Australian Agricultural Company Limited · ASX:AAC
Australian Agricultural — Shareholder Meeting (May 2011)
88 slides from Australian Agricultural's shareholder meeting presentation, May 11, 2011
Slide 1: AAco Annual General Meeting – Chief Executive Officer's Presentation
Australian Agricultural Company Limited ABN 15 010 892 270 For personal use only AAco Annual General Meeting – Chief Executive Officers Presentation ASX Announcement : 27/2011 11 May 2011 Attached is the Chief Executive Officer’s presentation from the Annual General Meeting of the Australian Agricul
Slide 2: Annual General Meeting 11 May 2011
For personal use only AUSTRALIAN AGRICULTURAL COMPANY LIMITED ANNUAL GENERAL MEETING 11 MAY 2011 ‘
Slide 3: Disclaimer
DISCLAIMER For personal use only While every care has been taken in the preparation of this presentation, Australian Agricultural Company Limited (“AAco”) and each of their respective related bodies corporate and associated entities and each of their respective officers, employees, associates, agent
Slide 4: Three Year Turnaround
THREE YEAR TURNAROUND For personal use only ´ 2007 – 2009 crippling seasonal conditions New management team appointed Strategic review in March 2010 Successful first year of three year turnaround plan now complete 2011 and Beyond: Sustainable future earnings growth and cash generation A business of
Slide 5: Three Year Turnaround
THREE YEAR TURNAROUND For personal use only Focused management, g , realignment g of herd and return to profitability, p y, re‐engagement g g Year of shareholder base One Year Build herd, optimise land holdings and engage internationally Two Year Extend vertical integration, achieve scale, relevance
Slide 6: Global Protein Demand
GLOBAL PROTEIN DEMAND For personal use only Increasing average incomes in developing countries t i iis d driving i i didietary t shift hift ttowards d iincreased d animal protein consumption Population growth is compounding this trend Strengthening global food demand is providing major impetus for g
Slide 7: Global Protein Supply
GLOBAL PROTEIN SUPPLY For personal use only Forecast Retail Prices (USD/kg) High demand for biodiesel and ethanol is forecast to 14.00 h ld many crops att historically hold hi t i ll high hi h price i levels, l l 12.00 affecting livestock feed costs 10.00 8.00 6.00 Increased appeal of beef: decline
Slide 8: Global Beef Industry
GLOBAL BEEF INDUSTRY For personal use only Projected Beef Consumption Faster consumption is fuelling rising imports in China, (million tons) Korea Egypt , Russia and the Philippines South Korea, 12.8 12.6 12.4 GFC triggered liquidation of cattle stocks 12.2 12.0 11.8 Extreme weather patterns aggrava
Slide 9: Beef Exporters
BEEF EXPORTERS For personal use only Australian Beef Exports Brazil and Australia continue to lead world beef exports (tons) representing 24% and 18% trade respectively 1,100,000 1,050,000 Predominantly all US production is grain fed, 1,000,000 sensitive to upward price pressure for corn (required f
Slide 10: Australian Herd
AUSTRALIAN HERD For personal use only AAco Herd vs. Australian Herd 30 3 00% 3.00% Australia’ss herd is at 7 year low at approximately 26 Australia million head 1 25 2.50% 20 2.00% Mill) Head (M 15 1.50% Over the past 16 months AAco has rebuilt herd: herd numbers increasing from 507,676 in 10 1.00%
Slide 11: Managing Our Assets Strategically
MANAGING OUR ASSETS For personal use only STRATEGICALLY Substantial, quality land holdings – Australian land valuations appear conservative in global context 10
Slide 12: Managing Our Assets Strategically
MANAGING OUR ASSETS For personal use only STRATEGICALLY Substantial, quality land holdings – Australian land Apr‐11 Dec‐10 Dec‐09 valuations appear conservative in global context (Head) (head) (head) Feedlot 39,787 41,675 34,032 Diverse, genetically superior herd Trading 258,979 239,613 183,103 Bree
Slide 13: Managing Our Assets Strategically
