n ad
just
ed g
row
th ra
te
Network configuration
Member
51
• Strategies in place to optimise our foot-print and maximise profit pool opportunities
• High potential business managers matched to high potential locations
• Optimal store configurations
• Optimal catchment areas
• Efficient channels to market
What will the network look like in 3 years?
52
APPENDIX 4: Wheat prices, futures & global supply
53
• World wheat production has increased 56 million tonnes to 608 million tonnes in 2004
• Significant production increases occurred in the– EU-25 106 mmt to 129 mmt
– FSU 61 mmt to 84 mmt
– India 65 mmt to 72 mmt
– China 86 mmt to 90 mmt
• US crop declined from 64 mmt to 58 mmt
World wheat production
54
World wheat production & consumption
440
490
540
590
640
Tonn
es (m
illio
n)
World Production World Consumption
Source: USDA 2004
55
World wheat trade – 5% major exporters
80
85
90
95
100
105
110
115
Mill
ion
Tonn
es
50
55
60
65
70
75
80
85
90
95
100
%
World Trade 5 Major Exporter
* 2003/04 & 2004/05 – estimated Source: USDA
56
World stocks
• A larger world production was required as world stocks remain historically low
– From 202 mmt in 2002-03 to 167 million tonnes in 2003-04 to 132 million tonnes in 2004-05 and 142 million tonnes 2005
• Other major world crops are showing the same trend– Corn from 148 million tonnes in 2002-03 to 85 million tonnes in 2004-05
– Rice from 139 million tonnes in 2002-03 to 68 million tonnes in 2004-05
• This prevents a huge production swing into one crop
• Human consumption demand increasing at long term trend of 1%
• Feed demand will increase 7 million tonnes due to larger feed wheat availability in 2004-05
57
Kansas futures
58
Prices
• Production risk premium has been removed from the market and this has seen Kansas futures decline from in excess of US$4 bushel to US$3.40 bushel
• APW National Pool return has declined from $220 FOB to $197 FOB for 2004/05 pool
• Weaker currency is supportive to price
59
The future
• Increased production and export supply from the Russia and Ukraine likely over time
• Exports from the Black Sea work initially into the Mediterranean, then Africa and the Middle East
• This is one of the major drivers for AWB to focus on increasing exports into Asian markets over the next five years
• AWB exports into Asia in 2004 will be greater than 10 million tonnes for the first time
60
Outlook
• Risk premium has been taken out of current prices
• Strong competition from Northern Hemisphere export origins in the short term
• There is still a tight balance sheet that will react to any production issue in 2005
• China expected to continue strong import program in 2005
• AWB confident of retaining 50% of Iraq import demand
61
APPENDIX 5: Financial Services
62
Priority Outcome
AFSL licence • Licence approved within timeframe• Enabled AWB to continue to offer
the IBD’s
IBD Prospectus & major customer migration
• Prospectus launched• 85% conversion
Protect & shore-up Harvest Finance business
On track to achieve$5m uplift
• Over 70% market share
• Improved sales mgt & RFM’s recruited
• Segmentation of customers• Aligned targets and incentive plan
What we have achieved to date
63
• Term Loans
• Seasonal Finance
• Line of Credit
• Fastrak Finance
Lending
• $1b book
• Call Investment Account
• Rural Cheque Account
• Rural Card
• Term Deposit
Deposits
• $280m book
• General Insurance
• Crop Insurance
• Stud Livestock Insurance
• Transit Insurance
Insurance
• $120m book
• Landmark Finance Online Plus
• Transfer funds
• Views statements
• Pay bills
Net Access
• 2,800 clients
• Harvest Loan
• Flexible Drawdown Loan
• Advanced Payment
• Deferred Payment
Harvest Finance
• $1.5b book
• Financial Advice
• Master Trust Platform
• Investment Products
Wealth Management
• New business opportunity
What do we offer clients?
64
Lending
Deposits
Wealth Management
Insurance
Total Agri-business marketEarning potential of total market
Harvest Finance
$4b $80m
$760m $140m
$11b $110m
$2.1b $42m
$30-$35b $610m
How big is the opportunity?
