2005 full year results presentation wednesday, 23 november 2005

2005 Full Year Results Presentation

Wednesday, 23 November 2005

Content

• Full year review and highlights (Andrew Lindberg)

• Financial performance (Paul Ingleby)

• Strategy and outlook (Andrew Lindberg)

Full year review and highlightsAndrew Lindberg

Managing Director, AWB Limited

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NPAT before significant items ($m) 2nd Half

NPAT before significant items ($m) 1st Half

Production (million tonnes)

Diversification pays dividends

Financial result – year ended 30 September ($m)

2004 2005 Change (%)

PBTA 184.9 184.5 (0.2)

NPAT before significant items 96.9 115.3 19

Reported NPAT 96.9 157.1 62.1

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Financial highlights from the year

• AWB demonstrated the effectiveness of its diversification strategy and delivered profit before tax, sale of Futuris shares and amortisation (PBTA) of $184.5 million compared with $184.9 million in the pcp.

• First time AWB has increased its year on year NPAT (before significant items) when it has received lower year on year wheat volumes.

• Reported NPAT up 62% on the pcp to $157.1 million. (including the profit on sale of investment in FCL.

• NPAT before significant items was $115.3 million, up 19% compared to $96.9 million in the pcp.

• Reported EPS was up 59% to 45.7 cents per share.

• Final dividend has increased to 13 cents per share fully franked, bringing the total full year dividend to 29 cps, up 16%.

• Landmark integration targets of $24.5 million achieved since acquisition, against a target of $20-25 million.

• Landmark, Finance & Risk Management and Pool Management Services all demonstrated strong year on year growth.

Significant developments during the year

• The Landmark lending book continued its growth to over $1.5 billion, up 41% on the pcp.

• AWB maintained its leadership position in the harvest finance market with the AWB harvest loan book peaking at $1.1 billion.

• Deposits increased from $254m to $550m.

• AWB Group developed its own funding vehicle ‘Rural Trust’ - providing the platform for Landmark loan book growth and strengthened position in agri-finance market.

• Expansion of international trading in Geneva. Indian trading operations commenced.

• Establishment of strategic partnership in fertiliser with Elders and WMC Resources (now BHP Billiton), including the acquisition of 33% of Hi-Fert.

• Pool Management launched their ‘Shaping the Future’ strategy to strengthen their competitiveness in the international wheat market. New offices were opened in Singapore and Beijing.

• Positioned to move forward with a more integrated business model.

EBIT summary

(8.3) 4.6 4.6(26.9)3.7 16178.2 171.9

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September 2004EBIT

PoolManagement

Services

GrainAcquisition &

Trading

Supply Chain &Other

Investments

Finance & RiskManagement

Products

Landmark Corporate Items September 2005EBIT

$m

Our scorecard to date

2003 2004 2005 3 year target

EPS (cps)* 16.8 39.1 43.5 continual growth

ROE (%)* 5.4 13.6 13.8 15

Dividend (cps) 25 25 29 stable dividend

*Before significant items & amortisation of goodwill and software

Diversification has made shareholder return less dependent on season downturns

Financial Performance Business Streams

Paul Ingleby Chief Financial Officer, AWB Limited

Statement of financial performanceAWB Group Summary

($m) Full Year Ended 30 September

2002 2003 2004 2005

Revenue 2,319.6 2,211.9 5,344.6 5,156.5

EBITDA 165.3 93.0 261.4 251.2

Depreciation and amortisation 14.5 29.8 83.2 79.3

EBIT 150.8 63.2 178.2 171.9

Interest 2.3 -4.3 -31.1 -24.6

PBT 153.1 58.9 147.1 147.3

Tax -45.3 -14.7 -49.4 -31.7

Outside equity interest -0.6 -0.3 -0.8 -0.3

NPAT before significant items 107.2 43.9 96.9 115.3

EPS (¢) 39.2 15.9 28.8 33.5

Significant items after tax 0.0 0.0 0.0 41.8

Reported NPAT 107.2 43.9 96.9 157.1

EPS (¢) 39.2 15.9 28.8 45.7

Amortisation (goodwill and software) - 2.4 37.8 37.2

PBTA 153.1 61.3 184.9 184.5

NPAT before significant items and amortisation of 107.2 46.3 131.5 149.5

goodwill and software

EPS (¢) 39.2 16.8 39.1 43.5

Dividend per share $0.25 $0.25 $0.25 $0.29

ROE 13.9% 5.4% 13.6% 13.8%

Pool Management Services

• Pool Management Services contributed an EBIT of $36.3m for the full year, a 11% lift on the pcp.

