Download December 2004

Investor Presentation
December, 2004
1
Where we have come from …
“Australia’s Leading Agribusiness”
2003
Landmark acquisition
2001
Listed on ASX
1999
Privatised
- Wheat Industry Fund converted to B
class shares
2003
AWB acquired Landmark from WES
2001
WES acquired IAMA, merged it with
Wesfarmers Dalgety to form Wesfarmers
Landmark
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)
1950
The Cooperative diversified with a rural focus
1914
Westralian Farmers Cooperative established
1840
Frederick Dalgety began servicing farmers
in western Victoria; the well known Dalgety
business eventually covered all States
- A class shares issued to wheat growers
- Government guarantee of AWB
borrowings removed
1998
Corporatised
1989
Domestic market deregulated and
Wheat Industry Fund established
1939
Australian Wheat Board established
as a statutory authority
1915
Australian Wheat Board created
during World War I
2
What we have achieved …
Market capitalisation:
$1.6 billion
A class shareholders:
26,161
Shares on issue:
342 million
B class shareholders:
64,383
Institutional investors:
25.89%
Growers / retail shareholders:
73.20%
Shareholder’s equity:
Index inclusion:
$1 billion
S&P/ASX 100
Employee shareholders:
(75% IWF)
0.91%
5.50
AWB
S&P/ASX 200
5.00
4.50
4.00
3.50
3.00
2.50
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
Nov-04
3
What we have achieved …
• 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 – 1.5m tonnes renegotiated
• AWB constructed 21 grain centres with a total capacity of over 3m
tonnes
• Positioned to tap into growing Asian markets
• Integration of Landmark 95% complete
• EBIT enhancements for 2003/04 of $13 million exceeded target of
$5-10 million
• Strategic focus on customer management, introduction of CMS
system
• Progressive business expansion
4
What we are today …
100,000 customers
Grain
Merch
Fertiliser
Livestock
Wool
Real
Estate
Finance
& Insurance
$800m
sales
$2.0b
loan book
$300m
on deposit
$120m
premium
2.0m
cattle
$5-$6b
revenue
$1.2b
sales
1.2m
tonnes
11m
sheep
500k
bales
2,700 employees
431 outlets
5
What we are today …
•
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
Australia’s leading
agribusiness
• Annual turnover in excess of $4.0b
• Finance Loan book in excess of $2.5b
• Over 2,700 staff in Australia and overseas
• US/ Euro commercial paper issued this financial year
totals USD3.8b
• FX spot transactions (ytd Sep 03) totals USD20b
6
Group structure
AWB Limited
Commercial operations
Pooling operations
Pool Management Services
Finance & Risk Management
Grain Acquisition & Trading
Supply Chain & Other Investments
Grain Technology
Landmark
7
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
8
Targets will be achieved by
implementing three dominant
business strategies
Leading position in
Australian rural
services
People
and
Capability
Australia’s
leading global
grain trading
business
AWB’s overarching goal
is to implement an
Integrated Business Model...
Leading rural
financial
services and
insurance
provider
9
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
10
The way ahead …
“To be both the primary producer’s and
end-use consumers’ business partner of
choice”
• 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
11
APPENDICES
1. 2004 Full Year Results
Slide 13
2. Rural services
Slide 38
3. Network operations
Slide 51
4. Wheat prices, futures & global supply
Slide 62
5. Financial services
Slide 71
6. Trading
Slide 79
12
APPENDIX 1:
2004 Full Year Results
13
AWB has delivered a strong result
• Exceeded profit guidance (2003-04 forecast)
• Strong revenue growth
• Significant progress on the integration of Landmark
• Strong balance sheet
• Quality credit ratings
• Positive outlook for next year
14
Result highlights
• Net profit after tax (pre goodwill and amortisation) of $134.7 million, up 191%
(exceeded forecast of $110 - $120 million pre goodwill and amortisation). Net
profit after tax of $96.9 million, up 121%, post goodwill and amortisation
• Total operating revenue of $5.3 billion, up 142%
• Landmark integration targets exceeded, with $13 million achieved in revenue, cost
synergies, and finance growth
• Earnings per share (pre goodwill and amortisation) of 40.1 cents, up 139%.
