Transcript Document 7679666

AWB announces a strategic partnership in
fertiliser with Futuris & WMC
9 December 2004
Executive Summary
•
Fertiliser is a critical input in Australian agriculture with farmers
spending over A$2 billion each year. For grain farmers it
represents a significant 15% of their total cash costs.
•
To enable AWB to execute its strategy within the fertiliser industry it
must play a lead role in the key segments of the value chain.
•
A joint venture company, ELF Australia Pty Limited (ELF), has
been formed by Landmark (an AWB Company) and Elders, to
acquire a 66.7 per cent share of WMC’s wholly owned subsidiary
company, Hi-Fert.
•
The purpose of this joint venture is to increase competition and
drive cost efficiencies in the supply chain.
Executive Summary (cont)
•
Other major elements of the agreement include:
– ELF to become the fertiliser buying arm for all Landmark and
Elders rural retail distribution outlets on the east coast of
Australia;
– ELF to have an agreement to source a significant proportion of
its fertiliser demand from Hi-Fert on an annual basis; with
– the remainder of ELF’s supply needs to be sourced in the open
market.
•
The joint venture is only focussed on the east coast (including
South Australia) and will not alter the competitive landscape at the
retail level.
•
The transaction will not impact the Western Australian market
where supply contracts will remain unaltered.
Strategic Rationale
The transaction allows AWB through its subsidiary Landmark, to enhance its position as the leader in
Australian rural services.
Enhance Growth


Provides a platform to participate in fertiliser industry rationalisation
Facilitates continued high growth of retail fertiliser by ensuring price
competitiveness
Minimise Risk


Low cost entry point to the distribution segment
Investment in an existing distributor delivers a management team,
supplier relationships and procurement systems in addition to the
storage and handling infrastructure
AWB’s price risk management expertise may allow product import
margins to be enhanced

