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 highlights
Andrew Lindberg
Managing Director, AWB Limited
Diversification pays dividends
NPAT before significant items ($m) 2nd Half
NPAT before significant items ($m) 1st Half
140
30
120
25
100
20
80
15
60
10
40
20
5
0
0
2001
2002
2003
2004
Production tonnes (m)
NPAT before significant
items ($m)
Production (million tonnes)
2005
Financial result – year ended 30 September ($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
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 agrifinance 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
$m
200
178.2
3.7
(26.9)
September 2004
EBIT
Pool
Management
Services
Grain
Acquisition &
Trading
(8.3)
4.6
4.6
16
171.9
150
100
50
0
Supply Chain &
Other
Investments
Finance & Risk
Management
Products
Landmark
Corporate Items September 2005
EBIT
Our scorecard to date
2003
2004
2005
3 year target
16.8
39.1
43.5
continual growth
ROE (%)*
5.4
13.6
13.8
15
Dividend (cps)
25
25
29
stable dividend
EPS (cps)*
*Before significant items & amortisation of goodwill and software
Diversification has made shareholder return
less dependent on season downturns
Financial Performance
Business Streams
Paul Ingleby
Chief Financial Officer, AWB Limited
Statement of financial performance
AWB Group Summary
($m)
Revenue
EBITDA
Depreciation and amortisation
EBIT
Interest
PBT
Tax
Outside equity interest
NPAT before significant items
EPS (¢)
Significant items after tax
Reported NPAT
EPS (¢)
Amortisation (goodwill and software)
PBTA
NPAT before significant items and amortisation of
goodwill and software
EPS (¢)
Dividend per share
ROE
Full Year Ended 30 September
2002
2003
2004
2,319.6
2,211.9
5,344.6
165.3
93.0
261.4
14.5
29.8
83.2
150.8
63.2
178.2
2.3
-4.3
-31.1
153.1
58.9
147.1
-45.3
-14.7
-49.4
-0.6
-0.3
-0.8
107.2
43.9
96.9
39.2
15.9
28.8
0.0
0.0
0.0
107.2
43.9
96.9
39.2
15.9
28.8
2005
5,156.5
251.2
79.3
171.9
-24.6
147.3
-31.7
-0.3
115.3
33.5
41.8
157.1
45.7
153.1
107.2
2.4
61.3
46.3
37.8
184.9
131.5
37.2
184.5
149.5
39.2
16.8
39.1
43.5
$0.25
13.9%
$0.25
5.4%
$0.25
13.6%
$0.29
13.8%
Pool Management Services
EBITDA – Pool Management Services
EBITDA $m
40
Full Year Ended 30 September ($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%
30
2H
20
1H
10
0
2002
2003
2004
2005
•
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 $58.6m.
•
Costs allocated to Pool Management Services up 3% on the pcp, mainly due to
expansion of AWB’s Asian office network and investment in technology and systems.
•
Base fee has been de-linked from Pool value and fixed to the cost of providing
services to the Pool. The Out Performance Incentive (OPI) structure is now divided
into two tiers.
Grain Acquisition & Trading
EBITDA – Grain Acquisition & Trading
Full Year Ended 30 September ($m)
120
2004
2005
Change
Revenue
2207.2
2348.4
6%
EBITDA
104.7
77.9
-26%
1.9
2.0
0%
102.8
75.9
-26%
EBITDA $m
100
80
60
2H
1H
40
20
Depreciation and
amortisation
EBIT
0
2002
2003
2004
2005
•
Grain Acquisition & Trading contributed EBIT of $75.9m, 26% below the pcp, attributed
mainly to adverse conditions in the Australian grain trading operations.
•
Expanding international trading business continued to provide favourable trading results
and remains a strong platform for the Group.
•
Chartering continued to perform well through trading freight forward agreements (FFA’s)
within predetermined limits.
•
More difficult trading and seasonal conditions reduced the contribution from Australian
Trading.
•
Livestock trading experienced favourable margins in buoyant market conditions and
traded over 65,000 of cattle.
Supply Chain & Other Investments
EBITDA – Supply Chain & Other Investments
Full Year Ended 30 September ($m)
16
2004
2005
Change
Revenue
108.8
76.6
-30%
EBITDA
14.5
6.7
-54%
4
Depreciation and
amortisation
12.7
13.2
0%
0
EBIT
1.8
(6.5)
> -100%
EBITDA $m
12
2H
8
1H
-4
2002
2003
2004
2005
•
Supply Chain & Other Investments incurred an EBIT loss of $6.5m for the year,
compared to $1.8m profit in the pcp.
•
Grain Centres experienced competitive pressures and difficult seasonal conditions.
Receivals of over 1.3m tonnes were down from over 1.8m tonnes in the pcp.
•
Melbourne Port Terminal (MPT) and overseas investments overall contribution
remained steady.
•
MPT’s contribution to the Group decreased compared to the pcp, primarily due to lower
throughput volumes for the year.
•
Overseas investments maintained their EBIT contributions at a comparable level to the
previous year.
Finance & Risk Management
Products
EBITDA – Finance & Risk Management Products
Full Year Ended 30 September ($m)
70
2004
2005
Change
Revenue
1284.2
701.6
-45%
EBITDA
31.7
36.3
15%
Depreciation and
amortisation
0.0
0.0
0%
EBIT
31.7
36.3
15%
EBITDA $m
60
50
40
2H
30
1H
20
10
0
2002
2003
2004
2005
•
The EBIT contribution from Finance & Risk Management Products was $36.3m for the
year, 15% higher than the pcp.