Earnings per share of 28.8 cents, up 81.1%, post goodwill and amortisation
• Final dividend of 11 cents per share, fully franked, amounting to 25 cents per
share for 2003-04
• Significant contribution from Grain Acquisition and Trading, particularly Chartering
• AWB Harvest Finance loan book peaked at $1.6 billion in February 2004
• Landmark loan book balance of $1.1 billion at 30 September 2004 (record high)
• Gross Pool Value currently estimated at $4.8 billion for the 2003-04 Pool ($1.3
billion in 2002-03)
• Australian wheat production rebounded to 25.2 million tonnes (9.7 million tonnes
in 2002-03)
15
Statement of financial performance
For the 12 months ended
$million
Revenue from ordinary activities
For the 12 months ended
30-Sep-04
%
30-Sep-03 Change
5,344.6
2,211.9
142%
(4,612.1)
(1,889.2)
(144%)
(113.9)
(70.5)
(62%)
(83.3)
(29.9)
(179%)
(397.3)
(165.5)
(140%)
Share of profits of associates
9.1
2.1
333%
Operating profit before tax
147.1
58.9
150%
Net profit after tax & OEI1
96.9*
43.9
121%
Cost of sales
Borrowing costs
Depreciation & Amortisation
Other expenses
1OEI
= Outside Equity Interests
* Post goodwill and amortisation
16
Change in debt position
For the 12 months ended
$million
Profit from ordinary activities before tax
Depreciation & amortisation
30-Sep-04
147.1
83.3
Write down in value of investment
2.8
Tax refund received
8.7
Finance options for growers (net)
(368.3)
Purchase of property, plant and equipment*
(19.7)
Purchase of controlled entities & investments
(32.3)
Increase in cash & short term deposits
Dividends paid
Proceeds from issue & ordinary shares
Changes in working capital
Change in debt – (increase) / decrease
(473.3)
(54.6)
75.7
(208.6)
(839.2)
* Net of proceeds
17
Capital expenditure
For the 12 months ended
$million
Grain Centres
30-Sep-04
For the 12 months ended
%
30-Sep-03 Change
1.9
71.0
(97%)
System Development &
Other Plant & Equipment
13.6
17.8
(24%)
Motor Vehicles
11.6
1.1
955%
8.5
3.2
166%
Total
35.6
93.1
(62%)
Depreciation
56.2
27.4
53%
New building fit-out
• 3 year building program for grain centres has been completed
• Expenditure on system development and other PP&E is related to IT,
upgrades, motor vehicles (Landmark)
• New building costs relate to the relocation of Head Office in January 2004
(new building is leased)
18
Statement of financial position
$million
Assets
Cash
Receivables
Intangibles
Investments
Inventories
Property, plant & equipment
Other financial assets
Other
Liabilities
Payables
Interest bearing liabilities
Provisions
Financial liabilities
Other
Net Assets
As at 30-Sep-04
As at 30-Sep-03
48.2
1,725.8
515.0
21.4
181.0
319.6
873.5
50.7
3,735.2
54.8
1,012.6
533.6
12.9
185.4
350.4
276.0
68.7
2,494.4
533.9
356.6
1,902.1
53.7
141.1
58.2
2,689.0
1,062.9
52.4
66.8
23.7
1,562.4
1,046.2
932.0
19
A-IFRS Impacts
• Employee share schemes, including performance rights, to be
expensed
• Goodwill to be subject to annual impairment testing rather than
amortised
• Asset impairment testing will allow for fair value or discounted cash
flows as recoverable amount
• Inventories held as a commodity trader will be able to be measured
at fair value less costs to sell
• Financial instruments will be subject to prescriptive classifications
and hedge accounting requirements. May lead to more fair value
recognition in P&L and Balance Sheet
• Deferred tax liabilities and assets will incorporate the tax
consequences of transactions recognised in the balance sheet
20
Business operations (PBT)
%
For the 12 months ended
For the 12 months ended
30-Sep-04
30-Sep-03
Pool Management Services
27.5
18.9
46%
Grain Acquisition & Trading
81.0
24.7
228%
Supply Chain & Other Investments
(9.9)
(20.4)
51%
Finance & Risk Management
30.0
36.1
(17%)
Landmark
Corporate
Software Amortisation (Landmark)
72.6
(16.3)
(10.8)
3.6
(1.6)
0
1,917%
(919%)
n/a
Goodwill Amortisation (Landmark)
(27.0)
(2.4)
(1,025%)
Operating profit before tax
147.1
58.9
150%
Net profit after tax & OEI1
96.9*
43.9*
121%
$million
Change
Profit before tax
1OEI
= Outside Equity Interests
* Post goodwill and amortisation
21
Business operations - performance
($)
180
+$69m
-$10.8m
-$24.6m
160
140
+$10.5m
120
- $6.1m
+$56.3m
-$35.2m
