Program Andrew Lindberg Paul Ingleby Mark Allison Marcus Kennedy MORNING TEA Sarah Scales Peter Geary Jill Gillingham “Corporate Strategy – Diversification & Growth” Andrew Lindberg, Managing Director.
Download ReportTranscript Program Andrew Lindberg Paul Ingleby Mark Allison Marcus Kennedy MORNING TEA Sarah Scales Peter Geary Jill Gillingham “Corporate Strategy – Diversification & Growth” Andrew Lindberg, Managing Director.
Slide 1
1
Slide 2
Program
Andrew Lindberg
Paul Ingleby
Mark Allison
Marcus Kennedy
MORNING TEA
Sarah Scales
Peter Geary
Jill Gillingham
2
Slide 3
“Corporate Strategy –
Diversification & Growth”
Andrew Lindberg, Managing Director
3
Slide 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
4
Slide 5
The acquisition of Landmark is consistent
with our corporate strategy
Milling &
Processing
Shipping
Finance & Risk
Mgmt.
International other grains
& commodities
International wheat
Pool Mgmt.
Acquisition &
Trading
Australian other
commodities
Supply
Chain
Australian other grains
Rural
Services
Agricultural
inputs and
technology
Value adding products and services
Vision: “Australia’s leading global manager of
agricultural commodity assets, services and flows”
End-users
Relationships
Producers
Relationships
Australian wheat
Agricultural Commodities
5
Slide 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
6
Slide 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
7
Slide 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
8
Slide 9
“Capital & Risk Management”
Paul Ingleby, Chief Financial Officer
9
Slide 10
Ring fenced operation overview
Commercial businesses
Wheat export related businesses
WEA
AWB
Limited
Growers
AWB
International
AWB
Commercial
Subsidiaries
AWB
Services
$
Security
Trustee
AWB
Harvest
Finance
AWB
Commercial
Funding
Bank Facility
Euro CP Program
A$ EPN/MTN Program
US CP Program
10
Slide 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
11
Slide 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
12
Slide 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)
13
Slide 14
Risk Management
• Capital allocated to each business stream
• Business measured on RoRAC
• Risk reviewed on a regular basis
14
Slide 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)
15
Slide 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)
16
Slide 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
17
Slide 18
“Landmark”
Mark Allison
Managing Director, Landmark
18
Slide 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
19
Slide 20
Landmark: a snapshot
100,000 customers
Merchandise
Fertiliser
Livestock
Wool
Real
Estate
Finance
Insurance
$815m
book
$119m
premium
1.9m
Cattle
$1.1b
Sales
1.2m
tonnes
11m
Sheep
500k
bales
$730m
sales
1,890 employees
430 outlets
20
Slide 21
Strategic direction
Three phases for developing Landmark:
Phase 1:
Integration and
creation of
common
systems
Phase 2:
Consolidating
the merger
and fine-tuning
the organisation
Phase 3:
Generating
sustainable
growth
• 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
21
Slide 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
22
Slide 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
23
Slide 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
24
Slide 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
25
Slide 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
26
Slide 27
“Financial services”
Marcus Kennedy, Group GM
Financial & Rural Services
27
Slide 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
28
Slide 29
The opportunity
$30b of agribusiness lending in three broad segments
‘Farmers’
Product set
‘Corporations
’
Finance to all
agribusiness
Segment ‘B’
65,000 SME agribusiness
customers
$20b loans
Segment
‘C’
5,000
Corporate
Enterprise
$8b loans
Segment ‘A’
30,000 Grain / Broadacre
$2b loans
Harvest finance
to grain growers
Turnover
Small
<$200k
Medium
$200k-$1m
Large
>$1m
Source: ABARE, ABS, RBA, APRA, Jun 2002. Neil Clark & Assoc.