MANAGING OUR ASSETS For personal use only STRATEGICALLY Substantial, quality land holdings – Australian land valuations appear conservative in global context Diverse, genetically superior herd Aligned to positive macro, global themes 12
Slide 14: Managing Our Assets Strategically
MANAGING OUR ASSETS For personal use only STRATEGICALLY Substantial, quality land holdings – Australian land Improving Efficiency in Property Use (Ha / Head) valuations appear conservative in global context 16 15 14 Diverse, genetically superior herd Ha / Head 13 12 11 Aligned to positive macro, glo
Slide 15: Operating Culture
For personal use only OPERATING CULTURE Strategic Direction • Creating a profit and cash focused operating environment • Effective risk management in place to support this environment • Development of assets and personnel Rationale • Optimise return on assets and personnel • Realign and better utili
Slide 16: Cattle Production and Sales Model
For personal use only Cattle Production Sales NOW Land • Calve • Live Export • Weight Gain • Boxed Adjust Increase Increase Processing Land Holdings Cattle Trading Feedlotting Cattle Sales Optimally Production GOAL Processing • Live Export Utilised Land Feedlotting Cattle Trading • Calve Abattoirs •
Slide 17: Outlook for Rangelands
For personal use only OUTLOOK FOR RANGELANDS Rainfall ‐ Company 5,000 4 500 4,500 Actual Better than average wet season rainfall 4,000 3,500 Average 3 000 3,000 Excellent pasture growth season 2,500 mm 2,000 Increased yields, species composition and 1,500 ground cover 1,000 500 These factors will co
Slide 18: Rainfall relative to Historical Records
Rainfall relative to Historical Records For personal use only
Slide 19: Victoria River Group
VICTORIA RIVER GROUP For personal use only 18
Slide 20: Victoria River Group
VICTORIA RIVER GROUP For personal use only Season • Early start, late finish • Consistent falls for 3 months across the region • Camfield & Delamere received above average annual rainfall • Montejinni doubled its annual average with strong falls each month Pastures • Good growing season with wet and
Slide 21: Victoria River Group
VICTORIA RIVER GROUP For personal use only 20
Slide 22: Barkly
For personal use only BARKLY 21
Slide 23: Barkly
BARKLY For personal use only Season • Long consistent wet season, early start with late big finish • Well above annual average g rainfall • Highest falls in March • Significant flooding across the Barkly • Extensive fill of lake systems for third consecutive year Pastures • Excellent growing season,
Slide 24: Barkly
For personal use only BARKLY 23
Slide 25: For personal use only
Avon Downs Austral Downs Yd J ~ 4Karumba X ~~ ) & ri \ Wondoola ( \ | GULF GROUP Srewnevile \ Canobie do © Camoowell cenimomce \ Dalgonally ed Mt rede Bate creek ve a | {Mackay Headingly * *, } Co. ; / fo Winton MA NR, { ™~ CENTRAL QUEENSLAND } Brightol oom Wy GROMBrais Rockhampton \ Riera) NN \ CHA
Slide 26: Gulf
GULF For personal use only Season • Longg steadyy wet • No major flooding • All well above average for season • Wondoola 70% more rain than annual average Pastures • Good growing season • Surprisingly good growth of valuable grasses in channels • Extended growth of Flinders Grass Carrying Capacity •
Slide 27: Gulf
For personal use only GULF 26
Slide 28: Channel Country
For personal use only CHANNEL COUNTRY 27
Slide 29: Channel Country
CHANNEL COUNTRY For personal use only Season • Early start with consistent falls through to March • Brighton only just reached annual average rainfall • South Galway had highest falls in March ‐ increased rainfall to 145% higher than annual average • Second consecutive above average g season combine
Slide 30: Channel Country
For personal use only CHANNEL COUNTRY 29
Slide 31: Wildlife
For personal use only WILDLIFE 30
Slide 32: Indigenous Engagement
INDIGENOUS ENGAGEMENT For personal use only The Initiative • Partnership between AAco and the Kukululua People of Corella Creek • Employment E l t and d ttraining i i opportunities t iti are provided id d • AAco has provisioned vehicles, a horse plant and saddlery and other equipment to be used in t