- $14.7m
$96.9m
100
80
60
40
+ $8.6m
$43.9m
20
0
2002-03 NPAT *
Pool
Grain
Management
Services
Acquisition &
Trading
Supply Chain Finance & Risk
& Other
Investments
Management
* Post goodwill and amortisation
Corporate
Landmark
Software
Goodwill
Amortisation
(Landmark)
Amortisation
(Landmark)
Tax & OEI
2003-04 NPAT *
Note: + / – change is PBT
22
Pool Management Services
For the 12 months ended
$million (PBT)
30-Sep-04
Pool Management Fee
Agrifood and R&D
Total Pool Management Services
30-Sep-03
32.7
(5.2)
27.5
23.3
(4.4)
18.9
For the 12 months ended
30-Sep-04
30-Sep-03
2002-03 Pool
2003-04 Pool
Base Fee
4.6
57.2
Out performance
4.1
Administration costs
8.7
Total
%
Change
40%
20%
46%
For the 12 months ended
($million)
Total Pool Mgt Services
For the 12 months ended
2001-02 Pool
2002-03 Pool
Total
61.8
6.0
41.8
47.8
29.4
33.5
14.0
15.3
29.3
(62.6)
(62.6)
-
(53.8)
(53.8)
24.0
32.7
20.0
3.3
23.3
Agrifood and Research & Development (formerly Grain Technology)
• Agrifood technology and R&D now reported under Pool Management
Services (the Seeds business is now in Landmark)
• AWB will continue to fund a significant R&D program for the long term
benefit of the company – this is an important investment for the future
23
Grain Acquisition & Trading
For the 12 months ended
$million (PBT)
Grain Acquisition & Trading
30-Sep-04
81.0
For the 12 months ended
%
30-Sep-03
Change
24.7
228%
Domestic Trading
• Increased its PBT contribution by 104%, with 3.2 million tonnes of wheat
traded and 953,000 tonnes of other grains traded domestically
Chartering
• Chartering division contributed $48 million PBT to the Trading division’s
result, with freight volumes increasing by 83% compared to the previous year
• Successfully employed a long physical trading strategy in a rising freight
market
• Chartering strategy was backed by robust risk position management, with
limits monitored daily
AWB Geneva
• Significant improvement to PBT contribution with over 2.0 million tonnes
traded, which is a 67% increase on the previous year’s tonnage
• Significant contribution by Chartering
24
Supply Chain & Other Investments
For the 12 months ended
$million (PBT)
Supply Chain & Other Investments
30-Sep-04
(9.9)
For the 12 months ended
%
30-Sep-03
Change
(20.4)
51%
GrainFlow
• Record receivals of 1.8 million tonnes for AWB GrainFlow, up from 185,000
tonnes in 2002-03, mainly due to improved seasonal conditions
Melbourne Port Terminal (JV with Australian Bulk Alliance)
• Throughput of over 1.3 million tonnes, up 177% from the previous year
Overseas Investments
• Overseas investments performed well
• AWB has determined to divest its interest in Vietnam Flour Mills
• AWB will continue to explore other overseas investment opportunities
25
Finance & Risk Management
million (PBT)
Finance & Risk Management
For the 12 months ended
For the 12 months ended
%
30-Sep-04
30-Sep-03
Change
36.1
(17%)
30.0
Financial Services
• Market share has been maintained by offering a varied combination of
products, and the interest rate spread has been maintained
• Tonnage underwritten increased to 11.7 million tonnes as a result of
improved seasonal conditions
RiskAssist, Basis Pool and OTC (over-the-counter) operations
• Decreased PBT contribution from the risk management businesses due to a
decline in popularity of the Basis Pool product and a return to more normal
market conditions (compared with 2002-03 and 2001-02)
• Growth in RiskAssist sales to Australian and International customers
Treasury
• Treasury management contributed PBT of $6.5 million which was $4.0 million
below the previous year due to a return to normal market conditions
26
Finance & Risk Management
(continued)
($)
50
45
40
35
30
25
20
15
10
5
0
+$7.8m
-$9.9m
$36.1m
2002-03 PBT
(Finance & Risk
Mgt)
-$4.0m
Financial
Services
Risk
Management
Treasury
$30.0m
2003-04 PBT
(Finance & Risk
Mgt)
27
Landmark
For the 12 months ended
$million (PBT)
Landmark
30-Sep-04
72.6
For the 12 months ended
%
Change
30-Sep-03
44.3
64%
Key statistics – note 2002-03 12 months are for comparative purposes only. Only one month of trading (Sep
2003) included in AWB Group’s 2002-03 result. Landmark was purchased by AWB on 29 August 2003.