29
Slide 30
New finance earnings
Competitors vary in their primary focus of attention
Large
Rabo
Size of business
and lending needs
Major
Banks
Regionals
Landmark
Small
ERB
Low
Profitability
High
30
Slide 31
Competitive opportunities
Competitors vary in their primary focus of attention
Large
Value Proposition #1:
Commodity led
• 300 agronomists
• Broad product range
• Rural distribution
• Product bundling
• Brand appeal to
agribusiness
• Balance sheet
strength, funding,
liquidity capacity
Rabo
Opportunity 1
Opportunity 2
ERB
Low
Profitability
Value Proposition #2:
Finance led
• 60 RFM/RFO’s
• Understanding of
agribusiness risk
• Rural distribution
• Product bundling
• Brand appeal to
agribusiness
• Balance sheet
strength, funding,
liquidity capacity
Regionals
Landmark
Small
Major
Banks
High
31
Slide 32
Growth in Agribusiness lending
$Bn’s
50
10% CAGR
40
30
20
10
0
1997
1998
1999
2000
2001
2002 2003(f) 2004(f) 2005(f) 2006(f)
Source: ABARE, ABS, RBA, APRA, Jun 2002. Neil Clark & Assoc., Bank Annual Reports. (f) = forecast
32
Slide 33
Strategic investment in Grain Technology
Innovation &
Research
Developing business
through technology
• Major projects:
AWB Seeds
Innovative business
model to deliver
value to farmers at
lowest cost and risk
- Graingene: to
develop traits
• Captured three new
licences in 2002-03
- LongReach: to breed
premium wheats
• Gained 60% of
available wheat variety
licences over the last
five years
- Pipelines: to deliver
niche parcels from
grower to end-user
Agrifood
Delivers test results
to AWB and
leverages expertise
in grains and related
industries with
external customers
• Investment in 2003-04
will be $8m before tax
33
Slide 34
“Maximising out-performance”
Sarah Scales, GM National Pools
34
Slide 35
Structure
35
Slide 36
Demonstrating performance
Base Fee
• 1.5% of GPV
• Subject to a cap of $61.9m and a floor of $46.4m
Out-performance Incentive payment
• 1.5% of GPV
• 20% of revenue generated above the WIB plus hurdle
Note: The total Pool Management Services fees payable by AWBI to AWB
are capped at 3% of GPV (except if the Base Fee floor is triggered).
AWB Wheat Industry Benchmark (WIB)
Pool
Benchmark
1. USD Wheat
Price
Sub- benchmark
2. FX (AUD/USD)
Sub- benchmark
3. Domestic
Supply Chain Subbenchmark
36
Slide 37
A constantly changing environment
Impact on Base Fee and OPI
• US$ Wheat Price
• Foreign Exchange
• Crop size
GPV (A$ million)
4500
4000
3500
3000
2500
2000
1500
1000
18
16
14
12 Crop size
(million mt)
10
500
0
0.52
0.55
0.58
US$
0.61
0.64
0.67
0.7
37
Slide 38
A constantly changing environment (cont’d)
Wheat Prices and Currency
$/mt
US$
210.00
0.7
190.00
0.65
170.00
0.6
150.00
0.55
130.00
0.5
110.00
90.00
0.45
Ju
3
-0
02
2
03
n-
ar
M
ec
-0
ep
02
n-
2
-0
01
1
French
D
S
Ju
ar
M
ec
-0
ep
D
S
US HRW
Currency
38
Slide 39
A constantly changing environment (cont’d)
2001/02
Australia
17%
Argentina
11%
2002/03
Canada
17%
EU
7%
EU
12%
USA
24%
Canada
9%
Australia
11%
NTE
20%
USA
28%
Argentina
6%
NTE
38%
39
Slide 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
40
