Graincorp Limited Class A · ASX:GNC
Graincorp Limited Class A — Investor Day (February 2011)
76 slides from Graincorp Limited Class A's investor day presentation, Feb 2, 2011
Slide 1: GrainCorp 2011 Investor Day
For personal use only 2nd February 2011 G GRAINCORP CO 2011 INVESTOR S O DAY 1
Slide 2: Agenda
Agenda For personal use only Welcome and Introduction 9.25 Opportunities from a Changing Environment 9.40 Mission, Vision and Strategy 10.00 Break – Morning Tea 10.40 Storage & Logistics 11.00 Trading 11.30 Break – Working Lunch 12 15 12.15 Malt 12.45 C it l Management Capital M t 1 15 1.15 Q&A and
Slide 3: A range of strategic improvements in last 3 years
A range of strategic improvements in last 3 years For personal use only • Di Diversified ifi d earnings i and d geography h with i h acquisition i i i off international malt business • Entered the bulk wheat export market following removal of single desk monopoly • Secured rail haulage capacity • Al
Slide 4: Focus on improved returns
Focus on improved returns For personal use only Focus on 2 outcomes... 1. Increase Return G i and Grain d grain i processing i assets t – ‘end ‘ d tto end’ d’ grain i value l chain h i 2. Manage Variability and Growth Modest gearing and flexible cost structure Grow and diversify earnings – investmen
Slide 5: Eastern Australia floods
Eastern Australia floods For personal use only • Industryy infrastructure damage g and crop p losses • GrainCorp sites and infrastructure avoided major damage, however a number of GrainCorp facilities evacuated and some water ingress • GrainCorp able to support affected employees and local communiti
Slide 6: Alison Watkins (Chief Executive Officer)
For personal use only Alison Watkins (Chief Executive Officer) GRAINCORP 2011 INVESTOR DAY 6
Slide 7: 2010/2011 Outlook – Update
2010/2011 Outlook – Update For personal use only • YTD grain received 13.3mmt – Revised FY11 receival guidance ~14.0mmt • YTD port grain elevations 1.4mmt – Revised FY11 export guidance 6.5‐7.5mmt • Committed malt sales 1.0mmt – Unchanged malt sales guidance 1.0‐1.1mmt • Final grain volumes will dep
Slide 8: Opportunities from a Changing Environment
For personal use only Alison Watkins (Chief Executive Officer) OPPORTUNITIES FROM A CHANGING ENVIRONMENT 8
Slide 9: Executive summary
Executive summary For personal use only The Australian grain industry has become more international following removal of the single desk wheat monopoly – Future growth underpinned by favourable Asian demand GrainCorp has transformed itself to meet the challenges and opportunities arising in the
Slide 10: International and local business drivers
International and local business drivers For personal use only Global demand Internationalisation • Increasing grain demand • Internationalisation of • Globalisation of customers Australian grain companies • Entry off internationall companies into Australia Australian demand Grain supply chain • Rem
Slide 11: Future demand growth favours Australia
Future demand growth favours Australia For personal use only • Australia supplies 15% of ~140mmt globally traded wheat and barley World population growth Increasing grain consumption • Forecast to grow 10% (1.2% pa) over • Wheat and barley import demand next 8 years forecast to grow 20% (2.5% (2 5%
Slide 12: International participation in Australia has grown
International participation in Australia has grown For personal use only Grain companies Grain companies Increased competition previously previously... now now... following removal of export wheat monopoly • 6 grain companies Australian CBH CBH (including 3 bulk ownership handlers) acquired by ABB V
Slide 13: Domestic demand and containers impact exports
Domestic demand and containers impact exports For personal use only Export vs Domestic Mix – Eastern Australia 20 100% 18 16 90% 80% Domestic grain production 14 12 70% 60% • ~40% exported in FY10 compared 10 50% to ~50% in FY04 8 40% 6 30% • Domestic grain demand 4 20% 2 10% moderating 0 mmt ‐ FY04
Slide 14: Operating along the grain chain
Operating along the grain chain For personal use only GrainCorp has assets and capabilities at every stage along the grain chain Storage & Transport Ports Processing Handling Trading (grain ownership along the chain) • 280+ sites serving • Contract 15+ and • 7 bulk export • ~1.1mmt ~1 1mmt of malt p
Slide 15: Strong presence in eastern Australia
Strong presence in eastern Australia Australia… For personal use only Grain Processing • Strong S market k share h in i bulk b lk export • Strong S market k share h in i malt l and d and human domestic markets flour processing, pulling barley and • Opportunities pp to ggrow share in wheat through th
Slide 16: Increasing international presence
Increasing international presence presence... For personal use only International operations provide a platform for global reach European Trading office(1) Australia Grain Storage g & Logistics g United Kingdom Ports Grain Trading Scotgrain Grain Processing Saxon Agriculture Barrett Burs
