Transcript a LANDMARK for Australian Agriculture 29 August 2003 ACN 081 890 459 This document may not be distributed, directly or indirectly, in the United States.

a
LANDMARK for Australian Agriculture
29 August 2003
ACN 081 890 459
This document may not be distributed, directly or
indirectly, in the United States or to any US person
Contents
1
Executive Summary
2
Transaction Overview
3
Landmark Overview
4
AWB and Landmark
5
Funding
6
Conclusion
APPENDICES
2
Important Notice
The information in this document has been provided to you for informational purposes only in relation to a proposed
placement to institutional investors of shares in AWB Limited (“AWB”) and is subject to change without notice. Nothing
contained in this document constitutes investment, legal, tax or other advice. The information in this document does not take
into account your investment objectives, financial situation or particular needs. Before making an investment decision, you
should consider, with or without the assistance of a professional securities adviser, whether an investment in AWB is
appropriate in light of your particular investment needs, objectives and financial circumstances.
Nothing in this document should be considered a solicitation, offer or invitation to buy, subscribe for or sell any security in the
United States or in any place in which, or to any person to whom, it would be unlawful to make such an offer or invitation.
The distribution of this document outside Australia may be restricted by law. Persons who come into possession of this
document who are not in Australia should seek advice on and observe any such restrictions. Any failure to comply with such
restrictions may constitute a violation of applicable securities laws.
Neither this document nor any copy hereof may be transmitted in the United States or distributed, directly or indirectly, in the
United States or to any US person including (1) any US resident, (2) any partnership or corporation or other entity organised
or incorporated under the laws of the United States or any state thereof, (3) any trust of which any trustee is a US person, or
(4) any agency or branch of a foreign entity located in the United States. By accepting this document, you agree to be bound
by these limitations.
AWB has prepared this document based on information available to it. Although all reasonable care has been taken to
ensure that the facts stated and opinions given in this document are fair and accurate, the information provided in this
document has not been independently verified. Accordingly, no representation or warranty, expressed or implied is made as
to the fairness, accuracy, completeness or correctness of the information and opinions contained in this document. To the
fullest extent permitted by law, none of AWB, its directors, employee or agents or any other person accepts any liability for
any loss whatsoever arising from any use of this document or its contents, or otherwise arising in connection therewith.
3
1 Executive Summary
 AWB has entered into an agreement to purchase Landmark from Wesfarmers for a net
purchase consideration of A$718 million and enterprise value of A$825 million
 Purchase completed today after due diligence and implementation planning
 Landmark is a large and diversified rural services business which is a very attractive
strategic fit for AWB
 Australia’s leading supplier of agricultural inputs and a major provider of a broad range of other
rural products and services
 Proven management team
 Following the acquisition, AWB will be uniquely positioned to meet the global challenge
for Australian agriculture
 Acquisition is EPS accretive (pre-goodwill, post synergies, post one-off costs) in FY2004
and is expected to be more than 35% EPS accretive by FY2006
 AWB will issue approximately 41 million new shares through an institutional placement,
with additional equity being raised by a combination of a share purchase plan (“SPP”)
and underwritten DRP
 Rating agency view, in combination with “ring fence” for pool finance activities, at AWB
target levels for AWB Commercial Funding and AWB Harvest Finance of BBB and
AA-/A-1+ respectively (S&P)
 Given the acquisition of Landmark, AWB is reviewing its shareholding in Futuris
4
2 Transaction Overview
Key Features 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
5
2 Transaction Overview
Financial Returns