1,619.9
1,464.6
11%
Sales Revenue
Gross Margin
313.6
276.4
13%
• All activities (except Wool operations) have outperformed when compared with
the previous year
• Merchandise & Fertiliser sales increased by 10%, margins also improved
• Livestock gross profit increased by 17% due to higher cattle prices and increased
sheep volumes
• Wool gross profit reduced by 8% due to lower wool prices
• Real Estate sales value increased by 31% due to increased demand for prime
rural property
• Finance gross profit increased by 54% with the loan book balance of $1.1 billion
(record high) and IBD’s increasing to $304 million
• Insurance gross written premiums increased by 20%
• AWB Seeds – gained over 60% of available wheat variety licences over the past 5
years, and captured 7 new licences during 2003-04 (chick pea and lupin varieties)
28
Landmark - gross profit growth
across product lines
Gross profit $million
2002-031
2003-04
Other
Other
Insurance
Insurance
Finance
Finance
Wool
Fertiliser /
Wool
Merchandise
Fertiliser/
Merchandise
Real Estate
Real Estate
Livestock
Livestock
1
Only one month incorporated in AWB Group’s results in 2002-03
29
Corporate
For the 12 months ended
For the 12 months ended
%
$million (PBT)
30-Sep-04
30-Sep-03
Change
Corporate
(16.3)
(1.6)
(919%)
Corporate items includes corporate overheads, miscellaneous revenue
items, and the net result from group funding
Corporate items
• Costs include governance, compliance, shareholder services and strategic
development
• Integration and restructuring costs associated with Landmark of $8.0 million
Group funding interest
• Group funding interest revenue of $4.8 million
• Interest previously earned from surplus capital now reported under
“Corporate” - significantly lower than the previous year due to funding
requirements for the Landmark acquisition
Miscellaneous Revenue items
• $5.3 million profit on sale of Ceres House (Melbourne) and Grains House
(Adelaide)
• $7.4 million in Futuris dividends
30
Integration achievements and on
going initiatives
Integration achievements thus far
•
•
•
•
•
•
•
•
Network consolidation and re-branding of all branches
Back office consolidation - relocation of critical staff to Melbourne
Recruitment of finance and insurance specialists
Incentive program implemented for all staff
AFS license and transfer of IBD arrangements with 85% retention rate
Phase 1 procurement completed with improved terms and conditions negotiated
Launch of Fastrak Finance
At least 95% of the way through the integration stage, and 15% of the way through the
growth stage
Ongoing initiatives
• Implementation of the Integrated Business Model due to take place over the next year
• Financial Services will continue to focus on product development to improve overall offer to
the customer
• Grain Marketers and key branch staff will continue to focus on cross-sell opportunities
• The final Procurement category - IT will be finalised by the middle of next year
31
The first year synergy result of $13m
exceeded the target $5-10m EBIT
uplift
($ million)
Revenue, cost synergies and finance growth (EBIT)
40
FY forecast
$30 - 40m
30
20
$13m
(actual)
FY forecast
$20 - 25m
10
2003-04
2004-05
2005-06
0
1
32
With the integration of AWB & Landmark now
achieved, the focus is on creating value and
implementing the Integrated Business Model
33
Dividend
Final dividend of 11 cents per share
• Full dividend = 5.2% yield (as at 18/11/04)
Dividend dates:
• Ex dividend date – 29 November 2004
• Record date – 3 December 2004
• Payment date – 17 December
Dividend Reinvestment Plan (changes)
• DRP shares will be sourced by a combination of an on-market purchase of shares and
new issue
• Nil discount offered
• Pricing period will be of 7 days trading immediately after the record date (3 December
2004), therefore from 6 December 2004 to 14 December, 2004 inclusive
• DRP election form must be received by 3 December 2004
34
AWB remains focused on its financial
objectives
AWB will focus on achieving solid financial growth, stable dividend payments,
efficient capital management, improved quality of earnings and 15%* return
on equity in the medium term (subject to normal seasonal conditions) * Pre goodwill and amortisation