Slide 17: Places GrainCorp in a competitive position
...places places GrainCorp in a competitive position For personal use only Market opportunities GrainCorp advantage • Increased marketing alternatives • Assets along the value chain for customers – Infrastructure network • Increased consumer requirements q – Access to grain – Reliable supply – ‘End
Slide 18: A more diversified earnings profile
A more diversified earnings profile For personal use only GrainCorp EBITDA by Segment – $M 250 Grain 200 • Earnings variable largely due to - Size and quality of eastern 150 Australia crop 100 - Grain demand and prices 50 Processing • Malt and Allied Mills provide ‐ improved earnings stability and F
Slide 19: Conservative balance sheet
Conservative balance sheet For personal use only Core debt and gearing(1) 300 60% 250 50% 200 40% • Core gearing below 25% 150 30% and capacity for i investment or capital i l 100 20% management 50 10% • Short term debt for grain inventory $M‐ ‐ (50) ‐10% 10% FY04 FY05 FY06 FY07 FY08 FY09 FY10 Core
Slide 20: Strong focus on improving ROE
Strong focus on improving ROE For personal use only EBITDA and Return on Equity (ROE) 250 10% 8% 200 6% 4% 150 2% ‐ 100 ‐2% 50 ‐4% ‐6% $M ‐ ‐8% 8% FY04 FY05 FY06 FY07 FY08 FY09 FY10 EBITDA $M ROE (%) 20
Slide 21: Mission, Vision and Strategy
For personal use only Alison Watkins (Chief Executive Officer) MISSION, SS O VISION S O AND STRATEGY S G 21
Slide 22: Clear mission and vision
Clear mission and vision For personal use only Mission An international agribusiness creating value by connecting consumers to growers along the grain chain Vision Grow as our grain customers’ preferred partner – driven by our passionate people, and assets around the world Values Safety, Our People,
Slide 23: Five strategies
Five strategies For personal use only 1. Maintain a strong market presence → Leading provider of grain supply chain services 2. Operate along the grain chain → ‘End to end’ supplier of grain to domestic and international consumers 3. Increase participation in grain processing → Broader B d and d com
Slide 24: Multiple grain propositions
1 & 2. 1. 2 Multiple grain propositions For personal use only Customer requirements Country C t IInventory t Price P i risk ik Proposition Accumulation storage mgt Transport Ports mgt Open access ong markett Storage & prresence Logistics services 1. Stro The market Conssumers owers place Gro e along
Slide 25: Leading provider of grain chain services
1 Leading provider of grain chain services 1. For personal use only • Superior value to customers – competitive cost and service Approach • Open ‘market place’ at sites for growers and buyers • Container packing Initiatives • Rail interface and coordination improvement • Pursue non grain products at
Slide 26: End to end supplier of grain
2 ‘End 2. End to end end’ supplier of grain For personal use only • Tailored approach to sophisticated domestic consumers Approach • Integrated supplier for international customers • Domestic market – develop new channels for growers and consumers to access GrainCorp’s GrainCorp s grain chain Initia
Slide 27: Broader and competitive malt offering
3 Broader and competitive malt offering 3. For personal use only • Generate ‘value value add add’ from barley processing Approach • Reduced costs through efficiency gains and superior barley procurement • Retain customers and expand customer base • Diversify malt products and range Initiatives • Sus
Slide 28: Pursue downstream opportunities in flour
3 Pursue downstream opportunities in flour 3. For personal use only • Generate ‘value value add add’ from wheat processing Approach • Efficient flour and flour mix producer • Value‐added bakery y products p • Reliable service based on quality, quality R&D and distribution Initiatives • Pursue opport
Slide 29: Organic growth and accretive acquisitions
4 Organic growth and accretive acquisitions 4. For personal use only • Utilise GrainCorp’s assets, businesses and capabilities Approach • Strengthen grain chain • Organic and non‐organic growth in grain and grain processing Initiatives – Australia, grain chain and other commodities at ports – Overse
Slide 30: Capital structure and organisation capability
5 Capital structure and organisation capability 5. For personal use only • Modest gearing level Capital • Manage capital Structure – Fund increased g grain inventoryy through g short term debt – Support organic and non‐organic growth • Strengthen organisation capability and cost effectiveness – Inte
Slide 31: Summary
Summary For personal use only Clear way forward Experienced, capable leadership team Confident in ability to execute 31
Slide 32: Storage & Logistics
For personal use only Nigel Hart (Group General Manager Storage & Logistics) STORAGE & LOGISTICS 32
Slide 33: A record and challenging harvest