The acquisition of Landmark will assist AWB to achieve its stated financial objectives
as set out at the 2003 AGM
Objective
Impact of Landmark Acquisition
15% return on equity in the
medium term
Acquisition expected to achieve target 15% ROE by FY2005
Trend EPS growth
EPS accretive in FY2004 and by more than 35% in FY2006
Stable dividend payment
AWB expects to maintain its dividends at current levels for
FY2004
Improved quality of earnings
Landmark will diversify AWB’s earnings base and reduce the
volatility of AWB’s earnings
Efficient capital management
AWB’s funding structure utilises its surplus capital and
reduces its cost of capital
Appropriate credit rating
S&P has indicated that AWB’s ratings will be BBB for AWB
Commercial Funding and AA-/A-1+ for AWB Harvest Finance
which meets AWB’s target ratings
6
2 Transaction Overview
Sale Process
 Exclusive sale process involving completion of due diligence by AWB
 AWB and Wesfarmers have settled the purchase and sale under a Share Sale Agreement
for Landmark
 Simultaneous completion, subject to Completion Account adjustments
 AWB and Wesfarmers have also entered into various other agreements, including:
 A series of transitional arrangements including for Information Technology and Landmark’s
Interest Bearing Deposits
 New supply agreements between Landmark and CSBP and Landmark and WFI
 Landmark’s key senior management team, including the MD, Mark Allison, is committed
to continue leading the business
 Sale process has enabled a detailed implementation plan to be put in place in conjunction
with Landmark’s management
7
2 Transaction Overview
Total Acquisition Cost
 The acquisition is funded through a mix of debt and equity
 The debt facility will be reduced by the amount raised under the SPP and DRP
Price
A$m
Enterprise value
825
Net debt assumed
107
Net Purchase Consideration
718
Transaction costs
Total cash consideration
Funding
34
752
A$m
Placement1
160
Funded by working capital and debt finance
592
Total Funding (initial)
752
Further equity raised through SPP and DRP
Note: 1. Indicative only
90
8
3 Landmark Overview
Business Structure

Operations conducted through 7 business activities

Head office function centralised in Sydney

Branch network managed through 8 networks

Products channelled through branch network and distribution centres

Access to 100,000 customers across Australia

Over 1,900 staff, located mainly in rural and regional Australia

Landmark issues interest bearing securities to its customers by way of prospectus
9
3 Landmark Overview
Landmark Business Units
 Landmark provides a broad range of products and services to agricultural
producers
Division
Business Description
Merchandise


Wholesale and retail sale of agricultural inputs
Also provides agronomic advice
Fertiliser

Acts as an agent for CSBP (owned by Wesfarmers) in WA, IncitecPivot and
Hi-Fert on the East Coast
Finance



Provides seasonal and term loans through agency agreement with Rabobank
Loan book of approximately A$780m
A$282m of Interest Bearing Deposits (IBDs)
Insurance


Sale of insurance cover options for rural businesses and households
Acts as agent for WFI and CGU
Livestock

Saleyard auction services and private treaty services
Wool

Provides traditional broking/auction selling services and sale of risk
management products
50% interest in Australian Wool Handlers (joint venture with BWK) and 40%
interest in Arcadian Wool Brokers

Real Estate

Markets large rural properties, lifestyle blocks, residential real estate (regional
towns) and clearing sales in country areas
10
3 Landmark Overview
Sales and Earnings Growth
 Strong EBITA growth rate trend (significantly drought affected in 2003)
Year End 30 June
(A$m)
20011
2002
2003
2004E3
Sales2
1,244
1,591
1,437
na
EBITDA2
44.7
78.8
72.1
na
EBITA2
34.7
64.5
54.0
70-75
Notes
1. 2001 figures include only part year for IAMA
2. 2001, 2002 and 2003 figures exclude earnings from divested businesses and abnormal items
3. AWB management forecast
11
3 Landmark Overview
Activity Segmentation
 Merchandise and Livestock are the biggest contributors to Landmark gross profit
 However, finance, insurance and fertiliser are the fastest growing activities
Gross Profit Breakdown By Business Unit (2003A)
Finance
5%
1
Wool
8%
Livestock
23%
Merchandise
37%
Fertiliser
7%
Insurance
4%
Other
9%
Real Estate
7%
Note: 1. Based on June year end
12
4 AWB and Landmark
Distribution Network
 Acquisition of Landmark dramatically expands AWB’s foot print across rural
Australia
 Better able to service customers and complement Single Desk marketing / risk
management activities
 Platform to leverage growth for AWB financial services business
AWB office locations (49)
Landmark outlets (430)
13
4 AWB and Landmark
Operational Diversity