Landmark integration
• Focus on further integration and achieving earnings targets of $20-25 million EBIT
in 2004-05, and $30-40 million in 2005-06
Finance & Insurance businesses
• Continue with current strategy of leveraging strong relationships with AWB and
Landmark customers to offer the full range of lending, deposit and insurance
products
Landmark - Livestock, wool and merchandise
• Sheep flock forecast to grow 4.3% during 2004-05, though we do expect some
lagging impact from the previous drought on overall volumes of livestock and wool
• Cattle numbers are expected to reach 27.6 million head, and the sheep flock is
forecast to reach 99.5 million head in 2004-05, (Source: MLA)
• Australian wool volumes are forecast to increase to 470 million kilograms greasy in
2004-05 (Source: ABARE)
• The market for merchandise and fertiliser is promising, and meat prices look set to
remain strong
35
Global wheat market and opportunities
Wheat production forecast
• Estimated by AWB to be between 20 - 22 million tonnes in 2004-05
Global wheat market outlook – production, consumption and price
• World ending stocks forecast to increase for the first time in five years with world
wheat production expected to reach 616 million tonnes in 2004-05 as a result of
good crops in both the major and non traditional exporting countries
• World wheat consumption forecast to be 605 million tonnes, with human
consumption demand increasing at a long term trend of 1%
• Production and export supply from the Russia and the Ukraine are likely to
increase
• 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 currently estimated to be $200 per tonne (weaker
currency is supportive to price)
Markets
• AWB has a clear strategy to generate more value from the Australian wheat crop
through an increasingly differentiated market position
• AWB will focus on opportunities in various markets including China and Iraq
36
Earnings forecast for 2004-05
Based on current seasonal and market conditions:
•
AWB’s 2004-05 earnings forecast is expected to be comparable
to the 2003-04 earnings
•
AWB will focus on achieving Return on Equity target of 15% (pre
goodwill and amortisation) in the medium term.
37
APPENDIX 2:
Rural Services
38
A period of change
2003
2004
Merger Dalgety & IAMA
Growth phase
Integration and growth
• Achievement synergies
• Nationalised structure
• Capture cost and revenue
synergy benefits
• Maintain revenue in
existing businesses
• Merchandise sales
recovery
• Centralise head office function
• Establish new brand
identity
• East Coast fertiliser
expansion
• Capture merchandise and
logistics opportunities
• Drive wool and livestock
growth and productivity
• Drive wool, livestock and
merchandise growth and
productivity
• National finance and
insurance expansion
• Network optimisation
2001 & 2002
OBJECTIVE 2004-05:
• Expansion of financial services
and growth
• Account management
Integrated Business Model
39
Merchandise
• 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
40
Merchandise overview
Competitive environment
• Intense price competition
• Commoditisation of products
Key opportunities
• Cotton prospects improved with
increased water availability
• Commoditisation of products – 75%
of chemical products expected to
be off -patent by 2005 – Generic
• Channel proliferation leading to
products are becoming a bigger part
increased competition in distribution
of the farmer’s decision making
• Low demand for cotton inputs due to
process
lower production, irrigation cuts and
biotechnology
• Operational improvement
opportunities
• Livestock carrying numbers reduced
following drought with expected
• Meet all price points
impact on Animal Health and
management sales
• Rationalisation of suppliers,
particularly in the chemical sector
… a generic strategy will be important
41
Fertiliser
• 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)
42
Fertiliser overview
Competitive environment
• Limited product differentiation
• Large number of agents and
dealers competing locally
Key opportunities
• Increased market share through
acquisition of independents
• Cross sell bundled product offering
• Requirement for logistics
