Andrew Lindberg Managing Director and Chief Executive 28 th November 2001
Overview • Highlights of the year • Financial Performance • Business Drivers • Strategy • Challenges & Opportunities • Outlook • Questions
Highlights of the year
Highlights of the year • Successful listing on the ASX in August • Profit after-tax up 32% to $83. 7 m and EPS up 30% to 34. 1 c • Retained Single Desk as sole exporter of Australian bulk wheat • New performance based payment agreement with AWBI • Loan book for harvest season peaked at $1. 5 billion • Six new storage facilities ready for this harvest • Rail freight agreement with Freight. Corp • Pool wheat price at near record high
Financial Performance
Profit and Loss $million 2001 2000 1956. 8 1758. 7 11. 3 (1608. 1) (1474. 6) (9. 1) (8. 0) (5. 6) (42. 9) (95. 9) (89. 9) (6. 7) (122. 2) (90. 1) (35. 6) Operating profit before tax 122. 6 98. 5 24. 5 Income tax expense (38. 4) (34. 8) (10. 3) Operating profit after tax 84. 2 63. 7 32. 2 Outside equity interest (0. 5) (0. 4) (25. 0) Net profit 83. 7 63. 3 32. 2 Revenue from ordinary activities Cost of sales Depreciation and Amortisation Borrowing costs Other % Change
Cashflow $million 2001 Operating profit before tax 122. 6 Tax paid Depreciation & amortisation Working capital changes (44. 1) 8. 0 (164. 3) Capital expenditure (44. 6) Dividends paid (87. 0) Decrease in loan book 103. 4 Net new equity 92. 3 Increase in debt (13. 7)
Balance Sheet $million Assets Cash Receivables Investments Inventories Property, plant and equipment Other Liabilities Payables Interest bearing liabilities Provisions Other Net Assets 2001 2000 62. 6 1, 523. 8 127. 7 122. 1 105. 5 41. 4 1, 983. 1 4. 5 1, 604. 5 36. 8 77. 7 60. 6 34. 7 1, 818. 8 126. 2 1, 031. 8 18. 2 109. 8 959. 9 70. 8 55. 9 1, 232. 1 49. 4 1, 189. 9 751. 0 628. 9
Financial Results – capital expenditure Capital expenditure ($million) Grain centres construction 2001 2000 35. 8 11. 5 Melbourne Port Terminal 0. 1 18. 5 System development 9. 7 4. 1 Other plant and equipment 12. 5 1. 7 Total 58. 1 35. 8 8. 0 5. 6 Depreciation
Business Operations EBIT $million 2001 2000 Pool Management Services 9. 3 10. 1 (7. 9) Grain Acquisition & Trading 68. 6 29. 0 136. 5 Grain Technology (6. 0) (3. 8) (57. 9) Supply Chain & Other Invest. 15. 6 4. 5 246. 7 87. 5 39. 8 119. 8 (21. 1) (15. 7) (34. 4) EBT 66. 4 24. 1 175. 5 Finance & Risk Management 84. 8 94. 5 (10. 3) Corporate (28. 6) (20. 1) (42. 3) Operating profit before tax 122. 6 98. 5 24. 5 83. 7 63. 3 32. 2 Interest expense Operating profit after tax %change
Business Operations $million 120 +39. 6 105 (2. 2) +11. 1 (9. 7) (17. 6) 90 75 60 83. 7 63. 3 (0. 8) 45 30 15 0 2000 Pool Grain Mgt Acquisition Services & Trading Grain Tech Supply Chain & Other Invest. Finance & Risk Mgt Other (interest, tax & corporate) 2001
Dividends and Earnings 2001 2000 %Change Earnings per share 34. 1 c 26. 2 c 30. 2 Return on average equity 12. 8% 10. 1% 26. 7 22 c - NTA Backing per share $2. 75 $2. 60 5. 8 Capital Expenditure 58. 1 m 35. 8 m 62. 3 Shareholder’s Equity 751. 0 m 628. 9 m 19. 4 Dividends per share
Business Drivers
Business Drivers • Australian wheat production (and AWB receivals) • Global wheat supply and demand fundamentals • Wheat price performance against benchmarks • Trading volumes and margins • Chartering volumes and margins • Tonnage delivered to finance and risk products • Supply chain volume and margins • Interest margins
Strategy
Strategy 1. Secure end user demand 2. Sustain trading out-performance 3. Increased grains under management 4. Diversify revenue streams by offering products and services to other growers and customers 5. Increased revenue from the supply chain and other investments 6. Grain technology – plant breeding and seed end-point royalties
Four engines of growth s usines eat b ore wh C t en anagem er m AWB rains und G 2001 Financial & risk management Processing & branded products AWB Future