• 20mt managed through the 2003/04 Pool and 14.6mt tonnes through the 2004/05 Pool.

• Total base fee for the 2003/04 Pool was $63.5m. 90% of the base fee for the 2004/05 Pool is now recognised, providing revenue of $58.6m.

• Costs allocated to Pool Management Services up 3% on the pcp, mainly due to expansion of AWB’s Asian office network and investment in technology and systems.

• Base fee has been de-linked from Pool value and fixed to the cost of providing services to the Pool. The Out Performance Incentive (OPI) structure is now divided into two tiers.

Full Year Ended 30 September ($m)

2004 2005 Change

Revenue 95.2 100.9 6%

EBITDA 32.6 36.3 11%

Depreciation and amortisation

0.0 0.0 0%

EBIT 32.6 36.3 11%0

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EBITDA – Pool Management Services

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• Grain Acquisition & Trading contributed EBIT of $75.9m, 26% below the pcp, attributed mainly to adverse conditions in the Australian grain trading operations.

• Expanding international trading business continued to provide favourable trading results and remains a strong platform for the Group.

• Chartering continued to perform well through trading freight forward agreements (FFA’s) within predetermined limits.

• More difficult trading and seasonal conditions reduced the contribution from Australian Trading.

• Livestock trading experienced favourable margins in buoyant market conditions and traded over 65,000 of cattle.

Grain Acquisition & Trading


2004 2005 Change

Revenue 2207.2 2348.4 6%

EBITDA 104.7 77.9 -26%


1.9 2.0 0%

EBIT 102.8 75.9 -26%

EBITDA – Grain Acquisition & Trading

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Supply Chain & Other Investments


2004 2005 Change

Revenue 108.8 76.6 -30%

EBITDA 14.5 6.7 -54%


12.7 13.2 0%

EBIT 1.8 (6.5) > -100%

• Supply Chain & Other Investments incurred an EBIT loss of $6.5m for the year, compared to $1.8m profit in the pcp.

• Grain Centres experienced competitive pressures and difficult seasonal conditions. Receivals of over 1.3m tonnes were down from over 1.8m tonnes in the pcp.

• Melbourne Port Terminal (MPT) and overseas investments overall contribution remained steady.

• MPT’s contribution to the Group decreased compared to the pcp, primarily due to lower throughput volumes for the year.

• Overseas investments maintained their EBIT contributions at a comparable level to the previous year.

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Finance & Risk Management Products

• The EBIT contribution from Finance & Risk Management Products was $36.3m for the year, 15% higher than the pcp.

• AWB’s Harvest Finance market share remains stable, reflecting AWB’s extensive industry expertise.

• The contribution from Harvest Finance products decreased compared to the pcp mainly due to lower wheat prices and production.

• AWB’s Risk Management business performed well, mainly attributable to increased activity from the OTC desk in the Portland office.

• Strong contribution from Treasury Management.


2004 2005 Change

Revenue 1284.2 701.6 -45%

EBITDA 31.7 36.3 15%


0.0 0.0 0%

EBIT 31.7 36.3 15%

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EBITDA – Finance & Risk Management Products

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Landmark

• Landmark contributed an EBIT of $81.3m for the year, 6% higher than the pcp.

• Merchandise and fertiliser sales increased by 3% compared with the pcp.

• Livestock gross profit was comparable to the pcp. Higher cattle prices offset by reduced volumes and lower sheep prices offset by higher volumes.

• Real Estate sales increased by 5% on the pcp. Increase in prices driven by excellent demand for prime rural property.

• Wool gross profit was down by 7% on the pcp, primarily due to a reduction in wool prices and a reduction in volumes.

• Finance gross profit increased on the pcp. 41% increase in the loan book to a balance of $1.6b. Interest bearing deposits increased 86% to $550m.

• Insurance gross profit increased compared with the pcp.


2004 2005 Change

Revenue 1646.2 1682.6 2%

EBITDA 93.0 94.3 1%


16.3 13.0 0%

EBIT 76.7 81.3 6%

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EBITDA – Landmark

Corporate Items

• Corporate division contributed an EBIT expense of $51.4m, compared with a $67.4m expense in the pcp.