services in some markets
• Ongoing rationalisation of
industry players
• Market volumes increasing
• Nitrogen use increasing
• Local prices driven by world
prices
… growing market
share and volume
is important
43
Livestock
• 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
44
Livestock overview
Competitive environment
Key opportunities
• Pressure on core agency business
from increased direct selling to
processors
• Increase business into grain fed
markets
• Major competitors involved in
vertical integration
• Strong meat and live export markets
• Productivity improvements, saleyard
rationalisation
• Private agents cutting commission
rates to gain share
• Rationalisation of saleyards
… prices are expected to remain strong
45
Wool
• 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
46
Wool overview
Competitive environment
Key opportunities
• Strong competition for a record
low volume of wool (sheep
numbers at 96 million in 2003-04)
• Fall in wool production has
created an opportunity for industry
rationalisation and consolidation
• Small, low cost regional brokers
have increased market share
• Good prospects for sheep meat
will assist building flock numbers
• Ongoing price discounting
• Low levels of supply will provide
support to wool prices
• Rationalisation amongst brokers to
occur
• Move from wool to meat likely to
continue
… increased throughput is the key
47
Real Estate
Landmark real estate has
two main activities:
- Rural property sales
- Residential property sales
48
Real Estate overview
Competitive environment
• Metro and town real estate agents
moving into small farm areas
causing margin pressure
Key opportunities
• Low market share in residential
real estate
• Limited capital
• Sophisticated players with
marketing and sales
representatives
• Variable pay structure
• Outlook is for steady growth
… good platform to grow residential market
share
49
Outlook
• Opportunities exist to grow in most activities
• Commodity prices expected to remain strong
• Real Estate values expected to plateau
50
APPENDIX 3:
Network Operations
51
Network structure and rural footprint
Staff = 363
46
1
19
Staff = 293
Branches
Franchises / Agents
Members
35
47
29
Staff = 239
43
19
11
Staff = 350
37
14
28
Staff = 455
57
8
31
52
Network operations will focus on
• Account Management
• Network Optimisation
• Integrated Business Model
as well as…….
– Training & Development
– Profitability Improvements
(financial services & merchandise / fertiliser)
– Operational Excellence
53
Account management – cross sell
opportunities
The number of activities utilised by each customer of Landmark is low
Penetration across other
activities (%)
Activity – Key Customers
Fert
Ins
L/Stock
Merch
Wool
Fert
Ins
L/Stock
Merch
Wool
High cross sell growth opportunities
54
Account management – customer
relationship management (at branch
level)
• Utilising data to segment Landmark & AWB’s customer base
• Developing appropriate service level protocols & disciplines
• Improving differentiation in service levels
55
Key strategies for account
management
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.
56
Network optimisation
“right store, right presence, right stock, right time, right price!”
431 outlets
218 branches
89 franchises
& agents
114 members
57
Network optimisation (continued)
Improve profitability, capture growth and improve return on
capital
Optimise current
branch /franchise
options
Optimise network
footprint
• Branch categorisation
• Identification and
analysis of growth
opportunities
Optimise network
format
• Outlet design and
standards
58
Identified opportunities within each
geographic segment and branch
catchment area
Corporate Branch Market Share vs Market Size
Average size
Market Share
Profit contribution by
outlet is variable due
to a number of factors
Market Potential
59
Network configuration
Channel partner’s inflation adjusted growth rate
• Three distinct channels to market
• Leveraged properly, provides a competitive advantage
Branch
Franchise
Member
Principal’s share of channel
partner’s product category sales
Size of circle indicates value of channel partner’s revenue
60
What will the network look like in 3
years?