Slide 33: Indigenous Engagement
INDIGENOUS ENGAGEMENT For personal use only Success • A second team of local youth has been developed at AAco’s Anthony Lagoon and Eva Downs stations • Income earned has enabled the team to purchase enough operating machinery and equipment p to operate independently p y • Finalist for the Top Indivi
Slide 34: Corella Camp
For personal use only CORELLA CAMP 33
Slide 35: AAco Cattle Herd
For personal use only AACO CATTLE HERD Total AAco Herd grown to largest size ever in April 2011 due to Tipperary purchase and excellent seasonal 650,000 conditions 600,000 550,000 Head 500,000 450,000 400,000 350,000 001 002 003 004 005 006 007 008 009 010 011 20 20 20 20 20 20 20 20 20 20 20 Year 3
Slide 36: AAco Cattle Herd – Trading Herd
For personal use only AACO CATTLE HERD Trading Herd Herd grown to largest size ever in April 2011 due to Tipperary purchase and excellent seasonal 250,000 conditions 230,000 , Reduced seasonal risk and increase in speed of turnover by increasing the size of the trading 210,000 Head herd 190,000 170,
Slide 37: AAco Cattle Herd – Breeding Herd
For personal use only AACO CATTLE HERD Breeding Herd Herd grown to largest size ever in April 2011 due to Tipperary purchase and excellent seasonal 360,000 conditions 330,000 Reduced seasonal risk and increase in speed of 300,000 turnover by increasing the size of the trading herd Head 270,000 240,0
Slide 38: AAco Cattle Herd – Feedlot Herd
For personal use only AACO CATTLE HERD Herd grown to largest size ever in April 2011 due to Feedlot Herd Tipperary purchase and excellent seasonal 50,000 conditions 40,000 , Reduced seasonal risk and increase in speed of 30,000 turnover by increasing the size of the trading Head herd 20,000 Reduced
Slide 39: Performance Realignment of AAco Herd
PERFORMANCE REALIGNMENT OF For personal use only 25% AACO HERD Age Profile of Breeding Bulls % of Total Breeding Bullls 20% 15% 10% 2009 In 2010 AAco strengthened the herd profile 2010 5% Older less fertile bulls were retired from herd 0% 1 2 3 4 5 6 7 8 9 10 Age (years) Breeding females profile was
Slide 40: Herd Profile to End April 2011
HERD PROFILE TO END APRIL 2011 For personal use only Age Profile of Herd Improving Age Profile of Breeding Bulls Age Profile of Breeding Females 25% 20% 20% 15% % of Total Breeding FFemales of Total Breedingg Bulls 15% 10% Dec‐10 Dec‐10 10% Apr‐11 Apr‐11 %o 5% 5% 0% 0% 1 2 3 4 5 6 7 8 9 1 2 3 4 5 6
Slide 41: Kilograms Produced in Trading Herd
For personal use only KILOGRAMS PRODUCED IN TRADING HERD Actual Kilograms Produced Outlook (million) S i Station 2004 2005 2006 2007 2008 2009 2010 2011 Total kg produced 49.1 53.5 61.7 65.8 54.7 49.6 64.1 40
Slide 42: 2010 Actual Cattle Sales and 2011 Sales Outlook
2010 ACTUAL CATTLE SALES AND 2011 SALES OUTLOOK For personal use only Shortt ffed Sh d Grain G i Wagyu Grain W G i Breeder B d and d 2010 Actual Sales Grass Finished Live Export Finished Finished Feeder Cattle Number of Head 25,150 30,601 31,530 33,737 44,786 Short fed Grain Wagyu Grain Breeder and
Slide 43: Pure Brahman Herd
PURE BRAHMAN HERD For personal use only Brahman Bull Brahman Cows Pure Brahman Progeny g y Highly suitable for tropical conditions. Strong demand for live export, easy to grass finish, great for cross breeding
Slide 44: Brahman Composite Herd (GC)
BRAHMAN COMPOSITE HERD (GC) For personal use only Charolais x Senepol Bull Brahman Cow GC Composite, high performance in feedlot GC Composite, highly fertile, suitable for and easy to finish tropical conditions
Slide 45: Barkly Composite (BC)
BARKLY COMPOSITE (BC) ( ) For personal use only Charolais x Senepol Bull Santa Gertrudis Cow BC - Highly productive feedlot, easy to BC – Highly fertile breeding grass finish
Slide 46: Angus Cross