65
Lending Harvest Finance Deposits Wealth Insurance
• Larger clients• Larger deals
• More professional operators
• Cashflow out of sector
• Equity in Farms unlocked
• Lower premiums
• Scope to differentiate
• Market share erosion
• Increased choice and competition
• Increased choice and competition
• Greater competition for customer ownership
• Pressure on smaller operators
• Increased need for seasonal funding
• E-solution • Barriers to entry
• Focus on choice and independence
• Shake-out of Intermediaries
• E-solutions
• Clients approached by brokers on fee for success basis
• Maintain strength
• Greater focus on lifetime value
• Greater competition for customer ownership
• Role of intermediary is key
• Lending opportunities
• Leverage client base
• Increased investment
• High advice need
• Increased complexity
Competitive market
Technology, scale, increased regulation
Increasing role of intermediaries
Farm succession issues
Farm consolidation
Market trends and impacts
66
Distribution footprint in rural
• 430 outlets across all regional areas• Local representation and service• 70 Finance specialists• Often on farm & close to clients business
Deeper customer relationships than other Financial Service providers
• Insight into the financials and operations of a clients total business
• More individualised business/product transactions per client
Rural focus• Specialist focus on agri means no distractions• Deeper understanding of agri needs e.g. we
want the physical, we see the fund flow (e.g. livestock, grain, wool etc)
Supplier relationships
• Strong suppliers in all categories– Lending: Rabo– Deposits: NAB, WBC– Insurance: WFI, CGU
Why we can win
67
Lending Harvest Finance Deposits Wealth Mgt InsuranceProduct Relationship
pricing and bundling
Cross sell and bundling programs
Tap into commodity cashflows
Create agri specific offering
Fill product gaps
People Recruit and develop high calibre RFM’s
Specialist grain expertise
FSRA skill accreditation
Recruit/ acquire
advisory business
Recruit and develop specialist staff
Process Enhanced loan platform
Web enabled
Improve client statements
Full online proposition
Establish new platform
Supplier sales conversions
Web enabled
Positioning Build FS brand with primary producers
Reinforce strong brand with grain clients
Build FS brand across rural, regional and metro
Build FS brand with primary producers
Build FS brand across rural, regional and metro
…to be a broad-based rural and regional financial services distributor with niche manufacturing capability where we have a natural competitive advantage
What are our major initiatives
68
• Rural customers traditionally under serviced
• Service based proposition
• Leverage customer insights across all business streams
• Business partnership
Outlook
69
APPENDIX 6: Trading
70
Trading group
Sales & marketing
(Services function – deal making)
Australia Trading
International Trading
Derivatives Trading
71
“To strengthen core trading capability and be a world class global niche agricultural commodity trader on a light asset base
model”
Trading will build on existing capabilities, domestically and internationally
- Utilising a “fund-of-funds” approach to achieve:
• Tighter and faster decision making
• Dynamic capital and resource allocation
• Global trading focus
• Trading and marketing synergies
Objective of the Trading group
72
Capturing Trading & Marketing synergies
Pool Marketing (IS&M) complements Trading activities through its:
•
Trading adds value to the Pool Marketing (IS&M) activities through its:
• Market position
• AWB brand
• Wheat market information
• Customer relationships
• Risk management skills
• Wheat acquisition skills and marketing information
• Customer solutions / product bundling offerings
• Competing product information
• Customer relationships
73
Sth Amer Other26% 18% 11% 1% 11% 15% 1% 17%
Sth Amer Other1% 28% 1% 1% 2% 47% 19% 1%
Sth Amer Other5% 10% 1% 1% 5% 35% 9% 34%
Wheat
Oilseeds
Corn
World trade based on 2003-04
World total AWB Share
107 mt
75 mt
74 mt
16%
1.3%
1.4%
Importers
AWB’s global reach
Source: USDA & AWB trade data 2004
AWB wheat exports 26% 3% 18% 4% 24% 21% 1% 3%
74
Hea
vy
Trading risk profile
Ass
ets
Low
Ligh
t
High
Grains industry used to look like this
TRADIGRAIN
CONTINENTALANDREBUNGE
GLENCORETRADIGRAIN
CONTINENTALANDREBUNGELOUIS DREYFUS
TRADIGRAIN
CONTINENTALANDREBUNGE
NIDERANIDERANIDERA
CARGILL
ADM
CONAGRA
CARGILL
ADM
CONAGRA
CARGILL
ADM
CONAGRA
CWBCWBCWB AWB
75