• 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
61
APPENDIX 4:
Wheat prices, futures & global supply
62
World wheat production
• World wheat production has increased 66 million
tonnes to 617 million tonnes in 2004
• Significant production increases occurred in the
– EU-25
106 mmt to 134 mmt
– FSU
61 mmt to 85 mmt
– India
65 mmt to 72 mmt
– China
86 mmt to 90 mmt
• US crop declined from 64 mmt to 59 mmt
63
World wheat production &
consumption
590
540
490
World Production
99
/0
0
20
00
/0
1
20
01
/0
2
20
02
/0
3
20
03
/0
4
20
04
/0
5
98
/9
9
97
/9
8
96
/9
7
94
/9
5
95
/9
6
93
/9
4
92
/9
3
440
91
/9
2
Tonnes (million)
640
World Consumption
Source: USDA 2004
64
World wheat trade – 5% major
exporters
115
100
95
110
90
85
75
95
%
80
100
70
65
90
60
85
55
World Trade
*
04
/0
5
*
20
20
03
/0
4
/0
3
20
02
/0
2
20
01
/0
1
20
00
/0
0
19
99
/9
9
19
98
/9
8
19
97
/9
7
19
96
/9
6
95
19
94
19
93
/9
5
50
/9
4
80
19
Million Tonnes
105
5 Major Exporter
* 2003/04 & 2004/05 – estimated Source: USDA
65
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 131 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 108 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
66
Kansas futures
67
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 $228 FOB to
$200 FOB for 2004/05 pool
• Pool benefited from the recent weakening in the dollar
through its hedging program
68
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
69
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
70
APPENDIX 5:
Financial Services
71
What we have achieved to date
Priority
AFSL licence
IBD Prospectus & major
customer migration
Protect & shore-up
Harvest Finance business
On track to achieve
$5m uplift
Outcome
• Licence approved within timeframe
• Enabled AWB to continue to offer
the IBD’s
• Prospectus launched
• 85% conversion
• Over 70% market share
• Improved sales mgt & RFM’s
recruited
• Segmentation of customers
• Aligned targets and incentive plan
72
What do we offer clients?
Harvest
Finance
Lending
• Harvest
Loan
• Term
Loans
• Flexible
Drawdown
Loan
• Seasonal
Finance
• Advanced
Payment
• Deferred
Payment
• $1.5b
book
• Line of
Credit
• Fastrak
Finance
• $1.1b book
Deposits
Insurance
Net Access
• Call
Investment
Account
• General
Insurance
• Landmark
Finance
Online Plus
• Rural
Cheque
Account
• Crop
Insurance
Wealth
Management
• Financial
Advice
• Transfer
funds
• Master
Trust
Platform
• Views
statements
• Investment
Products
• Rural Card
• Stud
Livestock
Insurance
• Term
Deposit
• Transit
Insurance
• Pay bills
• $303m
book
• $120m
book
• 2,800
clients
• New
business
opportunity
73
How big is the opportunity?
Lending
Total Agri-business market
Earning potential
of total market
$30-$35b
$610m
Harvest Finance
$2.1b
$42m
Deposits
$11b
$110m
Wealth Management
$4b
$80m
$760m
$140m
Insurance
74
Market trends and impacts
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
Increasing role of
intermediaries
• 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
Farm succession
issues
• Lending
opportunities
• Leverage client
base
• Increased
investment
• High advice
need
• Increased
complexity
Farm
consolidation
Competitive
market
Technology,
scale, increased
regulation
75
Why we can win
• 431 outlets across all regional areas
Distribution footprint in rural
• Local representation and service
• 80 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
• Specialist focus on agri means no distractions
Rural focus
• Deeper understanding of agri needs e.g. we
want the physical, we see the fund flow (e.g.