Slide 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
mt
250
%
40
35
200
30
150
100
25
Global Stocks
20
Global STU
15
10
50
5
(e
)
/0
4
(e
)
20
03
/0
3
/0
2
20
02
01
/0
1
20
00
/0
0
20
19
99
/9
9
98
/9
8
19
19
97
/9
7
96
/9
6
19
95
19
94
19
93
19
/9
5
0
/9
4
0
Source: USDA
(e) = Estimate
41
Slide 42
Regulatory environment - WEA Review
2004
• Wheat Marketing Amendments 2003
• 2004 Independent Panel
• Impact on growers
42
Slide 43
“Trading & Chartering”
Peter Geary, Group GM - Trading
43
Slide 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
44
Slide 45
Trading business model
The business model supports a ‘solution selling’ approach
Deal Makers
Supplier
“FOB”
Supply
/Demand
Information
Risk
Services
Finance
Chartering
Consumer
“Landed”
Price Makers
Commodity
Commodity
Position
Taking
Volatility
Trading
Structured
Finance
Freight
Position
Taking
Execution
Control
45
Slide 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
46
Slide 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
47
Slide 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
48
Slide 49
Riskassist in 2003-04
• Continue to expand the grower product range – fixed basis
partner pool, washouts
• Expand focus of consumer risk management advice
49
Slide 50
Chartering in 2003-04
• Develop vessel pool and generate fee income
• Develop 3rd party freight business
• Develop back freight opportunities
50
Slide 51
Growth in wheat sales sold with freight
% of crop sold CNF
• Chartering is a service
provider for AWBI
50
45
40
35
30
25
20
15
10
5
0
• Active strategy of growing
freight under management
• Focus on freight trading,
combination cargo & 3rd
party business
• Geneva freight book
assists information flow
2000-01
2001-02
2002-03 (e) 2003-04 (f)
• Key freight markets in
2003-04 include Iran
Indonesia, Korea & Japan
(e) = YTD estimate (f) = forecast
51
Slide 52
“Supply Chain”
Jill Gillingham, Chief Operating Officer
52
Slide 53
Supply Chain Management
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”
53
Slide 54
Supply Chain Management
• 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 outperformance for AWB Limited
54
Slide 55
National Supply Chain Costs (real dollars)
A$
45.00
44.00
43.00
42.00
41.00
40.00
Cost reduction
1999-00 to 2001-02
39.00
38.00
37.00
1999/00
2000/01
2001/02
2002/03
$3.15 per tonne
2003/04
2004/05
$53.5
million
55
Slide 56
Supply Chain Investments
56
Slide 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
57
Slide 58
www.awb.com.au
For more information contact:
Delphine Cassidy
Head of Investor Relations
T: +61 3 9209 2404
F: +61 3 9670 1723
E: [email protected]
58
1
Slide 2
Program
Andrew Lindberg
Paul Ingleby
Mark Allison
Marcus Kennedy
MORNING TEA
Sarah Scales
Peter Geary
Jill Gillingham
2
Slide 3
“Corporate Strategy –
Diversification & Growth”
Andrew Lindberg, Managing Director
3
Slide 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
4
Slide 5
The acquisition of Landmark is consistent
with our corporate strategy
Milling &
Processing
Shipping
Finance & Risk
Mgmt.
International other grains
& commodities
International wheat
Pool Mgmt.