The acquisition will significantly expand the scale and scope of AWB’s activities
AWB Pre-Acquisition
AWB Post-Acquisition
 Heavy reliance on wheat crop
 Expanded distribution network
 Extended product range for existing customers
 Strengthened product development and
technical capability
 Significantly larger customer base (100,000)
 Expanded growth opportunities
 Committed to Single Desk Marketing System
 30,000 customer relationships
 Committed to Single Desk Marketing System
Breakdown of Gross Profit (2003E)
Breakdown of Gross Profit (2003E)
Pool Management
Merchandise
Finance & Risk
Management
Products
Grain Acquisition &
Trading
Pool Management
Insurance
Corporate
Grain Technology
Supply Chain &
Other Investments
Other
Supply Chain & Other
Investments
Real Estate
Grain Technology
Grain Acquisition &
Trading
Finance & Risk
Management Products
Fertiliser
Corporate
Livestock
Wool
14
4 AWB and Landmark
Finance Growth Opportunities

AWB currently provides harvest loans to 30,000 grain producers (A$2 billion market)

Landmark distribution network and finance business provides AWB with opportunity to market
new products, including:

Seasonal loans to 30,000 grain producers (A$8 billion market)

Term and seasonal loans to 65,000 SME agribusiness customers (A$12 billion market)

Loans to 5,000 agribusiness corporates (A$8 billion market) – focus in the longer term
‘Farmers’
‘Corporations’
Product set
Finance to all
agribusiness
Growth Opportunity
65,000 SME agribusiness
customers
A$20b loans
Growth
Opportunity
5,000
Corporate
Enterprise
A$8b loans
AWB’s current market
30,000 Grain / Broadacre
A$2b loans
Harvest finance to
grain growers
Turnover
Small
<A$200k
Medium
A$200k-A$1m
Source: ABARE, ABS, RBA, APRA, Neil Clarke & Associates
Large
>A$1m
15
4 AWB and Landmark
Other Opportunities
Enhanced access to global markets
Cross-selling
Overhead cost savings
Procurement cost savings
Access to over 40 countries around the world
Cross selling of products and services between AWB
and Landmark
Consolidation of AWB and Landmark corporate and head
office functions, where appropriate
Consolidation of procurement functions
16
4 AWB and Landmark
Profit Opportunities

Total EBIT enhancement opportunities, derived primarily from finance growth
opportunities, assessed at A$5 - A$10 million in FY2004 increasing to A$30 - A$40
million by FY2006

Detailed implementation plan has been established to pursue opportunities from Day 1
(A$m)
2004E
2006E
EBIT Growth Opportunities
5 – 10
30 – 40
100-110
na
2%+
35%+
AWB Management NPAT Forecast
for Merged Company1
EPS Accretion from Acquisition2
Notes:
1.
Net profit after tax, pre goodwill amortisation including all one-off costs
2.
Based on AWB forecasts for FY2004 and FY2006, pre goodwill amortisation, includes all one-off costs for FY2004
17
4 AWB and Landmark
Indicative financial position as at acquisition date1
AWB
Landmark
Adjustments
AWB
Proforma
Current Assets
979
592
2
1,573
Non Current Assets
390
157
540
1,087
0
51
540
591
1,369
749
542
2,660
560
545
0
1,105
Non Current Liabilities
26
5
585
616
Long Term Debt
0
0
585
585
Total Liabilities
586
550
585
1,721
Shareholders Equity
783
192
1562
939
Net Working Capital
(excluding Grower Loans)
178
200
0
378
(A$m)
Intangibles
Total Assets
Current Liabilities
Notes
1.
2.
Subject to completion accounts
Indicative only, following placement. Does not include equity raisings under the Share Purchase Plan and Dividend Reinvestment
Plan
18
5 Funding
Overview