Challenges & Opportunities
Challenges & Opportunities • Grains industry consolidation and increased efficiency • Increased competition in grain accumulation trading • Competition for financial services with banks and other providers • To reduce supply chain costs • US / Afghanistan crisis – impact on Middle East markets • Trade reform
Outlook
Outlook • The company believes that the outlook is positive and that earnings growth for the 2001 -2002 financial year will be positive. • Our expectation is for a wheat crop this year of at least, if not better than last year’s crop of 21. 2 million tonnes.
Questions
For more information contact: Michael Thomas Head of Investor Relations Ph: 9209 2064 Email: mthomas@awb. com. au
Presentation Supplement
Contents AWB Business Streams 1. History of AWB 9. Pool management services 2. Ownership structure 10. Costs incurred by AWBI 3. Corporate structure 11. Finance and risk management products 4. Involvement throughout the value chain 12. Finance and risk management products 5. Risk allocation 13. Grain acquisition and trading 6. Risk management process 14. Grain technology 7. Senior management 15. Supply chain and other investments 8. Offices throughout Australian wheat belt 16. Major grain storage and handling providers 17. Major rail transport service providers 18. AWB new storage facilities
Contents Global Wheat Industry Share Information 19. Global grain trade 32. Share Price v All Ords 20. Global wheat consumption & production 33. Share Price v ASX / S&P 200 21. Global wheat stocks and stock to use ratio 34. Share Price and Volume 22. Global wheat production 35. Shareholder ranges 23. Wheat production - major exporters 24. Top 5 wheat importing & exporting nations 25. Global wheat trade – 2000/01 26. Australian wheat production 27. AWB wheat exports 28. AWB wheat export destinations 29. Major Australian domestic wheat traders 30. AWB is one of the largest global wheat managers 31. Pool price trend graph
AWB
History of AWB • 60 years experience in marketing Australian wheat • In 1989, domestic market deregulated and Wheat Industry Fund established • In 1998, AWB corporatised (formerly a statutory authority) • In 1999, AWB privatised as a grower owned and controlled corporation — Wheat Industry Fund converted to B class shares — A class shares issued to wheat growers — Government guarantee of AWB borrowings removed • In 2001, AWB listed on the ASX 1
Ownership structure • • • Not entitled to receive any dividends Carry other rights including ability to control AWB through electing 7 Directors (a majority of the board) • Shares listed on the ASX • B class shares Non-transferrable • A class shares Can only be owned by current wheat growers (currently 35, 000) Can be owned by any investor, subject to 10% ownership limit (currently 63, 500) • Entitled to receive dividends • Entitled to elect 4 Directors over time 2
3 Corporate structure AWB Business services Wheat Export Authority Monitor Wheat performance AWBI of AWBI Objective to maximise net marketing Export markets pool returns to growers Pool payments Wheat deliveries Growers
Involvement throughout the value chain Grain technology • Investment in R&D, plant breeding, seeds and technical services Grain acquisition • Increase high margin contract acquisition products (cash, multi-varietal) Finance and risk mgt Pool services Trading Supply chain Chartering Milling and Manufacturing • Harvest loans, Risk. Assist and risk management products (Basis Pool) • Performance fee for pool management • Provide strong trading margins • Commercial return on investments in supply chain (15% IRR hurdle rate) • Performance fee from pool • Commercial return on milling investments (15% IRR hurdle rate) 4