ANGUS CROSS For personal use only Angus Bull, high quality meat and strong market demand Barkly Composite Cow – highly fertile Angus C A Cross BC BC, hi highly hl fertile f til Angus Cross BC, high quality meat and breeders with strong market demand strong feedlot demand
Slide 47: Barkly – F1 Wagyu
BARKLY – F1 WAGYU For personal use only Angus x Female Wagyu Bull F1 Wagyu W Calf C lf
Slide 48: Setting the Breeding Herd for 2011 and Beyond
SETTING THE BREEDING HERD FOR 2011 AND BEYOND For personal use only Continuation of 2010 policy All bulls and cows eligible Management clearly that our cows give us a calf for breeding in 2011 will focused on financially each year or their hide have their fertility tested productive traits • Continu
Slide 49: AAco Composite (AC) into the Future
AACO COMPOSITE (AC) INTO THE FUTURE For personal use only BC – Highly fertile breeding with high GC – Highly fertile, suitable for tropical feedlot performance conditions The AC ‐ Elite Cows and Bulls Selected for Meat quality Flexibility suitable for Superior Efficient and Fast young MSA and Feed F
Slide 50: Live Export Focused Herd 2011 and Beyond
LIVE EXPORT FOCUSED HERD 2011 AND BEYOND For personal use only Superior fertility and growth in tropical conditions Introduction of Composite breeding to continue to improve fertility and performance Breeding herd suitable for cross breeding for manyy markets if required q Strong demand from profita
Slide 51: Wagyu and Angus Breeding 2011 and Beyond
WAGYU AND ANGUS BREEDING 2011 AND BEYOND For personal use only Focus on high performing cattle Superior eating quality European Union Accreditation Strong demand from profitable international markets 50
Slide 52: Feedlotting
FEEDLOTTING For personal use only AAco owned feedlots operating at capacity Growth of business has meant expansion of feedlotting business into several custom feeding feedlots in NSW and QLD Growth of Wagyu business in 2011 and beyond with European accreditation at both AAco feedlots to maximise ret
Slide 53: Cropping
For personal use only CROPPING Improved utilisation of land to maximize profitability Higher value crops like cotton improving profitability and spreading risk Significant rain in 2011 will produce excellent ll t iirrigated i t d crops iin 2011 and d 2012 iin our Queensland cropping operations 52
Slide 54: Technology to Reduce Input Costs
TECHNOLOGY TO REDUCE INPUT COSTS For personal use only Commenced solar energy installation program to reduce diesel usage to produce electricity Increased use of solar technology to pump water Increased use of technology to manage the business and reduce costs 53
Slide 55: Monitoring a Scope of New Applications of Technology
MONITORING A SCOPE OF NEW APPLICATIONS For personal use only OF TECHNOLOGY TO REDUCE COST Use of WiFi enable weather stations to ground truth satellite information Use of Lasers to measure pasture volumes and densities Use of Rankin Cycle motors to harness geothermal power from artesian bores Cerami
Slide 56: Technology to Support Operations
TECHNOLOGY TO SUPPORT OPERATIONS For personal use only Company wide communications redesign Maximise use of 3G data network Telstra’s iTerra IP ‐ Enterprise grade satellite data communications 55
Slide 57: Technology to Identify Superior Performing Livestock
TECHNOLOGY TO IDENTIFY SUPERIOR For personal use only PERFORMING LIVESTOCK Improvements in management by utilising RFID Efficient recording recording, reduction in errors Better control of stock movements Managing treatments and improved weight gain Location of livestock 56
Slide 58: Technology to Enable Strategy
TECHNOLOGY TO ENABLE STRATEGY For personal use only Private network (VLAN) ‐ All AAco properties part of AAco data network Communications infrastructure capable of supporting future business demands From data to decision maker, complete end‐to‐end data communications i i platform l f 57
Slide 59: AAco Beef Group
AACO BEEF GROUP For personal use only Vision • The Beef Group’s aim is to add value to the company by developing profitable markets for AAco’s Branded Beef products.
