Transcript Document

REX: NYSE
www.rexamerican.com
Stuart Rose, Chairman & CEO
Doug Bruggeman, CFO
November 2012
One Earth Energy, LLC
Gibson City, IL
Safe Harbor
This presentation contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of
the Securities Exchange Act of 1934. Such statements can be identified
by use of forward-looking terminology such as “ project, ” “ may, ”
“expect,” “estimate,” “anticipate” or “continue” or the negative
thereof or other variations thereon or comparable terminology. You are
cautioned that there are certain risks and uncertainties that could cause
actual events or results to differ materially from those referred to in such
forward-looking statements. These risks and uncertainties are described
in our filings with the Securities and Exchange Commission.
2
Ethanol Industry Considerations
 The ethanol industry produced approximately 13.9 billion gallons of
ethanol in 2011, thereby reducing our reliance on foreign oil
 Helps U.S. balance of trade
 Helps U.S. move towards energy independence
 Approximately 1/3 of corn used in ethanol production is returned to
feed market in the form of DDG, corn gluten meal and corn oil*
 National benefits
 Farmers require fewer government-sponsored price subsidies
 Land being transitioned away from “land bank”
 Ethanol production generates higher tax revenues
 Ethanol production added nearly $42B to GDP*
 Ethanol production increased household income by ~$36B*
 Effective 1/1/12, industry no longer receives tax subsidies (VEETC)
 Farm states are less impacted by challenged economic environment
 Ethanol estimated to have created 400,000 jobs across
ancillary industries, from agriculture to manufacturing to the
service sector*
 On a life cycle analysis basis, corn-based ethanol production and
use reduces greenhouse gas emissions (GHGs) by up to 52%
compared to gasoline production and use.**
Sources:
* Renewable Fuels Associations
** U.S. Department of Energy
3
REX Overview
 Successful alternative energy investor since 1998
 Synfuel investments of $6M yielded ~$178M return over 10 years (~40% CAGR)
 Discontinued legacy retail operations in FY’09 to focus on alternative energy
 Ethanol investments initiated in 2006
 $24M profit in FY’07 on $14M early ethanol investment
 Alternative energy represented 99.8% of revenue and 83.5% of assets (7/31/12)
 Ownership in seven ethanol production facilities representing
 In aggregate, 709.7 million gallons of TTM annualized gallons shipped by seven plants
 REX effective ownership interest of TTM annualized gallons shipped = 253.5 million gallons
 Revenues from ethanol, distillers grains & corn oil
 Strong, liquid balance sheet (as of 7/31/12)
 Unrestricted cash of
 Net book value of retail real estate
 Carrying value of ownership in seven plants
 REX shareholders’ book value
(based on 8.3M diluted shares)
$48.1M
~ $ 5.79/share
$14.9M
~ $ 1.80/share
$195.0M
~ $23.49/share
$252.4M
~$30.41/share
 ROE-focused asset allocation discipline
 11.2% average ROE since 1993 (despite low returns on high cash balances)
 ~24% return in FY’11 on initial ethanol investments
 Share repurchase program
 Insider ownership approximately 33%
4
REX Ethanol Strategy
 Disciplined investment criteria
 Invest only if project meets strategic and financial risk and return criteria
 Align with farmers, farm cooperatives and farming communities as co-investors and owners of
ethanol production facilities
 Facilitates access to grain supply, local community support
 Locate plants close to rail access and feedstocks
 Utilize state-of-the-art ethanol production technology
 Dry mill corn-processing
 All plants are highly efficient Fagen, Inc. constructed
 Fagen is large, respected U.S. green energy design-builder
 Seek to match grain prices with ethanol and DDG sales at most plants
 Forward grain purchases and ethanol sales contracts generally  two month duration
 Derivative contracts are generally not employed to hedge commodity price risks
 Maximize ethanol plant returns via:
 Running plants efficiently, often above nameplate capacity
 Sale of dried (and wet) distillers grains (DDGs) as animal feed
 Recently added corn oil production capabilities to consolidated plants
5
Acquisition of Additional NuGen Interest
 Effective 11/1 acquired additional 50% equity interest in NuGen Energy ethanol production plant, raising
REX’s ownership to 98%
 Total cash consideration of $12.7 million for additional equity and REX’s remaining contingent liability
and REX made a $7.0 million capital contribution to reduce NuGen long-term debt
 Transaction funded with cash on hand
 NuGen’s non-recourse bank debt refinanced
 $55 million mortgage debt and $10 million revolving credit facility
 Increase REX’s ownership of annual gallon of production by ~30%
 Results are consolidated in REX’s financial statements beginning Q4 FY’11
 In 2/12 NuGen repurchased shares which had the effect of raising REX’s equity ownership in the facility
to 99%
 NuGen operates a nameplate 100 mgy ethanol production facility
 Favorable location with excellent infrastructure including railroad, natural gas and local corn supply
 Produced 115.7 mgy and 110.3 mgy of denatured ethanol in FYE 7/31/11 and 7/31/10, respectively
 Sold 112.9 million gallons in TTM 7/31/12
 Plant built by Fagen, Inc. with ICM, Inc. technology
Dollars in millions, unaudited
Sales
Gross Profit
General and Administrative Expense
EBITDA*
Depreciation and Amortization Expense
Earnings Before Interest and Taxes
Interest Expense, net
Net Income (pre-tax)
Denatured Production (millions of gallons)
Twelve Months Ended July 31st,
2012
2011
2010
$ 322.0
$ 336.6
$ 234.1
27.7
31.1
18.6
5.6
4.8
5.3
22.8
32.0
18.0
(4.7)
(4.7)
(4.6)
18.1
27.3
13.4
(3.3)
(3.0)
(3.3)
$ 14.8
$ 24.3
$ 10.1
112.9
115.7
110.3
* EBITDA, or earnings before interest, taxes, depreciation and amortization is not a measure of performance or liquidity calculated in
accordance with GAAP. EBITDA for NuGen is calculated by adding interest expense, net and depreciation and amortization expense to
pre-tax net income.