5 Risk allocation Grower risk National Pool • Final net pool return – final sale price – foreign exchange • Credit risk management outcomes • Supply chain costs AWB risk Underwritten loans • Pool return falls below 80% • Size of pool impacts revenue derived from products and services • Incentive in pool management fee • Margin on loans • Underwriting fees • Fees from basis contracts Principal trading • Principal positions • Multi-varietal and fixed grade contracts
Risk management process AWB Limited Board of Directors Determine policy framework Corporate Risk Board Committee Oversees all strategies, their objectives and implementation on monthly or as need basis Corporate Risk Review Committee Executive Management review and approve risk management strategies on weekly basis Corporate Risk Assessment Operational Areas Independent group who quantify, analyse and report exposure Initiate individual hedging strategies 6
Senior management Paul Ingleby (CFO) • Finance and Administration, Treasury, Trade Finance, Risk Management and Compliance, Legal, Investor Relations and Financial Services • Former CFO of Elders Australia and experience in banking, merchant banking, chartered accounting and government Tim Goodacre (Group GM, Sales and Marketing) • Grain Acquisition, Grain Technology and International Sales and Marketing • Former executive in the Department of Agriculture Fisheries and Forestry Peter Geary (Group GM, Trading) • Domestic and Global Trading and Risk Management Products • 15 years previous experience in National Pool, Policy and Export Sales Jill Gillingham (Chief Information Officer) • Information Systems and Supply Chain Management • Broad range of general management experience Sarah Scales (GM, National Pool) • Management of National Pool • 8 years previous experience in pricing and risk management strategies Charles Stott (Group GM, Investments, Mergers & Acquisitions) • Responsible for Investments, Mergers and Acquisitions • Former positions with BHP and extensive international experience 7
Offices throughout Australian wheat belt About 500 employees with 30 offices in Australia and overseas 8
Business Streams
Pool management services • Primary role is to aggregate and internationally market pooled wheat on behalf of growers • The national pool is operated by AWB International. AWB provides services to enable AWBI to operate the pool and in return receives payments for these services • Approximately 15 m tonnes of wheat managed representing 70% of total wheat production in Australia • New performance-based fee model, which will reward (or penalise) AWB on a commercial basis: Ø aligns both the mandate of AWBI to maximise net National Pool Returns with the mandate of AWB, by creating incentive for investment and improvement in performance Ø consistent with that adopted by asset managers Ø designed to provide the appropriate incentives to AWB to achieve superior pool return out-performance while sharing the risks and costs associated with the National Pool 9
Costs incurred by AWBI • Costs of approximately $58 million to operate the National Pool • AWBI has no employees and therefore in order for it to carry out its functions, it contracts various services from AWB. Some of these key services are: — Risk management services — Grain acquisition services — Logistics services — Trading support — Export credit advice and insurance — Treasury services — Marketing services — Accounting and administrative services 10
Finance and risk management products • Growers are exposed to a number of interrelated risks requiring co-ordinated working capital management and marketing / price risk management • AWB provides limited recourse finance secured against a grower’s wheat delivery to an AWB managed pool • The provision of risk management products (effectively derivatives that manage pool risk exposures and cash flows) that allow growers to tailor their risk exposure 11