Debt and equity funding in place:

Committed bank facilities of A$950 million

Underwritten equity component to raise A$250 million

Pool finance activities will be “ring-fenced” as at 1 October 2003

Credit ratings for pool activities upgraded
Entity
Rating (S&P)
AWB Commercial Funding
BBB
AWB Harvest Finance L/T
AA-
AWB Harvest Finance S/T
A-1+
Ratios
AWB Limited
2004E
2005E
EBIT Interest Cover (x)1
4.1x
6.0x
Gearing (%)2
37%
34%
Notes:
1.
EBIT interest cover includes impact of operating leases
2.
Gearing = Total Debt including Operating leases/Total Capital
19
5 Funding
A$250m Underwritten Equity Offer in Three Tranches
Placement
Share Purchase Plan
(SPP)
41.1 million shares –15% of
issued capital (A$152m-169m at
bookbuild range)
Capped at A$150m
Underwritten Dividend
Reinvestment Plan (DRP)
If required - to raise
A$250m less (Placement +
SPP)
 Institutional offer via bookbuild on 2 September 2003 at indicative range of A$3.70 A$4.10
 The SPP will be launched immediately following the placement with the underwritten DRP
providing the remainder of the funding if required
 All shares issued under placement/SPP qualify for the next dividend payable in December
(anticipated to be 11 cps) and will be entitled to participate in the DRP
 The SPP will allow all AWB shareholders to purchase up to A$5,000 of AWB shares each
 With 60,000 shareholders, maximum take-up would result in approximately A$300 million raising
 AWB directors reserve the right to scale back where total applications exceed A$150 million
 AWB will implement the DRP effective next dividend at a 5% discount, underwritten for
the next three dividends to the extent that the placement and SPP raise less than A$250
million
20
6 Conclusion
 AWB is now the leading agribusiness in Australia
 Landmark is a clear fit with our stated growth strategy
 Complements the Single Desk
 Diversifies and reduces volatility of our earnings
 Provides platform for growth, particularly in financial services
 Expect acquisition to deliver strong earnings per share accretion
 Acquisition expected to meet our return on equity target by FY2005
 S&P has affirmed target ratings for AWB and AWB Harvest Finance
 AWB remains in a strong financial position
 AWB reaffirms its commitment to the Single Desk marketing system
 AWB expands its services to the Australian agricultural community
 AWB uniquely positioned to meet the global challenge for Australian
agriculture
21
Appendix 1- AWB’s Business
Introduction
 Australia's major grain marketer and one of the world's largest wheat managers and
marketers – over 60 years experience in marketing Australian wheat
 AWB markets wheat and other grains to more than 40 countries and is the world’s
second largest wheat exporter with 16% global market share (based on 2001-02). The
AWB National Pool is a significant contributor to the Australian economy, accounting
for around 3% of the total value of Australia’s exports. AWB employs more than 550
people, with a network of 43 offices in Australia and around the world
 AWB is chosen by most Australian wheat and grain growers to market and finance
their grain
 AWB operates and manages the AWB National Pool on behalf of AWB (International)
Ltd via the Single Desk system
Market Cap:
A$1,140.3 million (A$4.16 28/8/03)
Shares on issue:
274.1 million
Shareholder’s equity:
A$815.9 million (as at 31 Mar 2003)
ASX listing:
22 August 2001
Index inclusion:
S&P / ASX 100 (75% weighted)
Average daily volume:
344,000 shares (over the last 12 months)
Appendix 1- AWB’s Business
Dual Class Share Ownership Structure
A Class Shares (35,000 outstanding)
B Class Shares (274.1m outstanding)
 Can only be owned by current wheat
growers
 Shares listed on the ASX
 One share per wheat grower with
weighted voting dependant on tonnes
delivered (currently 35,000 A class
shareholders)
 Non-transferable
 Can be owned by any investor, subject to
10% ownership limit (currently 60,448 B
Class shareholders)
 Entitled to receive dividends
 Entitled to elect up to 4 of 12 Directors over
time
 Not entitled to receive any dividends
 15% of issued capital owned by Institutions
 Ability to control AWB through electing 7
of 12 Directors (a majority of the board)
Appendix 1- AWB’s Business
Current Corporate Structure
AWB
Pool management services
Grain acquisition and trading
Supply chain and other investments
Finance and risk management products
Grain technology
Business
services
Monitors
Wheat Export
Authority
performance of
AWBI
AWBI
Wheat
marketing
Wheat deliveries
Pool payments
Growers
Export
markets
Appendix 1- AWB’s Business
Business streams
Pool Management
Services