Acquisition &
Trading
Australian other
commodities
Supply
Chain
Australian other grains
Rural
Services
Agricultural
inputs and
technology
Value adding products and services
Vision: “Australia’s leading global manager of
agricultural commodity assets, services and flows”
End-users
Relationships
Producers
Relationships
Australian wheat
Agricultural Commodities
5
Slide 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
6
Slide 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
7
Slide 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
8
Slide 9
“Capital & Risk Management”
Paul Ingleby, Chief Financial Officer
9
Slide 10
Ring fenced operation overview
Commercial businesses
Wheat export related businesses
WEA
AWB
Limited
Growers
AWB
International
AWB
Commercial
Subsidiaries
AWB
Services
$
Security
Trustee
AWB
Harvest
Finance
AWB
Commercial
Funding
Bank Facility
Euro CP Program
A$ EPN/MTN Program
US CP Program
10
Slide 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
11
Slide 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
12
Slide 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)
13
Slide 14
Risk Management
• Capital allocated to each business stream
• Business measured on RoRAC
• Risk reviewed on a regular basis
14
Slide 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)
15
Slide 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)
16
Slide 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
17
Slide 18
“Landmark”
Mark Allison
Managing Director, Landmark
18
Slide 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
19
Slide 20
Landmark: a snapshot
100,000 customers
Merchandise
Fertiliser
Livestock
Wool
Real
Estate
Finance
Insurance
$815m
book
$119m
premium
1.9m
Cattle
$1.1b
Sales
1.2m
tonnes
11m
Sheep
500k
bales
$730m
sales
1,890 employees
430 outlets
20
Slide 21
Strategic direction
Three phases for developing Landmark:
Phase 1:
Integration and
creation of
common
systems
Phase 2:
Consolidating
the merger
and fine-tuning
the organisation
Phase 3:
Generating
sustainable
growth
• 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
21
Slide 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
22
Slide 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
23
Slide 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
24
Slide 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
25
Slide 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
26
Slide 27
“Financial services”
Marcus Kennedy, Group GM
Financial & Rural Services
27
Slide 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
28
Slide 29
The opportunity
$30b of agribusiness lending in three broad segments
‘Farmers’
Product set
‘Corporations
’
Finance to all
agribusiness
Segment ‘B’
65,000 SME agribusiness
customers
$20b loans
Segment
‘C’
5,000
Corporate
Enterprise
$8b loans
Segment ‘A’
30,000 Grain / Broadacre
$2b loans
Harvest finance
to grain growers
Turnover
Small
<$200k
Medium
$200k-$1m
Large
>$1m
Source: ABARE, ABS, RBA, APRA, Jun 2002. Neil Clark & Assoc.
29
Slide 30
New finance earnings
Competitors vary in their primary focus of attention
Large
Rabo
Size of business
and lending needs
Major
Banks
Regionals
Landmark
Small
ERB
Low
Profitability
High
30
Slide 31
Competitive opportunities
Competitors vary in their primary focus of attention
Large
Value Proposition #1:
Commodity led
• 300 agronomists
• Broad product range
• Rural distribution
• Product bundling
• Brand appeal to
agribusiness
• Balance sheet
strength, funding,
liquidity capacity
Rabo
Opportunity 1
Opportunity 2
ERB
Low
Profitability
Value Proposition #2:
Finance led
• 60 RFM/RFO’s
• Understanding of
agribusiness risk
• Rural distribution
• Product bundling
• Brand appeal to
agribusiness
• Balance sheet
strength, funding,
liquidity capacity
Regionals
Landmark
Small
Major
Banks
High
31
Slide 32
Growth in Agribusiness lending
$Bn’s
50
10% CAGR
40
30
20
10
0
1997
1998
1999
2000
2001
2002 2003(f) 2004(f) 2005(f) 2006(f)
Source: ABARE, ABS, RBA, APRA, Jun 2002. Neil Clark & Assoc., Bank Annual Reports. (f) = forecast
32
Slide 33
Strategic investment in Grain Technology
Innovation &
Research
Developing business
through technology
• Major projects:
AWB Seeds
Innovative business
model to deliver
value to farmers at
lowest cost and risk
- Graingene: to
develop traits
• Captured three new
licences in 2002-03
- LongReach: to breed
premium wheats
• Gained 60% of
available wheat variety
licences over the last
five years
- Pipelines: to deliver
niche parcels from
grower to end-user
Agrifood
Delivers test results
to AWB and
leverages expertise
in grains and related
industries with
external customers
• Investment in 2003-04
will be $8m before tax
33
Slide 34
“Maximising out-performance”
Sarah Scales, GM National Pools
34
Slide 35
Structure
35
Slide 36
Demonstrating performance
Base Fee
• 1.5% of GPV
• Subject to a cap of $61.9m and a floor of $46.4m
Out-performance Incentive payment
• 1.5% of GPV
• 20% of revenue generated above the WIB plus hurdle
Note: The total Pool Management Services fees payable by AWBI to AWB
are capped at 3% of GPV (except if the Base Fee floor is triggered).