•
AWB’s Harvest Finance market share remains stable, reflecting AWB’s extensive
industry expertise.
•
The contribution from Harvest Finance products decreased compared to the pcp mainly
due to lower wheat prices and production.
•
AWB’s Risk Management business performed well, mainly attributable to increased
activity from the OTC desk in the Portland office.
•
Strong contribution from Treasury Management.
Landmark
EBITDA – Landmark
100
Full Year Ended 30 September ($m)
2004
2005
Change
Revenue
1646.2
1682.6
2%
EBITDA
93.0
94.3
1%
Depreciation and
amortisation
16.3
13.0
0%
EBIT
76.7
81.3
6%
80
EBITDA $m
60
2H
40
1H
20
0
2002
2003
2004
-20
•
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 $550m.
•
Insurance gross profit increased compared with the pcp.
Corporate Items
EBITDA – Corporate Items
Full Year Ended 30 September ($m)
10
2004
2005
Change
Revenue
3.0
246.4
> 100%
EBITDA
(15.1)
(0.3)
-98%
52.3
51.1
-2%
(67.4)
(51.4)
-24%
5
EBITDA $m
0
-5
-10
2002
2003
2004
2005
Depreciation and
amortisation
-15
2H
-20
EBIT
1H
-25
-30
• Corporate division contributed an EBIT expense of $51.4m, compared
with a $67.4m expense in the pcp.
• Decrease in Corporate overheads mainly due to non-recurring
integration and restructuring costs associated with Landmark
acquisition incurred in the pcp.
Financial performance
AWB Group
Statement of financial position
Year Ended 30 September
($m)
2004
2005
Cash
Working Capital Items
48.2
535.3
54.2
611.9
Grower Loan Receivables
Advanced & Deferred Payment Products
Finance Options for Growers
575.2
273.2
848.4
410.9
167.0
577.9
Investments
Property, Plant, and Equipment
681.0
319.6
561.1
277.7
515.8
(304.4)
(1,108.9)
(488.8)
(1,386.3)
393.2
(535.4)
(565.9)
(257.3)
(965.4)
Net Assets
1,046.2
1,117.4
Shareholders' Equity
1,046.2
1,117.4
Short Term Deposits
Interest Bearing Deposits (Landmark)
Deposits - AWB National Pools
Bank Loans
Net Debt
Cashflow
Full Year Ended 30 September 2005 ($m)
Profit before tax
Add: depreciation & amortisation
Less: profit on sale of n/c assets
Add: other non-cash items
2004
2005
Increase in working capital balances
Finance options for growers
Income taxes paid (net)
Cash flows from operating activities
147.1
83.3
(5.5)
(53.9)
170.9
(147.3)
(367.4)
8.7
(335.1)
202.6
79.3
(60.5)
18.8
240.1
(76.6)
270.6
(63.2)
370.9
Payments for pp&e* (net)
Proceeds on sale of investments (net)
Proceeds from short term deposits
Cash flows from investing activities
(19.7)
(32.3)
(479.8)
(531.8)
(7.9)
148.7
122.6
263.4
Proceeds from issues of shares
Net decrease in interest bearing liabilities
Dividends paid
Cash flows from financing activities
75.7
839.2
(54.6)
860.3
8.3
(543.5)
(93.1)
(628.3)
Net increase / (decrease) in cash held
(6.6)
6.0
*property, plant & equipment
Capital expenditure
($m)
Full Year Ended 30 September
Change
2004
2005
%
1.9
7.2
279%
25.1
30.00
20%
8.5
0.0
-100%
Total
35.5
37.2
5%
Depreciation and amortisation *
56.2
51.2
-9%
Grain Centres construction
System development & other
plant & equipment
New building costs
* 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 combinations
No 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
Share Based Payments
Negative
Increase in operating expenses
2,154
Reduction in opening equity
226
Increase in equity reserves
Business Combinations
2,380
Positive
Reduction in operating expenses
Property, Plant and Equipment
$'000
27,190
Negative
Reduction in P, P&E
30,658
Reduction in opening equity
30,658
Reduction in depreciation expense
Software Development reclassified
2,725
Neutral
Increase in intangible assets
47,225
Reduction in P, P&E
47,225
Strategy and outlook
Andrew Lindberg
Managing Director, AWB Limited
Landmark back office
integration complete
Integration
Integrated Business Model
“generating new revenue growth opportunities”
1. Customer
Management
Back office
integration is
complete, our
focus has shifted
to implementation
of the IBM
2. Product
Development
3. Channel
Strategy
Integrated customer management
developed across the distribution
network combining systems and
processes to better understand and
serve our customers
New products and bundles being
developed incorporating products
from across Landmark and AWB
range to better meet our customers
needs
Channel management to optimise
AWB-Landmark’s combined
distribution network
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
People and
Capability
Commodity
Management
Financial
Services
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
How will we achieve our
financial objectives?
• Growing the lending and
insurance business.
• Moving into selected new
products and services.
What we’ve done this year…
• 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
How will we achieve our
financial objectives?
• Optimising network operations.
• Growing merchandise, fertiliser
and real estate.
• Retaining market share and
managing profitability in
livestock and wool.
What we’ve done this year…
• 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.
World Wheat Production & Consumption
640
Tonnes (million)
•
590
540
490
440
World Production
World 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
www.awb.com.au
For more information contact:
Delphine Cassidy
Head of Investor Relations
Ph: +61 3 9209 2404
Email: dcassidy@awb.com.au