• Decrease in Corporate overheads mainly due to non-recurring integration and restructuring costs associated with Landmark acquisition incurred in the pcp.


2004 2005 Change

Revenue 3.0 246.4 > 100%

EBITDA (15.1) (0.3) -98%


52.3 51.1 -2%

EBIT (67.4) (51.4) -24%

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EBITDA – Corporate Items

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Financial performanceAWB Group

Statement of financial position

Year Ended 30 September

($m) 2004 2005

Cash 48.2 54.2

Working Capital Items 535.3 611.9

Grower Loan Receivables 575.2 410.9

Advanced & Deferred Payment Products 273.2 167.0

Finance Options for Growers 848.4 577.9

Investments 681.0 561.1

Property, Plant, and Equipment 319.6 277.7

Short Term Deposits 515.8 393.2

Interest Bearing Deposits (Landmark) (304.4) (535.4)

Deposits - AWB National Pools (1,108.9) (565.9)

Bank Loans (488.8) (257.3)

Net Debt (1,386.3) (965.4)

Net Assets 1,046.2 1,117.4

Shareholders' Equity 1,046.2 1,117.4

Cashflow

Full Year Ended 30 September 2005 ($m) 2004 2005

Profit before tax 147.1 202.6

Add: depreciation & amortisation 83.3 79.3

Less: profit on sale of n/c assets (5.5) (60.5)

Add: other non-cash items (53.9) 18.8

170.9 240.1

Increase in working capital balances (147.3) (76.6)

Finance options for growers (367.4) 270.6

Income taxes paid (net) 8.7 (63.2)

Cash flows from operating activities (335.1) 370.9

Payments for pp&e* (net) (19.7) (7.9)

Proceeds on sale of investments (net) (32.3) 148.7

Proceeds from short term deposits (479.8) 122.6

Cash flows from investing activities (531.8) 263.4

Proceeds from issues of shares 75.7 8.3

Net decrease in interest bearing liabilities 839.2 (543.5)

Dividends paid (54.6) (93.1)

Cash flows from financing activities 860.3 (628.3)

Net increase / (decrease) in cash held (6.6) 6.0

*property, plant & equipment

Capital expenditure

($m) Full Year Ended 30 September Change

2004 2005 %

Grain Centres construction 1.9 7.2 279%

System development & other plant & equipment 25.1 30.00 20%

New building costs 8.5 0.0 -100%

Total 35.5 37.2 5%

Depreciation and amortisation * 56.2 51.2 -9%

* excludes goodwill amortisation

IFRS Update

A-IFRS impact

• First A-IFRS compliant reporting will be 31 March 2006

• Project to manage transition has been completed and remaining tasks have been transferred to existing functional areas

• AWB expects to fully comply

• Major impacts:– Goodwill amortisation replaced by impairment testing– Grain centres reduced carrying value on transition– Expense share based payments– No hedge accounting for derivatives– Grain trading inventory at fair value

A-IFRS Analysis - High Impact

AASB Ref Description Impact

AASB 1 First Time adoption – elections available

Grain centre plant and equipment at fair value (see also AASB 136)No AASB 139 comparatives.No AASB 3 re-opening of business combinationsNo AASB 121 transfer of cumulative translation differences to opening retained earnings.

AASB 2 Expensing share based payments

Black Scholes modelling of executive performance rights with 4 year amortisation period – used for current AASB 1046 compliance. Other schemes expensed as incurred. Loan schemes currently an IFRIC issue, however treatment as a financial instrument is preferred.

AASB 136 Goodwill impairment testing 30 September 2004 carrying value supported by impairment testing at 30 September 2005. 2005 amortisation entries will be reversed for A-IFRS comparatives.

AASB 136 Grain centre impairment testing Use of discounted expected future cash flows from grain centre assets will result in recognition of lower carrying value on transition.

AASB 102 Inventories Full P&L for trading businesses as inventory standard is not applicable to commodity traders (fair value less costs to sell permitted). Landmark inventory remains lower of cost or net realisable value.