Maximise leverage


Leverages Landmark’s fertiliser customer relationships to provide critical
mass in the distribution segment
Provides an opportunity for AWB to leverage its core competencies of
risk management and chartering
Overview of Australian Fertiliser Industry
VALUE CHAIN
PRODUCERS
DISTRIBUTORS
RETAILERS
Producer
FOB Buying
QFO
IMC
Hi-Fert1 Summit
Freight
Load
Cargill
Discharge
Agruim
Store
Distribute
PCS
CSBP1 IncitecPivot1 Direct
Elders
RuralCo
Note 1. Distributors are also aligned or integrated with domestic production facilities
Farmer
(High capital)
SouthFert
WA
Landmark
Retail
GrainCorp Independents
(Commodity
importers)
INDUSTRY ANALYSIS
Industry Overview
•
The total market for fertiliser in Australia is estimated at 5.1 million tonnes per annum or A$2
billion per annum. The major fertilisers used in crop farming are as follows:
–
–
–
–
–
–
–
Urea (Nitrogen);
Sulfate of Ammonia (Nitrogen, Sulphur)
Mono-Ammonium Phosphate (MAP) (Nitrogen, Phosphorus);
Di-Ammonium Phosphate (DAP) (Nitrogen; Phosphorus);
Single Superphosphate (SSP) (Phosphorus, Sulphur);
Potassium based fertilisers (Potassium) (MoP, SoP, NoP); and
Blends of the above.
•
Fertilisers are used to supply the crop / pasture requirements for nitrogen, phosphorus, potassium
and sulphur and various micro-nutrients.
•
From a crop / pasture nutrient perspective, the plant is indifferent to the fertiliser form of the
nutrient supplied and one nitrogen fertiliser is, to a large extent, substitutable for other nitrogen
fertilisers.
6
INDUSTRY ANALYSIS
Total Demand By Nutrient Type: 1990-2003
(‘000 Tonnes Of Nutrient)
CAGR: 1990-2003
(%)
2,500
Potassium
• MOP/SOP
2.4
Phosphate
• SSP
• TSP
• MAP/DAP
6.0
Nitrogen
• Urea
• Ammonia
9.6
2,000
1,500
1,000
500
7.6
2002/03 f
2001/02 e
2000/01 e
1999/00
1998/99
1997/98
1996/97
1995/96
1994/95
1993/94
1992/93
1991/92
1990/91
1989/90
0
7
INDUSTRY ANALYSIS
•
•
•
•
Australia has shown relatively strong nutrient demand growth (7.6% CAGR), with the
majority coming from urea and MAP/DAP.
Overall demand is expected to grow in line with expenditure at around 4-6.5% pa:
Broadacre will remain the largest consumer of fertiliser with flat demand; and
Horticulture and Dairy will increase their share of fertiliser consumption.
%
100
Pasture 4%
Pasture 11%
90
Horticulture 4%
Dairy 3%
Horticulture (
24%
80
70
Cotton (
22%
Pasture 6%
Pasture
11%
Sugar (
44%
)
)
Horticulture (
14%
Horticulture 5%
Dairy 2%
)
)
Dairy 2%
Dairy ( )
28%
60
Pasture 4%
50
Cotton 1%
40
Broadacre (
60%
)
Horticulture (
27%
Broadacre (
87%
)
Broadacre (
70%
30
Dairy 4%
Cotton (
14%
10
)
Broadacre (
45%
20
)
Market Growth
→
↑
↓
)
)
stable
increasing
decreasing
Broadacre
7%
0
NSW
QLD
SA
VIC
WA
8
INDUSTRY ANALYSIS
•
From a geographic perspective, the east coast market is estimated at 3.5 million
tonnes with NSW and Victoria accounting for over 60 percent of the market.
•
The key commodity products of SSP, MAP, DAP and Urea account for 2.5 million
tonnes, or over 70 percent of the east coast market.
Demand By Product By State: 2001
(‘000 Tonnes)
Product
State
SSP/TSP
DAP/MAP
Potash
Ammonia
Urea
Blends
Others
Total
QLD
16
36
12
41
338
145
14
602
NSW
386
307
4
118
306
174
4
1,300
VIC
386
159
19
9
120
352
10
1,055
SA
129
206
5
13
115
105
3
576
TAS
106
5
24
1
14
36
0
185
WA
298
476
11
30
266
242
7
1,330
1,321
1,189
75
212
1,159
1,054
38
5,049
Growth 1988 – 98 (%)
(4.6)
10.8
2.8
7.0
12.1
5.4
5.4
6.4
Avg Price ($/t)
258
418
441
634
390
378
378
370
Total ($m)
341
497
33
135
452
398
14
1,870
Total
9
Transaction Details
Key Highlights:
•
Elders and Landmark are 50/50 owners in ELF Australia Pty Ltd (ELF), a
newly constituted company which will have 4 directors, 2 from each of the
parent companies.
•
ELF will have 2 roles:
– Holding a 66.7% interest in Hi-Fert; and
– Being responsible for negotiating the supply of all fertiliser requirements
to the retailers, Elders and Landmark on the east coast (including SA)
•
Hi-Fert will be owned 66.7% by ELF and 33.3% by WMC and will supply a
significant proportion of fertiliser to ELF.
Transaction Structure
The Structure of the transaction agreed between AWB, Futuris and
WMC to be as follows:
Elders
50%
Landmark
50%
Ownership
ELF
(Buys all Fert requirements
for Elders & Landmark)
Negotiate
supply
agreement for
Elders and
Landmark
Other IPL
Suppliers
(and other suppliers)
66.7%
67% ownership
ownership of
of Hi-Fert and
HiFert
Summit EC
Hi-Fert
K
Summit EC
WMC
33%33.3%
ownership
ownership of Hi-Fert
of Hi-Fert and
Summit EC
Hi-Fert Organisational Structure
General Manager
2 employees
Network Operations
22 employees
Distribution Operations
64 Permanent, 23 Casual
Commercial & Strategy
8 employees
EH&S
2 employees
Corporate Support
•
•
•
Hi-Fert has a total of 98 permanent staff.
Hi-Fert’s network and distribution operations staff are located at the respective
plants, providing shipping and logistics support, whilst management, commercial
and administrative staff are located in Hi-Fert’s Melbourne head office.
The General Manager is supported by a senior management team of four, with the
functions of HR, legal and management accounting being currently undertaken by
WMC.
Transaction overview
• Purchase based on net asset value.
• EPS impact in year 1 is positive.
• No impact on Credit Rating.