Base Fee
Out-Performance Incentive
Finance & Risk
Management
Products



AWB National Pool Payment Options
AWB Basis Pool
AWB riskassist
Grain Acquisition &
Trading




Grain Contract Acquisition Products
Domestic Trading
Non-Wheat Trading
Global Operations - Geneva
Supply Chain & Other
Investments



Chartering
AWB Grainflow
Offshore Investments
Grain Technology



Agrifood Technology
AWB Seeds
Research & Development
25
Appendix 2 – Landmark’s Business
Overview of Landmark by Business Unit
Wool
Livestock
 Landmark handles approximately 25% of the
National Wool Clip (600,000 bales)
 Handles approximately 20% of livestock
trading in Australia
 Provides traditional broking / auction selling
services as well as a comprehensive range
of Risk Management products
 Provides saleyard auction services and
private treaty services for livestock producers
 50% interest in Australian Wool Handlers
(with BWK), 40% interest in Arcadia
 Supplies processors, supermarket chains, lot
feeders and live export markets
 Landmark do not own feedlots or abattoirs
 Not involved in any downstream processing
26
Appendix 2 – Landmark’s Business
Overview of Landmark by Business Unit
Real Estate
Insurance
 Markets large rural properties,
residential real estate (regional towns)
and clearing sales in country areas
throughout Australia
 Landmark offers a range of insurance cover
options for rural businesses and households
 Real estate sales of in excess of A$700
million in 2003
 The current arrangements with WFI and CGU
will remain in place
 Landmark acts as an agent for WFI and CGU
27
Appendix 2 – Landmark’s Business
Overview of Landmark by Business Unit
Merchandise
 Supplies a broad range of agricultural inputs, including agricultural chemicals and veterinary
products, to all major agricultural sectors
 Distributed via 230 company owned branches, 50 franchises and 150 members (ie nonLandmark merchandise stores)
 Provides agronomic advice for cropping, pasture and cotton enterprises
Network Characteristics
Branch
Core regional town, full service
Franchise
Smaller regional town with committed local operator
Member
Wholesale supply, may be branded or non-branded
28
Appendix 2 – Landmark’s Business
Overview of Landmark by Business Unit
Fertiliser
 Acts as an agent for CSBP (owned by
Wesfarmers) and others in WA;
IncitecPivot and Hi-Fert on the east
coast
Finance
 Landmark provides a range of financial products for
rural producers including seasonal and term loans,
term deposits, cheque accounts and credit cards
 Acts as an agent for Rabobank and receives a
proportion of the net interest on each loan and a
share of a ‘bonus pool’ (precise earning
arrangements are yet to be determined)
 Landmark is responsible for loan approvals,
however there is one Rabobank credit manager in
the Landmark credit team
 Landmark still ‘owns’ the client
 50 Rural Finance Managers located throughout
Australia
29
Appendix 2 – Landmark’s Business
Overview of Landmark by Business Unit
Other
 Other Sales and Gross Profit are derived from the following businesses
Big N
Anhydrous ammonia distribution
JRT2
Cartage of sugar cane, fertiliser and
merchandise
Other
Interest margin on Deposit Notes and debtors,
rent recovery and car sales
75% of other
income
25% of other
income
30