A record and challenging harvest For personal use only • 18‐19mmt of bunker storage, 4,500 bins, 356 pieces of mobile bunker bins equipment • 2010/2011 Daily Receival Record of 426kmt in a 24 hour period – equivalent to 12,000 B‐double truck loads • During the harvest, receival peak averaged 300kmt+
Slide 34: Servicing two customer categories
Servicing two customer categories For personal use only • Access to a deliverable market – over 100 traders and merchants • Grain accumulation – pricing and marketing alternatives ‘Supply’ ‐ • Secure storage and logistics – quality assurance Grower • GrainTransact G i T t – stock t k managementt sys
Slide 35: Leader in eastern Australian grain handling
Leader in eastern Australian grain handling For personal use only GrainCorp Receivals and Market Share 16 80% 14 70% 12 60% Country Receival 10 50% 8 40% • Receive 50‐60% of eastern Australia 6 30% grain production 4 20% 2 10% • Domestic consumption moderating mmt ‐ ‐ FY04 FY05 FY06 FY07 FY08 FY09 F
Slide 36: Focus on service, throughput and margin
Focus on service service, throughput and margin For personal use only Grain EBITDA/tonne handled Market factors • Grain chain strategy aimed at • Grain production volumes continued EBITDA/tonne • Level of carry‐in and carry‐out improvements • Grain quality • Grain prices Grain EBITDA/T and Throughpu
Slide 37: Delivering results – Country and Transport
Delivering results – Country and Transport For personal use only Strategic Focus Achievement Improved cost structure • Fixed cost base substantially lower Improved operational • All sites deliver an earnings contribution performance • Bunker B k and d equipment i t iinvestment t t • GrainTransact st
Slide 38: Delivering results – Ports
Delivering results – Ports For personal use only Strategic Focus Achievement Improved margins • Value add services for customers • Booking fee to secure capacity Flexible Fl ibl Port P t Access A • Open O access guaranteed t d – 2 year agreements t with ith allll arrangements exporters • Stem bookin
Slide 39: Leading provider of grain chain services
1 Leading provider of grain chain services 1. For personal use only 1. Maintain a strongg market p presence → Leading provider of grain supply chain services • Safety f management – zero harm h • Leading practice site operations 2. Operate along the grain chain program p g → ‘End to end’ supplier of
Slide 40: Case Study: Domestic Markets
For personal use only Ron McCalman (Marketing and Client Services Manager) STORAGE & LOGISTICS CASE STUDY: DOMESTIC MARKETS 40
Slide 41: Serving domestic grain markets
Serving domestic grain markets markets... For personal use only Market Participants Requirements Share(1) Volume Human and • Flour millers • Competitive price ~80% 3.8mmt Industrial • Malt processors • Rail transport • Oil crushers h • Sophisticated S hi i d segregations i • Biofuel • Quality Proces
Slide 42: With tailored customer services
... with tailored customer services For personal use only Customer requirements Country Inventory Price risk Proposition Accumulation storage mgt Transport Ports mgt umers wers Tailored services to Grow Consu d domestici market k Market Forces GrainCorp s Value Proposition GrainCorp’s • Domestic ind
Slide 43: Case Study – Grain Supply Chain service
Case Study – Grain Supply Chain service For personal use only C stomers A and B before Customers before... After After... • Low engagement with • Total supply chain management GrainCorp p • Source direct from growers during harvest • Managed storage sites into GrainCorp storage internally • Manageme
Slide 44: Trading
For personal use only Sam Tainsh (General Manager Trading) TRADING 44
Slide 45: An end to end customer solution
An ‘end end to end end’ customer solution For personal use only Customer requirements Country Inventory Price risk Proposition Accumulation storage mgt Transport Ports mgt Consumers Integrated Growerrs international supplier Country storage Transport and Ports Customer support • Accumulation • Rail
Slide 46: Connecting growers and consumers
Connecting growers and consumers For personal use only Accumulation Trading Management Sales & Marketing GMS Contracting GrainCorp Trading Desks International • Contract from • Trading strategy • Engage growers – Supply and demand consumers • Acquire grain – Competing origins • Market from – Grain f
Slide 47: Meeting grower and consumer needs
Meeting grower and consumer needs For personal use only The market needs... Trading’s ‘solution’ Growers require... • Connect growers to export • Price signals/discovery and domestic consumers • Place to deliver grain (supply chain) • Provide a ‘grain grain market market’ with daily pricing • Capabi
Slide 48: Risk is well managed
Risk is well managed For personal use only • Risk is managed through ‘basis’ basis and ‘spread’ spread trading – Buying or selling physical grain against derivatives (eg futures) – Buying or selling physical grain against grain at other locations/qualities • Comprehensive risk management framework..