Slide 60: AAco Beef Brands
For personal use only AACO BEEF BRANDS
Slide 61: Beef Group Average $/kg Sale Price
BEEF GROUP AVERAGE $/KG SALE PRICE For personal use only 1824 Wagyu $6.80 $14.00 $6 60 $6.60 $12 00 $12.00 $6.40 $10.00 $6.20 $6 00 $6.00 $8 00 $8.00 $5.80 $6.00 $5.60 $4.00 $5 40 $5.40 $5.20 $2.00 $5.00 $0.00 Jan‐10 Mar‐10 May‐10 Jul‐10 Nov‐10 Jan‐11 Mar‐11 Jan‐10 Mar‐10 May‐10 Jul‐10 Sep‐10 Nov‐10
Slide 62: AAco Growth History
AACO GROWTH HISTORY For personal use only Sales $140 $ $120 $100 millions) $80 $ (m $60 $40 $20 $‐ 2006 2007 2008 2009 2010 Source: AAco Reports 61
Slide 63: Australian Beef Exports (2010)
AUSTRALIAN BEEF EXPORTS (2010) For personal use only Volume 1% 4% 3% 5% Japan USA 6% Korea 39% Indonesia 6% Remaining Other Countries EU, CIS & Other Europe 14% Russia Taiwan Canada 22% Total volume approx. 923,000MT 62
Slide 64: AAco 1824 Markets (2010)
AACO 1824 MARKETS (2010) For personal use only Revenue Volume Total volume approx. 8,000MT
Slide 65: AAco Wagyu Markets (2010)
AACO WAGYU MARKETS (2010) For personal use only R Revenue V l Volume Others UAE 1% 1% Other Asia, Others Other Asia 2% Hong Kong 2% 11% 15% Korea 27% Korea UAE 32% 3% Hong Kong 6% Japan 23% Japan 14% USA 19% Australia Australia USA 14% 9% 21% T t l volume Total l approx. 6 6,500MT 500MT
Slide 66: For personal use only
For personal use only Domestic roasting cuts retail Japan/Korea Food Service & BBQ UAE, Malaysia, China, Hong Kong Food Service Domestic Food Service and retail Domestic/Int Domestic/Int. Domestic/Int. FS FS Japan/Korea Food Service & Retail Japan/Korea Food Service & Retail
Slide 67: Korea
KOREA For personal use only Forecast 2015 per capita GDP: US$30k (up 74% on 2009) Established retail brands Australia/Korea Free Trade Agreement in negotiations; i i tariff iff 40% 40%, 15 yrs to 0% Population approximately 50 million (steady growth) Source: IMF
Slide 68: Branding
For personal use only BRANDING
Slide 69: Branding
For personal use only BRANDING
Slide 70: Russia
RUSSIA For personal use only Forecast 2015 p per capita p GDP US$21,336 $ , (43% increase since 2009) Significant demand for Australian beef 2015 population approximately 138 million Source: IMF
Slide 71: China
CHINA For personal use only Forecast 2015 per capita GDP US$7,316 (96% increase since 2009) Significant opportunity for Australian beef 2015 population approximately 1.375 billion Source: IMF
Slide 72: Beef Group Strengths
BEEF GROUP STRENGTHS For personal use only Strong customer base (key customers) with market presence Financially sound and growing Strongest g p presence in the Wagyu gy market Established brands Wagyu expertise within the company AAco supply chain, consistent quality
Slide 73: Meat Trading Focus on Growth
MEAT TRADING FOCUS ON GROWTH For personal use only Look after our existing customers Continue strong market presence in traditional markets Focus efforts to increase presence in emerging and developing markets Develop new products and value added items
Slide 74: New Product Development
NEW PRODUCT DEVELOPMENT For personal use only
Slide 75: Day Grain Fed