6
High Return Ethanol Investments
Date of Initial
Investment
$ of Initial
Investment
REX Share
FY’11 Earnings
REX Share
FY’10 Earnings
June ‘10 ($12,290)
Nov. ’11 ($19,678)
$31,968
$16,482 (1)
$4,011 (2)
Oct. ’07
$50,765
$14,839
$19,207
Patriot Renewable Fuels
Dec. ’06 ($16,000)
Jan. ‘12 ($1,947)
$17,947
$5,274
$5,159
Big River Resources
Oct. ’06 ($5,000)
Jan. ‘07 ($5,000)
July ‘07 ($10,000)
Sept. ‘09 ($25)
$20,025
$6,930
$5,387
($ in 000s)
NuGen Energy
One Earth Energy
(1)
(2)
FY’11 earnings represent 10 months of 48% ownership and 3 months of 98% ownership
FY’10 earnings represent 6 months of 48% ownership (7/1/10 – 12/31/10)
7
REX Ethanol Portfolio
Plant TTM
Gallons
Shipped
(millions)2
Current REX
Ownership
Interest
REX’s Current
Effective Ownership
of TTM Gallons
Shipped (millions)
One Earth Energy, LLC
Gibson City, IL
106.6
74%
78.9
NuGen Energy, LLC
Marion, SD
112.9
99%
111.8
Patriot Holdings, LLC
Annawan, IL
114.0
27%
30.8
Big River Resources West Burlington, LLC
West Burlington, IA
101.9
10%
10.2
Big River Resources Galva, LLC
Galva, IL
105.2
10%
10.5
Big River United Energy, LLC
Dyersville, IA
111.9
5%
5.6
Big River Resources Boyceville, LLC1
Boyceville, WI
57.2
10%
5.7
Total
709.7
n/a
253.5
Entity/Location
1REX’s
current effective annual gallons sold represents seven month results for Big River Resources Boyceville, LLC on an annualized basis
as of 6/30/12; NuGen as of 7/31/12
2Figures
8
REX Ethanol Ownership Growth
Rex Ethanol Ownership
(in millions of gallons)
300
2012
2010
250
200
Jan-12: REX increased
stake in Patriot by 3%;
total ownership
now 27%
Dec-11: Big River
1
Boyceville interest
253.5
added
2011
2009
May-09: Big
River Galva
commenced
operation
Aug-09: Big River
United (Dyersville)
interest added
Jul-10: REX
acquired 48%
stake in Nugen
Nov-11: REX
acquired 50%
stake in Nugen
205.8
177.8
150
135.9
100
50
0
Jan-2010A
1Projected
Jan-2011A
Jan-2012A
Jan-2013E
based upon current ownership levels using historical production levels
9
Demand/Pricing Drivers
Ethanol
 Federal EPA ethanol purchasing mandates continue to rise (1) :
Year
Target
2012
13.2 BGY
2013
13.8 BGY
2014
14.4 BGY
2015 & beyond
15.0 BGY
 $0.45 per gallon VEETC (blender’s credit) expired Dec. 31, 2011
Distillers Grains
 Rising corn prices have driven DDG pricing increases, helping
offset impact on crush spreads
Corn Oil
 Produces approximately 1.7 million lbs. per month at full
capacity.
Potential to generate $400,000 - $600,000
of monthly income per plant
1Mandates
can be partially met by use of available RINS from the prior years toward the
current year requirements and/or to carry forward a deficit into the next compliance year.