AWB Wheat Industry Benchmark (WIB)
Pool
Benchmark
1. USD Wheat
Price
Sub- benchmark
2. FX (AUD/USD)
Sub- benchmark
3. Domestic
Supply Chain Subbenchmark
36
Slide 37
A constantly changing environment
Impact on Base Fee and OPI
• US$ Wheat Price
• Foreign Exchange
• Crop size
GPV (A$ million)
4500
4000
3500
3000
2500
2000
1500
1000
18
16
14
12 Crop size
(million mt)
10
500
0
0.52
0.55
0.58
US$
0.61
0.64
0.67
0.7
37
Slide 38
A constantly changing environment (cont’d)
Wheat Prices and Currency
$/mt
US$
210.00
0.7
190.00
0.65
170.00
0.6
150.00
0.55
130.00
0.5
110.00
90.00
0.45
Ju
3
-0
02
2
03
n-
ar
M
ec
-0
ep
02
n-
2
-0
01
1
French
D
S
Ju
ar
M
ec
-0
ep
D
S
US HRW
Currency
38
Slide 39
A constantly changing environment (cont’d)
2001/02
Australia
17%
Argentina
11%
2002/03
Canada
17%
EU
7%
EU
12%
USA
24%
Canada
9%
Australia
11%
NTE
20%
USA
28%
Argentina
6%
NTE
38%
39
Slide 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
40
Slide 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
mt
250
%
40
35
200
30
150
100
25
Global Stocks
20
Global STU
15
10
50
5
(e
)
/0
4
(e
)
20
03
/0
3
/0
2
20
02
01
/0
1
20
00
/0
0
20
19
99
/9
9
98
/9
8
19
19
97
/9
7
96
/9
6
19
95
19
94
19
93
19
/9
5
0
/9
4
0
Source: USDA
(e) = Estimate
41
Slide 42
Regulatory environment - WEA Review
2004
• Wheat Marketing Amendments 2003
• 2004 Independent Panel
• Impact on growers
42
Slide 43
“Trading & Chartering”
Peter Geary, Group GM - Trading
43
Slide 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
44
Slide 45
Trading business model
The business model supports a ‘solution selling’ approach
Deal Makers
Supplier
“FOB”
Supply
/Demand
Information
Risk
Services
Finance
Chartering
Consumer
“Landed”
Price Makers
Commodity
Commodity
Position
Taking
Volatility
Trading
Structured
Finance
Freight
Position
Taking
Execution
Control
45
Slide 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
46
Slide 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
47
Slide 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
48
Slide 49
Riskassist in 2003-04
• Continue to expand the grower product range – fixed basis
partner pool, washouts
• Expand focus of consumer risk management advice
49
Slide 50
Chartering in 2003-04
• Develop vessel pool and generate fee income
• Develop 3rd party freight business
• Develop back freight opportunities
50
Slide 51
Growth in wheat sales sold with freight
% of crop sold CNF
• Chartering is a service
provider for AWBI
50
45
40
35
30
25
20
15
10
5
0
• Active strategy of growing
freight under management
• Focus on freight trading,
combination cargo & 3rd
party business
• Geneva freight book
assists information flow
2000-01
2001-02
2002-03 (e) 2003-04 (f)
• Key freight markets in
2003-04 include Iran
Indonesia, Korea & Japan
(e) = YTD estimate (f) = forecast
51
Slide 52
“Supply Chain”
Jill Gillingham, Chief Operating Officer
52
Slide 53
Supply Chain Management
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”
53
Slide 54
Supply Chain Management
• 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 outperformance for AWB Limited
54
Slide 55
National Supply Chain Costs (real dollars)
A$
45.00
44.00
43.00
42.00
41.00
40.00
Cost reduction
1999-00 to 2001-02
39.00
38.00
37.00
1999/00
2000/01
2001/02
2002/03
$3.15 per tonne
2003/04
2004/05
$53.5
million
55
Slide 56
Supply Chain Investments
56
Slide 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
57
Slide 58
www.awb.com.au
For more information contact:
Delphine Cassidy
Head of Investor Relations
T: +61 3 9209 2404
F: +61 3 9670 1723
E: [email protected]
58