1
2
Program
Andrew Lindberg
Paul Ingleby
Mark Allison
Marcus Kennedy
MORNING TEA
Sarah Scales
Peter Geary
Jill Gillingham
3
“Corporate Strategy – Diversification & Growth”
Andrew Lindberg, Managing Director
4
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- 11 cents per share for the 2003 final dividend- 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- Reduced exposure to crop size- Reduced proportion of earnings subject to principal risk
5
The acquisition of Landmark is consistent with our 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
6
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
7
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
8
Outlook – AWB is well positioned as Australia’s leading agribusiness
Agricultural outlook is improving - AWB forecast 22 to 24m tonnes of wheat for 2003-04- Outlook solid for finance, insurance, fertiliser and real estate
2002-03 Group NPAT forecast in the range of $40-45m
2003-04 Group NPAT forecast in the range of $100-110m- Pre goodwill amortisation, including all one-off costs
Ring fencing of National Pool- Targeted credit ratings achieved and protected
Integration of Landmark- Total EBIT enhancement opportunities, derived primarily from finance growth
opportunities, assessed at $5-$10m in 2003-04 increasing to $30-$40m by 2005-06
9
“Capital & Risk Management”
Paul Ingleby, Chief Financial Officer
10
AWB
Limited AWB International
AWB
Harvest
Finance
Commercial businesses
AWBCommercial
Funding
Bank Facility
US CP Program
Security Trustee
Euro CP Program A$ EPN/MTN Program
Growers
$
WEA
AWBCommercialSubsidiaries
AWB
Services
Wheat export related businesses
Ring fenced operation overview
11
Ring fencing will achieve:
• Highest possible rating given AWB’s business mix and overall capitalisation
• A cost effective sustainable base for the continued operations of the Group
• Separation of the wheat export related and commercial operations of the Group for ratings purposes while retaining operating synergies
• A platform for growth and diversification
• A commercial self regulating structure for the Group’s wheat pooling operation
• Capital allocation within the Group
• Enhanced market transparency of Group operations
• Improved financial flexibility for the Group
Note: ‘Group’ refers to AWB group of entities including Landmark
12
Ring fence of National Pool operations
• Ring fence structure to be effective from 1 October 2003
• Ratings expected 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
13
Capital requirements going forward
• Level of capital required to support future growth plans
• No major capital expenditure for 2003-04
• Expected maintenance capital expenditure of approximately $20-$30m per annum (to 2005-06)
14
Risk Management
• Capital allocated to each business stream
• Business measured on RoRAC
• Risk reviewed on a regular basis
15
Landmark – 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 (offer closes 10 Oct) and Dividend Reinvestment Plan (up to three fully underwritten)
16
Landmark – integration
• Integration of the two businesses is governed by:
- Desire to minimise disruption to AWB and Landmark businesses during the coming grain harvest (October – February); and
- Need to achieve the synergies as outlined
• Pre completion, synergistic benefits were identified in the areas of cross selling, procurement and overhead cost savings
• Joint AWB/Landmark project team established to progress integration process. The project team reports to a Steering Committee (Landmark Board)
17
Landmark – integration (cont’d)
• Project team has:
– Launched broad communications plan to all staff across 430 locations throughout Australia
– Identified and retained key staff – assuring business continuity during integration
– Conducted meetings between AWB and Landmark counterparts across the businesses to:
Prepare plans for the next 12 months
Validate synergies previously identified
• Project Team will:
– Focus on realising procurement benefits and setting in place a cross sell strategy
18
“Landmark”
Mark Allison Managing Director, Landmark
19
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
20
Mercha-ndise
$1.1b Sales
Mercha-ndise
$1.1b Sales
430 outlets430 outlets
1,890 employees1,890 employees
Livestock
1.9mCattle
11mSheep
Livestock
1.9mCattle
11mSheep
Wool
500kbales
Wool
500kbales
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
21
Phase 1:Integration and creation of common systems
Phase 1:Integration and creation of common systems
Phase 2: Consolidating
the merger and fine-tuning the organisation
Phase 2: Consolidating
the merger and fine-tuning the organisation
Phase 3: Generating
sustainable growth
Phase 3: Generating
sustainable growth
Strategic direction
• Phase 1 was completed in 2001
• Phase 2 was the focus in 2002
• Phase 3 will focus on new business growth in 2003 and beyond
Three phases for developing Landmark:
22
Strategic direction - phase 1 & 2
The merger of Dalgety and IAMA was the key issue facing Landmark in 2001 & 2002
• Achieving synergy cost savings
• Capturing merchandise and logistics opportunities
• Maintaining revenue in the existing business
• Establishing a new brand identity in the marketplace
• Disposal of non-core businesses
23
Strategic direction – phase 3
Landmark growth
• Appropriate cost base
• Streamlined structure
• Merchandise recovery
• East coast fertiliser expansion
• Drive livestock & wool growth
• National finance & insurance
24
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
25
Strategies
1. Sales productivity• Improve profitability by increasing sales productivity in all
activities
2. Network optimisation• Improve profitability and return on capital by optimising network
configuration
3. Merchandise supply chain• Capture cost & purchasing efficiencies
4. Growth• Generate growth
26
Outlook - 2004
• Improving winter crop
• Irrigation concerns for summer crops
• Low sheep and cattle numbers
• Strengthening livestock prices
• Focus on productivity in merchandise, wool, livestock & real estate
• Focus on growth for finance, fertiliser & insurance
• Continue tight management of costs and capital
• Exploit AWB Group growth opportunities
27
“Financial services”
Marcus Kennedy, Group GM Financial & Rural Services
28
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
29
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.