100 DAY GRAIN FED For personal use only $ value of the cow = Live Li weight i ht x price/kg i /k = 650kg x $2.19 ($4 05 dress weight @ 54%) ($4.05 = Return of $1,423 per hd
Slide 76: For personal use only
$65.79 $103.38 $59.70 For personal use only $34.29 $93.19 $12.60 $119.21 $165.68 $161.70 $110.00 $105.00 $35.00 $51.98 $41.56 $14.01 Av. Carcass Weight: 350kg Total Primal Value: $1,225
Slide 77: By-Product Revenues
BY‐PRODUCT REVENUES For personal use only Trimmings $/kg $/hd Offal $/kg $/hd Intercostals $5.75 $10.87 Tongue $18.60 $20.83 Trim – 95cl $4.80 $1.85 Outside Skirt $8.70 $11.57 Trim – 80cl $3.70 $209.53 Hanging Tender $8.18 $7.16 Trim – 65cl $ $3.20 $ $22.74 Cheek Meat $8 00 $8.00 $5 88 $5.88 Tail $5
Slide 78: By-Products
For personal use only BY‐PRODUCTS
Slide 79: Value Added Revenue
VALUE ADDED REVENUE For personal use only Item $ Primals + sub‐primals + trimmings $1,558.26 By‐products By products $237 27 $237.27 Total value added revenue $1,795.53 Li animal Live i l sellll price i $1 430 00 $1,430.00 Increased value added revenue $365.53
Slide 80: Financial Performance
FINANCIAL PERFORMANCE For personal use only 2010 2009 Summary – Profit & Loss $m $m Revenue 262.6 156.3 EBITDA 41.3 (47.6) EBIT 28.4 (61.3) NPAT 0.9 (53.7) Operating Cashflow (48.8) (56.4) EPS (cents per share) 0.3 (20.0) Guidance given 9 May indicated an EBITDA of $60$60‐65 65 million for 2011 EPS
Slide 81: Balance Sheet
BALANCE SHEET For personal use only Proforma Dec 2010 1 Dec 2010 Dec 2009 S Summary – Profit P fi & LLoss $m $m $m Cash 17.1 17.1 9.6 Receivables (Current) 15.0 15.0 8.3 Intangibles 4.4 4.4 6.0 Livestock 440.0 413.6 353.2 Property, Plant & Equipment 603.9 598.9 681.7 Other assets 23.7 23.7 23.3 Tota
Slide 82: AAco Capital Management
AACO CAPITAL MANAGEMENT For personal use only Capital management principles apply across all business units. All business units have a minimum IRR target of 16% at the EBITDA level to achieve over a 10 year period. Businesses are reviewed progressively and regularly for their ability to perform over
Slide 83: AAco Capital Management
AACO CAPITAL MANAGEMENT For personal use only Bank Debt • Managed internally on the various classes and externally with the major club financiers to the Company on an overall basis. Overall Gearing Ratios • Applied internally to AAco on the basis of (net interest bearing debt)/(total tangible assets
Slide 84: AAco Capital Management
AACO CAPITAL MANAGEMENT For personal use only Land including Property Plant & Equipment – 30% 83
Slide 85: AAco Capital Management
AACO CAPITAL MANAGEMENT For personal use only Receivables & Trading Livestock – 70% 84
Slide 86: AAco Capital Management
AACO CAPITAL MANAGEMENT For personal use only Inventories and Non‐Trading Livestock ‐ 50% 85
Slide 87: The Way Forward
THE WAY FORWARD For personal use only 2013 •Achieve scale and relevance 2011 ‐ 2012 •Reward Shareholders •Further adjustment j of land holdings In Progress •Ongoing divestment of underperforming/sub scale •Vertical integration (build NT properties abattoir) •Expansion of vertical •Adjust land holdin
Slide 88: AAco Stations Profile – Thank You
AACO STATIONS PROFILE For personal use only THANK YOU 87
Australian Agricultural Company — Shareholder Meeting (May 2011) on 6ix