Slide 49: Trading has built a significant presence
Trading has built a significant presence For personal use only Strategic Focus Achievement Improved domestic • Relationships improved with domestic consumers presence • Single desk removal changed domestic market dynamics Export capabilities • Established International Sales Marketing desk developed
Slide 50: Grow as an integrated international supplier
2 Grow as an integrated international supplier 2. For personal use only 1. Maintain a strongg market p presence → Leading provider of grain supply chain services • Increase trading volumes within 2. Operate along the grain chain GrainCorp’s grain chain → ‘End to end’ supplier of grain to domestic an
Slide 51: Focused international growth
Focused international growth For personal use only Be a profitable international wheat, barley and canola trader focused on utilising G i C ’ Australian GrainCorp’s A li supply l chain h i and dGGrainCorp i C M Malt’s l ’ relationships l i hi and d asset footprint 1. Better market • Improved supply,
Slide 52: Case Study: International Customers
For personal use only Chris Whitwell (International Sales and Marketing Manager) TRADING CASE STUDY: INTERNATIONAL CUSTOMERS 52
Slide 53: Australia well placed in world grain markets
Australia well placed in world grain markets For personal use only • World wheat consumption more than doubled in last 30 years • Population growth driving demand – wheat and barley imports forecast to grow 20% to 2018 Global Wheat Net Exports/Imports (2010/2011) 2.0 17 Europe: 22 4 Canola, Durum 6.
Slide 54: Australian wheat has strong quality advantages
Australian wheat has strong quality advantages For personal use only • Provides high flour extraction – clean, white and dry • Improves I flour fl performance f (‘d (‘doctor t wheat’) h t’) • Eastern Australia produces all grades of wheat to satisfy a global market and diversified end product range
Slide 55: Changing consumer product preferences
Changing consumer product preferences For personal use only • Expanding demand outside of traditional markets... markets → Noodles – instant, yellow, ramen → Breads – p pan,, flat,, steamed → Pasta and other consumer products • Consumer trends – convenience foods, artisan bread outlets (pre‐mixes) a
Slide 56: Establishing sustainable export relationships
Establishing sustainable export relationships For personal use only GrainCorp FY10 Bulk Wheat Export Trade Destination by Volume (%) • In FY10 GrainCorp exported grain Other to over 90 customers in i 24 Africa countries Europe Middle East • Exporting p g to major j markets where Australian wheat and
Slide 57: Case Studies – end to end service offering
Case Studies – ‘end end to end end’ service offering For personal use only Before Before... After After... Customer A – Middle East • Post removal of wheat export • ~500kmt of highg to medium monopoly, GrainCorp is now a major protein milling wheat pa, supplier to Customers A and B particularly from
Slide 58: Malt
For personal use only Ian Wilton (President and CEO, GrainCorp Malt) MALT 58
Slide 59: Achievements
Achievements For personal use only Focus Achievement Integration • Key leadership appointments and people retained • Major integration tasks completed FY11 SSales l • 1.0mmt 10 t sold ld iin a challenging h ll i market k t • Balance of malt sales on target Sustainability • Arbroath and Pinkenba have
Slide 60: Capital projects – Pinkenba and Vancouver
Capital projects – Pinkenba and Vancouver For personal use only Vancouver Roaster Pinkenba development progress 60
Slide 61: Operating regions create network value
Operating regions create network value For personal use only • Operates in net exporting regions of barley and malt • ~20% of total global barley production in operational footprint • Reliable barley supply and improved malt supply certainty for customers United Kingdom North America Bairds – 5 ma
Slide 62: Well positioned to supply growth markets
Well positioned to supply growth markets For personal use only • Close proximity to global growth markets • Regional sales mix focussed on high quality and reliable supply of malt North America GrainCorp p Malt strategy gy Growth markets Canada – domestic sales and exports to the growing Asian Asi
Slide 63: Customer focus underpins the strategy