30
New finance earnings
Competitors vary in their primary focus of attention
Profitability HighLow
Small
Large
Major BanksRabo
ERB
Regionals
Landmark
Size of business and lending needs
31
Competitive opportunities
Competitors vary in their primary focus of attention
Profitability HighLow
Small
Large
Value Proposition #2:Finance led
Major BanksRabo
ERB
Regionals
Landmark
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
32
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
33
Strategic investment in Grain Technology
Innovation & Research
AWB Seeds Agrifood
Developing business through technology
• Major projects:
- Graingene: to develop traits
- LongReach: to breed premium wheats
- Pipelines: to deliver niche parcels from grower to end-user
• Investment in 2003-04 will be $8m before tax
Innovative business model to deliver value to farmers at lowest cost and risk
• Captured three new licences in 2002-03
• Gained 60% of available wheat variety licences over the last five years
Delivers test results to AWB and leverages expertise in grains and related industries with external customers
34
“Maximising out-performance”
Sarah Scales, GM National Pools
35
Structure
36
Demonstrating performance
Base Fee• 1.5% of GPV
• Subject to a cap of $61.9m and a floor of $46.4m
Out-performance Incentive payment• 1.5% of GPV
• 20% of revenue generated above the WIB plus hurdle
1. USD Wheat Price
Sub- benchmark
1. USD Wheat Price
Sub- benchmark
Pool Benchmark
Pool Benchmark
2. FX (AUD/USD)Sub- benchmark
2. FX (AUD/USD)Sub- benchmark
3. Domestic Supply Chain Sub-
benchmark
3. Domestic Supply Chain Sub-
benchmark
AWB Wheat Industry Benchmark (WIB)AWB Wheat Industry Benchmark (WIB)
Note: The total Pool Management Services fees payable by AWBI to AWB are capped at 3% of GPV (except if the Base Fee floor is triggered).
37
Impact on Base Fee and OPI• US$ Wheat Price• Foreign Exchange• Crop size
A constantly changing environment
0.52 0.55 0.58 0.61 0.64 0.67 0.7
1012
1416
18
0
500
1000
1500
2000
2500
3000
3500
4000
4500
GPV (A$ million)
US$
Crop size (million mt)
38
A constantly changing environment (cont’d)
Wheat Prices and Currency
90.00
110.00
130.00
150.00
170.00
190.00
210.00
$/mt
0.45
0.5
0.55
0.6
0.65
0.7
US$
US HRW French Currency
39
2001/02
Argentina11%
Australia17%
Canada17%
USA28%
NTE20%
EU7%
2002/03
Australia11%
Canada9%
EU12%
USA24%
NTE38%
Argentina6%
A constantly changing environment (cont’d)
40
Strategies
• Vision - Increase exports to Asia to 60% by 2007-08
• Achieving the vision - Crop shaping
- Price discrimination
- Blending and site selection
- Golden Rewards – product and payment integrity
- Supply Chain optimisation
• International sales & marketing strategies- Iraq
- Premium customers & why targeted
- New markets
41
Global market outlook
• Near record low global wheat stocks to use ratio
• Short term - How do EU, EEU and FSU solve their internal deficits
• Medium / Long term – Planting and development of northern hemisphere crops
Source: USDA
(e) = Estimate
mt %
0
50
100
150
200
250
0
5
10
15
20
25
30
35
40
Global Stocks
Global STU
42
Regulatory environment - WEA Review 2004
• Wheat Marketing Amendments 2003
• 2004 Independent Panel
• Impact on growers
43
“Trading & Chartering”
Peter Geary, Group GM - Trading
44
Trading functions
• Provides international marketing service to AWBI for Australian export wheat
• Develop and offer innovative marketing products to domestic growers and international customers
• Trades wheat and other grains as principal in the domestic market. Exports canola, feed & malt barley and sorghum to international markets
• Global Trading business in Geneva trades non-Australian wheat and other grains/commodities
• Chartering business participates in global freight market
• Riskassist provides tailored grower & consumer risk management products
45
Trading business model
The business model supports a ‘solution selling’ approach
Deal Makers
Consumer“Landed”
CharteringFinanceRisk
Services