AASB 139 Derivative Hedges No hedge accounting sought. Full P&L given onerous documentation and transaction matching requirements combined with complimentary treatment of inventory and forwards

A-IFRS financial impact

Sept 2005

Impact $'000

Share Based Payments Negative

Increase in operating expenses 2,154

Reduction in opening equity 226

Increase in equity reserves 2,380

Business Combinations Positive

Reduction in operating expenses 27,190

Property, Plant and Equipment Negative

Reduction in P, P&E 30,658

Reduction in opening equity 30,658

Reduction in depreciation expense 2,725

Software Development reclassified Neutral

Increase in intangible assets 47,225

Reduction in P, P&E 47,225

Strategy and outlookAndrew Lindberg

Managing Director, AWB Limited

Landmark back office integration complete

1. Customer Management

2. Product Development

3. Channel Strategy

Channel management to optimise AWB-Landmark’s combined distribution network

Integrated customer management developed across the distribution network combining systems and processes to better understand and serve our customers

Back office integration is complete, our focus has shifted to implementation of the IBM

New products and bundles being developed incorporating products from across Landmark and AWB range to better meet our customers needs

Integration Integrated Business Model“generating new revenue growth opportunities”

Looking forward…

• AWB’s strategy is to be Australia’s leading agribusiness through becoming the ‘business partner of choice’ for primary producers and end customers

• Execution of this vision will enable AWB to deliver its financial objectives of:– Strengthening core business.– Growing and diversifying to improve the quality of the

earnings and reducing the share of ‘Pool’ based earnings.

Looking forward…

• In the medium term, AWB expects to be less reliant on Pool and Pool related earnings.

• AWB will achieve its financial objectives by working towards substantial growth in the following three segments:

Rural Services

Commodity Management

Financial Services

People and Capability

Commodity Management

How will we achieve our financial objectives?

• Diversification into select profitable segments (eg livestock, other origin grains) and niche assets.

• Expansion and diversification of the international trading network.

What we’ve done this year…

• Our international presence has continued to grow with the recent opening of an AWB office in New Delhi.

• Livestock trading is now fully integrated into the AWB Group.

Financial Services


• Growing the lending and insurance business.

• Moving into selected new products and services.


• Developed our own funding vehicle ‘Rural Trust’ for the lending business.

• Recently launched a new set of price risk management products.

• Released new harvest finance products.

Rural Services


• Optimising network operations.• Growing merchandise, fertiliser

and real estate.• Retaining market share and

managing profitability in livestock and wool.


• Established strategic partnership in Fertiliser, including the acquisition of 33% of Hi-Fert.

• Further growth targeted in the rural residential sector.

• Landmark back office integration completed, focus now on implementation of the integrated business model.

Outlook – Commodity Management

• AWB’s 2005/06 forecast for domestic wheat production is 23-25m tonnes

• World wheat production in 2005/06 is estimated to be around 608m tonnes, around 17m tonnes less than the previous season.

• Global wheat consumption will continue to increase and remain ahead of world production (2005/06 consumption forecast is 619mt)

• AUD is expected to weaken against the US into late 2005 and early 2006

• Continued offshore expansion within the Group is expected.

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World Production World Consumption

World Wheat Production & Consumption

Outlook – Financial Services

• Landmark remains a genuine alternative to the banks, with complete lending solutions offered through the Group’s recently established ‘Rural Trust.’

• Lending growth for the last year was well above the industry trend and that growth is expected to continue going forward.

Outlook – Rural Services

• Australian beef exports remain strong and are still benefiting from the absence of US and Canadian beef exporters in our traditional markets.

• Some potential for softening of livestock prices when the US regains market access into the Korean and Japanese markets.

• Merchandise and fertiliser looks promising with good seasonal conditions also supported by Landmark business set to benefit from synergy benefits.

• In the Real Estate market, property prices are expected to ease after a strong two years.

• Wool prices are expected to remain flat in the short term, as they remain highly sensitive to the AUD/USD exchange rate.

Outlook – AWB Group profit for 2006

AWB is expecting pre tax profits to be around 10% higher than this year’s PBTA of $184.5 million, subject to normal seasonal and operating conditions.

A more robust business platform and improvements in key market drivers will support the lift.

Questions

For more information contact:

Delphine Cassidy

Head of Investor Relations

Ph: +61 3 9209 2404

Email: [email protected]

www.awb.com.au

2005 full year results presentation wednesday, 23 november 2005

Documents

year awb

year npat

year growth

year dividend

year review

mfull year

strong year

lower year