But has changed dramatically over the past five years …
Hea
vy
Trading risk profile
Ass
ets
Low
Ligh
t
High
GLENCORE
LOUIS DREYFUS
BUNGEWILMAR
CARGILL
ADM
CONAGRA
CWBCWBCWB
AWB
opening space for a global ‘niche market’ positioning
76
Australia Trading (formerly Domestic Trading)
Environment Priorities & initiatives Outlook
• Large crop, margins continue to be pressured
• Drought
• Consolidating customer base
• Strengthening competitor base – consolidation of trading houses
• Conservative selling by growers following drought
• Opportunity to develop “deeper” relationships with key customers
• Strengthen sales links to intensive domestic livestock industries
• Expand commodity base
• Develop business in non-regulated export grains
• Develop livestock value-add activity
• Improve efficiency of risk capital utilisation (use fund-of-funds approach)
• Bullish domestic crop production outlook
• Weakening international and domestic commodity prices
• Market price curve keeping grain away from market
…Outcome = diversification of Trading earnings
77
Chartering
Environment Priorities & initiatives Outlook
• Volatility in freight rates driven by commodity boom
• Counterparty/market default driven by price extremities
• Pool chartering dependent on size of export crop
• Opportunity to expand primary grain export business into 3rd party freight opportunities
• Opportunities to increase global presence through single operational strategy of all AWB freight books
• Opportunity to develop back freight businesses (e.g. fertiliser)
• Develop additional skills in freight market intelligence
• Increase operations of vessels in global freight market
• Increase CNF sales of Pool and Non-Pool tonnage
• Continue to develop a presence as a 3rd party freight supplier
• Freight rates weakening globally through 2005
• Increased vessel supply
• Economic growth rates from China
…Outcome = 24 hour global market coverage in conjunction with Geneva Chartering
78
Freight market
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
50,000
18-Apr-01
18-Sep-01
18-Feb-02
18-Jul-02
18-Dec-02
18-May-03
18-Oct-03
18-Mar-04
18-Aug-04
$
79
International Trading (formerly Global Operations)
Environment Priorities & initiatives Outlook• 2004-05 larger world crops,
lesser price volatility prospects (lower execution risk, but fewer trading opportunities)
• Inability to attract capabilities to develop niche strategy of business
• Increased competitive pressures from global multi-national trading entities
• Merchants’ industry international consolidation
• Improve quality and origin of earnings and build deeper tailored relationships with a range of highly valued customers
• Secure regular supply and/or origination agreements in key markets
• Diversify revenue by covering more markets and products
• Leverage marketing and trade finance capacity
• Expand and strengthen trading skill set & capability
• Align IT to origination and marketing strategies
• Larger global crop production; declining market volatility
• Increase penetration of AWB IT into new markets and customers
…Outcome = better market coverage and increased other origin grain volume traded
80
Derivatives Trading
Environment Priorities & initiatives Outlook
• Drought impacting physical volume
• Grower willingness to forward contract
• Market price environment and its impact on product attractiveness
• Customer buying in at lower price environment
• Build deeper tailored relationships with a range of highly valued customers
• Leverage Landmark business to provide an expanded product & service offering to our suppliers and customers
• Continue to build on business through existing AWB customer base and physical flows
• Expand business to external financial clients and other commodities
• Broaden the grower product range to increase volumes and marketability of products
• Improve sales effort through regional networks
• Good uptake of scale with overseas buyers
• Opportunity to bundle with physical wheat price
…Outcome = Improved quality and origin of earnings
81
• Strong growth across all activities
• Only domestic trading with national presence – reliable trading partner
• Fewer players through industry consolidation and exit of medium sized traders
• Strong uptake by international customers on product range
• Well recognised expertise in chartering environment
Outlook
82
www.awb.com.auFor more information contact:Delphine Cassidy
Head of Investor Relations
T: +61 3 9209 2404
F: +61 3 9670 1723