Supply/Demand
Information
Price Makers
Execution
Supplier“FOB”
FreightPositionTaking
StructuredFinance
VolatilityTrading
CommodityPositionTaking
Control
Deal Makers
Consumer“Landed”
CharteringFinanceRisk
Services
Supply/Demand
Information
Price Makers
Execution
Supplier“FOB”
FreightPositionTaking
StructuredFinance
VolatilityTrading
CommodityPositionTaking
Control
46
Planned outcomes for Trading in 2003-04
• Expand and diversify grains under management
• Develop new markets that fit grains under management strategy & add value to AWBI
• Develop other commodity experience in related agricultural industries
• Secure alliance partner for global origination capability
• Stronger consumer risk management business
• Expanded risk management client base and market share
• Increase pool tonnage sold with freight & grow 3rd party freight business
47
Domestic trading in 2003-04
• Strengthen presence in WA & SA
• Bundle product & service offering to strategic customers (including inputs)
• Expand the range of contract alternatives to growers
48
Global Trading in 2003-04
• First full year nearing completion
– On target to meet volume budget of 1.5m tonnes
– Geneva chartering strong contributor to PBT
• Strengthen skill set & capability – expand corn & soybean business
• Secure regular supply agreements in key markets – Egypt, East Coast Africa, South Africa, Indonesia
• Develop origination capability via alliance in key markets
49
Riskassist in 2003-04
• Continue to expand the grower product range – fixed basis partner pool, washouts
• Expand focus of consumer risk management advice
50
Chartering in 2003-04
• Develop vessel pool and generate fee income
• Develop 3rd party freight business
• Develop back freight opportunities
51
Growth in wheat sales sold with freight
05
10
15202530
35404550
2000-01 2001-02 2002-03 2003-04
• Chartering is a service provider for AWBI
• Active strategy of growing freight under management
• Focus on freight trading, combination cargo & 3rd party business
• Geneva freight book assists information flow
• Key freight markets in 2003-04 include Iran Indonesia, Korea & Japan
(e) = YTD estimate (f) = forecast
% of crop sold CNF
(e) (f)
52
“Supply Chain”
Jill Gillingham, Chief Operating Officer
53
Obligations of Supply Chain Management:
• To ensure grain is delivered in full, on-time, in-specification to end customers at the least cost to growers (supply chain optimisation)
• To meet our obligations under the AWB Constitution: “In relation to wheat growers who sell pool return wheat to the company or its subsidiaries, to maximise their net returns from the pools…by minimising costs as far as practicable”
Supply Chain Management
54
• Strategy:
- Compete on the East Coast
Promote competition on the east coast to the existing storage and handling monopoly operators (includes AWB GrainFlow)
- Collaborate on the West Coast
Long-term access with realistic cost base
• Results in downward pressure on S&H charges
• Lower costs for pool participants, increased out-performance for AWB Limited
Supply Chain Management
55
37.00
38.00
39.00
40.00
41.00
42.00
43.00
44.00
45.00
1999/00 2000/01 2001/02 2002/03 2003/04 2004/05
Cost reduction1999-00 to 2001-02
$3.15 per tonne$53.5 million
National Supply Chain Costs (real dollars)
A$
56
Supply Chain Investments
57
Supply Chain Investments
• Storage and Handling (AWB GrainFlow)- 21 sites strategically positioned on east coast with total capacity of 3.3 million
tonnes
- Modern, state-of-the-art facilities
- Enables efficient intake and outturn of grain
- Expect to realise between $2 and $4 per tonne savings for growers
- Commercial investment returns currently on target
• Train- Investment in 51 rail wagons, leased to operator in NSW
• Port- 50% investment in Melbourne Port Terminal
58
www.awb.com.auFor more information contact:
Delphine Cassidy
Head of Investor Relations
T: +61 3 9209 2404
F: +61 3 9670 1723
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