10
Crush Spread & DDG Pricing
 Crush Spread = price of 1 gallon of ethanol - cost of corn to produce it
 One bushel of corn makes ~2.8 gallons of ethanol
 Crush spread = Ethanol price – (Corn bushel price / 2.8)
 Crush spread excludes other production, transportation costs, etc.
 Dried distillers grains (DDGs) pricing supplements and, at times, offsets weaker crush spreads
 REX’s average realized DDG prices per quarter are reflected on green line below.
Crush Spread Trend (cents per gallon)
225
200
175
200
217
198
149
150
125
193
183
203
109
121
113
119
100
75
50
25
0
44
28 29 31 34 25 34 26 21 23
44
9 4
9
(1) 6 (4) 2
(25)
24 17
37 33
(1) (7) (8) (3) (6) 0 (7)
(16)
(27)
(36)
(50)
Calculated using CBOT monthly average prices
11
Operating Results
$ in millions, except per share data
Alternative Energy1
Real Estate
Total net sales and revenue
Three Months Ended
July 31,
2012
2011
Six Months Ended
July 31,
2012
2011
$152.8
0.4
$153.2
$73.5
0.3
$73.8
$303.4
0.7
$304.1
$154.4
0.6
$155.0
Gross profit
$6.8
$(0.2)
$12.3
$4.5
Segment profit (loss)
Alternative energy1
Real estate
Corporate expense
Income from synthetic fuel partnership
Interest income, net
$2.4
(0.3)
(0.6)
-
$2.0
(1.2)
(0.6)
2.9
0.05
Net income from continuing operations
Net income from continuing operations per share (diluted)
$0.58
$0.07
$2.0
$0.21
$1.3
$0.16
$6.1
$0.64
Net income attributable to REX common shareholders
Diluted net income per share
$0.8
$0.10
$2.3
$0.25
$1.7
$0.21
$7.0
$0.73
8.4
9.6
8.4
9.6
Weighted average diluted shares outstanding
$4.9
(0.4)
(1.1)
-
$10.5
(1.3)
(1.2)
2.9
0.15
1Includes
results attributable to non-controlling interests of approximately 26% for One Earth in fiscal year 2011 and 2012. Beginning November 1,
2011, the NuGen non-controlling interests of approximately 2.5% for fiscal year 2011 and approximately 1% for fiscal year 2012 are included in the
results.
12
Strong Balance Sheet
$ in millions, except per share data
July 31,
January 31,
2012
$ 64.0
2012
$ 75.0
Total current assets
116.8
127.0
Property & equipment, net
232.2
240.1
Equity method investments
59.6
61.7
Total Assets
$416.5
$438.0
Current debt
$ 12.7
$ 15.2
Total current liabilities
26.4
37.2
Long term debt – non recourse (ethanol)
99.4
107.7
0.7
0.8
$252.4
$252.5
Cash and cash equivalents
Long term debt – recourse (real estate)
Total REX Equity (excludes non-controlling interests)
13
Capital Allocation Priorities
 Ethanol plants and other industrial investments
 Share repurchases below book value
 ~4.0M shares repurchased last four years at average price of $13.47
 Repurchased 1,305,589 shares in FY’11 at average price of $17.02 and 205,068 in YTD
FY’12 at an average price of $17.96
 Approximately 457,000 shares remaining under expanded repurchase authorization
approved August 2012
 8.2 million common shares outstanding
14
REX Summary
 Successful alternative energy investor since 1998
 Interests in seven ethanol production facilities with annualized sales of ~710 million
gallons (TTM)
 REX effective ownership interest of annualized TTM gallons sold = ~253 million gallons
 Alternative energy segment profit of $48.6M in FY’11 vs. $13.4M in FY’10
 Industry leading ethanol production skill and plant efficiencies
 REX ethanol operations are among best performing plants
 Growth opportunities in ethanol and other industrial sectors
 Expand ownership of existing facilities
 Invest in new ethanol plants or industrial projects requiring similar skill sets
 Proven management team with asset allocation discipline
 11.2% average ROE since 1993, despite low returns on high cash balances
 ~24% return in FY’11 on initial ethanol investments
 Long-term program of share repurchases below book value
 Insider ownership of ~33%
 Strong asset base (at 7/31/12):
 Shareholders‘ equity
$252.4M (~$30.41 share)
 Consolidated cash
$64.0M
 Real estate value
$14.9M
 8.3M diluted shares outstanding
15
REX: NYSE
www.rexamerican.com
Stuart Rose, Chairman & CEO
Doug Bruggeman, CFO
November 2012
One Earth Energy, LLC
Gibson City, IL