Customer focus underpins the strategy For personal use only • Right balance of short and long‐ • Continue to work with term supply agreements customers to provide Certainty of Supply • Develop hedging tools to certainty of barley and offer customers improved pp y malt supply risk i k management • Di
Slide 64: Supply agreements and margins key to earnings
Supply agreements and margins key to earnings For personal use only Supply Agreements Conversion Margins Long Term Agreements • Derived by negotiation • Tenure 3‐10 years Market Factors of a tolling/processing → Beer / whisky fee or a spot sale • Provide P id certainty i off supply to customer deman
Slide 65: Several ways to manage malt supply chain value
Several ways to manage malt supply chain value For personal use only Processing • Fees paid by contracted customers to process barley margin • Typically paid under an LTA, and not specified for spot priced business Procurement • Adding Addi value l through th h purchasing h i barley b l fee • Opport
Slide 66: A balanced sales mix
A balanced sales mix For personal use only Canada Malting Company (CMC) Great Western Malting (GWM) Domestic (North America) Export Domestic (North America) Export 100% 100% 80% 80% • Domestic sales focus in 60% 60% the US and UK 40% 40% • Export and domestic mix 20% 20% in Canada and Australia ‐ ‐
Slide 67: Foreign exchange impacts earnings
Foreign exchange impacts earnings For personal use only • Translating earnings to AUD Influence • Competitiveness of malt export sales – CMC and BBM exports denominated in USD or JPY, and European export competition to Asia Selected l d Foreign Exchange h Rates 2008‐2010 • FY08‐FY10 – CAD and AUD 1.
Slide 68: Broader and competitive malt offering
3 Broader and competitive malt offering 3. For personal use only 1. Maintain a strongg market p presence → Leading provider of grain supply chain services • Secure volumes l through h h LTAs • Global marketing strategy to expand role 2. Operate along the grain chain in growing export markets → ‘End
Slide 69: Capital Management
For personal use only Alistair Bell (Chief Financial Officer) CAPITAL MANAGEMENT 69
Slide 70: A strong balance sheet
A strongg balance sheet For personal use only 650 Debt and Inventory Profile ‐ $ M 600 550 • In recent years, core debt 500 gearing reduced to <25% 450 400 • Core debt(1) of $50M at FY10 350 reflects net debt(2) of $238M 300 less grain trading inventory of 250 $188M 200 150 • Low core debt provides
Slide 71: Good access to debt finance
Good access to debt finance For personal use only Approach Outcomes • Flexible facilities to fund • Short term debt facilities used for grain trading growing grain trading Inventory In entor inventory requirements • Adjusted to match trading finance • Facilitate new service requirements offerings su
Slide 72: A range of identified capital investments
A range g of identified capital p investments For personal use only • Capital projects targeting to deliver >12% IRR FY2010 FY2011 FY2012 Abroath ‐ Malt Pi k b ‐ Ports Pinkenba P Pinkenba ‐ Malt Portland truck marshallingg yard y ‐ Ports Vancouver ‐ Malt GrainTransact ‐ Storage & Logistics Site deve
Slide 73: Targeting a dividend payment each year
Targeting g g a dividend payment p y each year y For personal use only 250 OPERATING CASH FLOW ‐ $ M Cash Flow 200 • Strong operating cash 150 generating abilities 100 • Ongoing ‘stay in business’ 50 capital expenditure of ~$55M ‐ ‐50 FY04 FY05 FY06 FY07 FY08 FY09 FY10 Dividends DIVIDEND PROFILE ($
Slide 74: Ensure a capital structure to support growth
5 Ensure a capital structure to support growth 5. For personal use only 1. Maintain a strongg market p presence → Leading provider of grain supply chain services 2. Operate along the grain chain → ‘End to end’ supplier of grain to domestic and international consumers • Fund increased grain inventory
Slide 75: Summary and Q&A
For personal use only Alison Watkins (Chief Executive Officer) SUMMARY AND Q&A & 75
Slide 76: Balanced strategy for value and growth
Balanced strategy for value and growth For personal use only Strategy gy 4. Grow as an international agribusiness g Horizon 3 Horizon 2 Strategy 4. Invest to grow (eg Horizon 1 Strategy 2. Europe, emerging Value V l Expand – operate along the markets) creation grain chain (domestic and potential Str