livestock, grain, wool etc)
• Strong suppliers in all categories
Supplier relationships
– Lending: Rabo
– Deposits: NAB, WBC
– Insurance: WFI, CGU
76
What are our major initiatives
…to be a broad-based rural and regional financial services distributor with niche
manufacturing capability where we have a natural competitive advantage
Lending
Harvest Finance
Deposits
Wealth Mgt
Insurance
Product
 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
 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
Positioning  Build FS brand
with primary
producers
77
Outlook
• Rural customers traditionally under serviced
• Service based proposition
• Leverage customer insights across all
business streams
• Business partnership
78
APPENDIX 6:
Trading
79
Trading group
Sales &
marketing
Australia
Trading
International
Trading
Derivatives
Trading
(Services function
– deal making)
80
Objective of the Trading group
“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
81
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
• Risk management skills
•• AWB brand
• Wheat acquisition skills and
marketing information
• Wheat market information
• Customer solutions / product
bundling offerings
• Customer relationships
• Competing product information
• Customer relationships
82
AWB’s global reach
World trade based on 2003-04
Importers
World total
Wheat
AWB wheat exports
Oilseeds
Sth Amer
Other
26%
18%
11%
1%
11%
15%
1%
17%
26%
3%
18%
4%
24%
21%
1%
3%
1%
28%
1%
1%
2%
47%
Sth Amer
19%
Sth Amer
Corn
5%
10%
1%
1%
5%
35%
9%
Other
1%
Other
34%
AWB Share
107 mt
16%
75 mt
1.3%
74 mt
1.4%
Source: USDA & AWB trade data 2004
83
Heavy
Grains industry used to look like this
CARGILL
ADM
Assets
CONAGRA
BUNGE
LOUIS DREYFUS
CONTINENTAL
ANDRE
NIDERA
TRADIGRAIN
GLENCORE
AWB
Light
CWB
Low
High
Trading risk profile
84
But has changed dramatically over the
past five years …
Heavy
opening space for a global ‘niche market’ positioning
CARGILL
ADM
WILMAR
Assets
CONAGRA
BUNGE
LOUIS DREYFUS
GLENCORE
AWB
Light
CWB
Low
High
Trading risk profile
85
Australia Trading (formerly Domestic
Trading)
Environment
Priorities & initiatives
Outlook
• Large crop, margins continue to be
pressured
• Strengthen sales links to intensive
domestic livestock industries
• Bullish domestic crop
production outlook
• Drought
• Expand commodity base
• Consolidating customer base
• Develop business in non-regulated
export grains
• Weakening international
and domestic
commodity prices
• Strengthening competitor base –
consolidation of trading houses
• Conservative selling by growers
following drought
• Opportunity to develop “deeper”
relationships with key customers
• Develop livestock value-add activity
• Improve efficiency of risk capital
utilisation (use fund-of-funds
approach)
• Market price curve
keeping grain away from
market
…Outcome = diversification of Trading earnings
86
Chartering
Environment
Priorities & initiatives
• Volatility in freight rates driven by commodity
boom
• Develop additional skills in freight • Freight rates weakening
market intelligence
globally through 2005
• Counterparty/market default driven by price
extremities
• Increase operations of vessels in
global freight market
• Pool chartering dependent on size of export crop
• Increase CNF sales of Pool and
Non-Pool tonnage
• 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
Outlook
• Increased vessel supply
• Economic growth rates
from China
• Continue to develop a presence
as a 3rd party freight supplier
• Opportunity to develop back freight businesses
(e.g. fertiliser)
…Outcome = 24 hour global market coverage in
conjunction with Geneva Chartering
87
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)
• Improve quality and origin of earnings and build
deeper tailored relationships with a range of
highly valued customers
• Larger global crop
production; declining
market volatility
• Secure regular supply and/or origination
agreements in key markets
• Increase penetration of
AWB IT into new
markets and customers
• Inability to attract capabilities to
develop niche strategy of
business
• Increased competitive
pressures from global multinational trading entities
• Diversify revenue by covering more markets
and products
• Leverage marketing and trade finance capacity
• Merchants’ industry international • Expand and strengthen trading skill set &
capability
consolidation
• Align IT to origination and marketing strategies
…Outcome = better market coverage and increased
other origin grain volume traded
88
Derivatives Trading
Environment
Priorities & initiatives
Outlook
• Drought impacting physical
volume
• Build deeper tailored relationships with a range
of highly valued customers
• Good uptake of scale
with overseas buyers
• Grower willingness to forward
contract
• Leverage Landmark business to provide an
expanded product & service offering to our
suppliers and customers
• Opportunity to bundle
with physical wheat
price
• Market price environment and
its impact on product
attractiveness
• Customer buying in at lower
price environment
• 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
…Outcome = Improved quality and origin of earnings
89
Outlook
• 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
90
www.awb.com.au
For more information contact:
Delphine Cassidy
Head of Investor Relations
Ph: +61 3 9209 2404
Email: [email protected]
91