Finance and risk management products • AWB has a strong market position in the provision of price risk management and lending products to wheat growers • AWB has a significant market share in agricultural lending, specifically in crop advances Wheat and Grain Farms Only Working Capital Market by product type Total Working Capital Debt = A$3. 2 bn (1999/2000) Seasonal Loan* 21% Overdraft/ Business Card 18% $2. 0 bn Crop Loan 61% * Loan against inputs or crop pre-harvest In the $2. 0 bn Crop Loan segment, AWB is the largest participant with approximately 60% share of all outstanding crop loans § AWB’s share of all grain farm working capital is approximately 35% § Within the crop loan segment, AWB’s share is substantially higher than the next largest competitor 12
Grain acquisition and trading • Provides growers with cash sales options before and during harvest • Australian domestic trading – trading in deregulated domestic grain and non-wheat export markets • Contract acquisition products – providing a range of preharvest contract products that provide growers with greater flexibility 13
Grain technology • Primary role is the development of a proprietary position for AWB in plant genetics and new cereal varieties • 5 main areas: agrifood technology, AWB Seeds, Grain Development, Quality Assurance, and AWB Research • Provides technical services supporting AWB’s core business activities • Generates revenue through the provision of analytical testing services and the development and sale of new seed varieties 14
Supply chain and other investments • AWB has made a number of other investments in activities across the grain value chain that assist it in delivering its core product, including: • Dimboola Grain Centre $11 m (100% owned) completed for the 1999/00 harvest • Melbourne Port Terminal $40 m (50% owned joint venture with Melbourne Terminal Operations) operations officially commenced in Aug 2000 • Investment of $46 m in new storage and handling sites in NSW and VIC. New storage facilities are aimed at reducing supply chain costs and delivering improved services and greater efficiencies to growers. Sites completed • Investments in flour and feed milling $14 m include: Five Star Flour Mills (Egypt) 30% shareholding, Vietnam flour mills (Vietnam) 17. 5% shareholding and Shenzen Southseas Grain Industries (China) 8% shareholding • Small investment in grain importing through AWB Zennoh, a joint venture commodity trading company established between AWB and Zennoh (Japans largest agricultural cooperative) • Chartering business manages all aspects of AWB’s chartering operations in-house 15
Major grain storage & handling providers NSW & VIC: ABA 16 QLD: Grain. Co Ø Established in 1999 Ø Established in 1991 Ø Joint venture company owned by Grain. Co and Ausbulk Ø Formed from a number of State owned grower co-operates and statutory authorities Ø Corporatised entity WA: CBH Ø Established in 1933 NSW & VIC: Grain. Corp Ø Formed by WA Government Ø Privatised in 1992 Ø Listed on the stock exchange in 1998 Ø Cooperative structure Ø Owned by WA grain growers Ø Merged with Vicgrain in 2000 Ø Opening new sites in QLD, NSW & VIC SA: Ausbulk Ø Incorporated in 1955 Ø Owned by SA grain growers AWB Grain Centers Ø Corporatised in 2000 Ø 3 in NSW Ø 4 in Vic Ø Total capacity = 1. 3 m tonnes
Major rail transport service providers NSW & VIC: ATN Access Ø Major shareholder: Wisconsin Central Transportation Company. Ø Operates a 40 wagon contract train for AWB from NSW and Victorian sites into Port Kembla and Appleton Dock, Melbourne QLD: QR Ø Expected early 2002 Ø Hauls all AWB export task over 120 kms from port Ø 100% owned by the Queensland Government. NSW: Freight. Corp Ø 100% owned by the NSW Government. WA / SA: ARG Ø Privatised late 2000 Ø The NSW Government has announced it will sell Freight. Corp. The sale is expected to be finalised in Dec 2002. Ø 50% owned by Wesfarmers; and 50% owned by Genesee & Wyoming Inc Ø AWR (Aust. Western Railway) Ø ASR (Aust. Southern Railway) Victoria: Freight Australia Ø Privatised in May 1999. Ø Owned by Rail America Ø Also operates a contract train for AWB from NSW silos into Port Kembla 17
AWB new storage facilities 1. Birchip 2. Charlton 3. Sea Lake 4. Bogan Gate 5. Stockinbingal NSW 6. West Wyalong 7. Dimboola 4 6 5 7 3 1 2 VIC 18
Global Wheat Industry
Global grain trade • Global grain trade is dominated by wheat • Approximately 270 million tonnes traded • Australia’s share of global grain trade: — wheat 17% — barley 21% — pulses 26% • Global grain trade has grown at an average of 1. 4% pa over the last 20 years • Oilseeds have been the fastest growing global traded grains over the last 20 years. Oilseed production has grown at an average of 20. 3% pa over the last 20 years • Most of the large grain importers are located in Asia, the Middle East or North Africa, which are AWB’s natural markets • The management of grains is shifting from a commodity to an information intensive business driven by changes in grain acquisition, logistics and end use markets 19
Global wheat consumption & production mt Consumption Source: Economic Research Service, USDA March 2001 Production 20
Global wheat stocks and stocks to use ratio mt % 200 180 160 140 120 100 80 60 40 20 0 35 30 25 20 15 10 5 Global Stocks Source: USDA Nov 2001 Global STU 2 20 01 /0 20 00 /0 1 0 19 99 /0 9 19 98 /9 8 19 97 /9 7 19 96 /9 6 19 95 /9 5 19 94 /9 19 93 /9 4 0 21
Global wheat production – 2000/01 Country / Region Tonnage (mt) Far East Asia 201. 7 EU 104. 0 CIS & Baltic States 62. 3 USA 60. 5 Middle East 32. 5 Non – EU Europe 28. 7 Canada 26. 8 Australia 20. 9 Argentina 16. 4 North Africa 10. 5 South America 7. 5 Sub Sahara Africa 5. 1 Total Source: Nov forecast USDA 576. 9 22
Wheat production – major exporters USDA November 2001 23
Top five wheat importing / exporting nations 01/02 Rank Top importers Country Volume Top exporters Country (mt) Volume (mt) 1 Iran 7. 0 USA 28. 0 2 Brazil 6. 6 Australia 17. 0 3 Egypt 6. 3 Canada 15. 3 4 Japan 5. 8 Argentina 12. 9 5 Algeria 5. 0 EU Source: USDA Nov 2001 Forecast 8. 2 24
25 Global wheat trade - 2000/01 USA 26% Other 19% EU 11% Australia 17% Argentina 12% Source: USDA Canada 15%
26 Australian wheat production mt Australian wheat production and yield over the last 20 years (wheat yield growth rate average of 2. 3% pa) Production Source: ABS and ABARE Yield %
27 AWB wheat exports 73% AWB exports around 75 - 80% of its total average wheat production 93% 88% 55% 78% Annual wheat production is around 20 - 22 million tonnes
AWB wheat export destinations Region Tonnage (mt) Asia 7. 0 Middle East 6. 2 North Africa 1. 4 Sub Sahara Africa 1. 2 Pacific Markets 0. 5 Europe 0. 4 Other 0. 3 Total 17. 0 Source: USDA July – June 2001/02 forecast 28
29 Major Australian domestic wheat traders Estimated market share AWB 50% Other Global Traders 9% Other Australian Traders 2% Ausbulk 12% Source: USDA, company reports, AWB, interviews Grain. Co 12% Graincorp 15%
AWB is one of the largest global wheat managers Estimates of wheat tonnes under management - 2000 Wheat management Traded Share AWB 18 mt 18% Cargill / Continental 18 mt 18% Canadian Wheat Board 11 mt 11% ADM 8 mt 8% Louis Dreyfus 7 mt 7% Congara 5 mt 5% Bunge 2 mt 2% Xcan 1 mt 1% Others 30 mt 30% 100 mt 100% Total Source: USDA, company reports, company interviews 30
Pool price trend graph $ Pre and post harvest pool prices for Australian prime hard wheat (APH#1) over the last 10 years Source: AWB 31
Share Information
Share Price v All Ords 32
Share Price v ASX / S&P 200 33
Share Price and volume 34
35 Shareholder ranges Fully paid B class shares held at 31/10/01 Range Holders Shares % 1 – 1000 30, 245 10. 8 4 1, 001 – 5, 000 19, 821 48. 8 18 5, 001 -10, 000 6, 776 48. 3 18 10, 001 – 100, 000 6, 473 132. 0 48 63 33. 4 12 63, 378 273. 3 100, 001 - over Total
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