Australian Agricultural Company Limited · ASX:AAC
Australian Agricultural — FY2008 Earnings Presentation
47 slides from Australian Agricultural's earnings presentation, Feb 10, 2009
Slide 1: Results Presentation for Full Year ended 31 December 2008
For personal use only Australian Agricultural Company Limited Results Presentation for Full Year ended 31 December 2008 1 Stephen Toms – CEO 10 February 2009
Slide 2: Agenda
For personal use only Agenda – Key Value Drivers – Review of Key Earnings Drivers in 2008 – Financial Analysis – Market Conditions and Outlook – Priorities for 2009 – Progress on strategy – Update on Property Sales and Capital Management 2
Slide 3: Key Value Drivers
For personal use only Key Value Drivers – From investor’s perspective, AAco is primarily an assets play – Key value drivers are the property and herd valuations – At 31 December 2008, total assets of $1.342m ($1.298m pcp) included: – Land and buildings: $819m ($779m pcp) – Livestock: $422m ($427m pc
Slide 4: Land
For personal use only Land Property values continue to rise, particularly in the North, albeit at a slower rate. Median rural land values since 1985 $/ha 800 700 600 500 400 300 200 100 0 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 20
Slide 5: Land: key value driver
For personal use only Land THE key value driver for AAco representing 63% of gross assets Aaco Land Revaluations $'000 2004 to 2008 AAco properties 800,000 increased in value +20% pa over 5 years 700,000 Revaluation Land only Pre revaluation 600,000 500,000 400,000 300,000 200,000 100,000 - 2004 200
Slide 6: Cattle
For personal use only Cattle Comprises 31% of gross assets Cattle Herd Value $'000 Value of the herd declined 1.2% in 2008 440 420 400 380 360 340 320 2004 2005 2006 2007 2008 6
Slide 7: The Five Key Drivers of AAco's Earnings
For personal use only The Five Key Drivers of AAco’s Earnings Rainfall Grain Costs Fuel Costs Australian Dollar Interest Rates 7
Slide 8: Rainfall
For personal use only Rainfall Critical for pasture – sustains breeding herd, drives weight gain and fertility M onthly Rainfall across all Stations (mm) 2009 10,000 This is almost as 8,000 much rainfall in one month as the total of 2008 6,000 4,000 2,000 - Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08
Slide 9: Rainfall by Station
For personal use only Rainfall 2008 ‐ Very dry conditions in the Barkly Tableland and less than ideal on some Gulf stations (mm) Actual Rainfall by Station in mm p.a. - background is long term average 1,200 Barkly Central Sth Qld Gulf VRG Below long term average 1,000 Average or better 800 600 400 2
Slide 10: Grain Costs
For personal use only Grain Costs Accounts for 20‐25% of operating costs Australian Grain Prices $A/t Source: ABARE 2005 2006 2007 2008 2009 500 450 400 350 300 250 200 150 100 Jun06 Qtr Mar05 Qtr Jun05 Qtr Mar06 Qtr Sep06 Qtr Mar07 Qtr Jun07 Qtr Sep07 Qtr Dec07 Qtr Mar08 Qtr Jun08 Qtr Sep05 Qtr Dec
Slide 11: Fuel Prices
For personal use only $0 $20 $40 $60 $80 $100 $120 $140 $160 January 5, 2007 March 16, 2007 May 25, 2007 August 3, 2007 October 12, 2007 2007 Fuel Prices December 21, 2007 Febr uary Source: NYMEX 22, 2008 May 2, 2008 Crude Oil price $US/barrel July 11, 2008 September 19, 2008 2008 November 28, 2008
Slide 12: The Australian Dollar
For personal use only The Australian Dollar Affects cattle prices and sales in USD for Branded product The R ise and Fall of the AU D P erform anc e agains t US D and JP Y 1.10 120 2007 2008 2009 110 1.00 100 90 0.90 AUD:USD AUD:JPY 80 0.80 70 60 0.70 50 40 0.60 30 0.50 20 01/01/2007 03/02/2007 05/0
Slide 13: Interest Rates
For personal use only Interest Rates Affects cash costs of funds and impacts mark to market of hedge positions Australian Cash Rate % Source: RBA 2009 8.00% 7.25% 7.00% 7.00% 6.75% 7.00% Swaps 6.50% 6.00% 6.00% Mark to market (non cash) 5.25% 5.00% 4.25% 4.00% 3.00% 3.25% 2.00% Aug-07 Oct-07 Dec-07
Slide 14: Result in Summary
For personal use only Result in Summary – All key drivers of AAco’s earnings in 2008 were negative – combining to deliver unprecedented operating conditions – Overall after tax loss of $38.7 million ($3.6m profit pcp) – Positive Operating Cash Flow of $10.7 million (‐$21m pcp) – Property valuation i
Slide 15: Profit and Loss – EBITDA Analysis
For personal use only Profit and Loss – EBITDA Analysis Consolidated Profit and Loss Year ended Year ended Comment on Significant Variation 31/12/2008 31/12/2007 $'000 $'000 Revenue before cattle revaluation 223,613 238,518 Revenue down due to lower prices for grassfed, low weight gains and market p
Slide 16: Profit and Loss – NPAT
For personal use only Profit and Loss – NPAT Consolidated Profit and Loss Year ended Year ended 31/12/2008 31/12/2007 $'000 $'000 Comment on Significant Variation EBITDA 17,112 40,684 From earlier slide Depreciation and amortisation -11,615 -10,395 Earnings before finance costs and income tax expens
Slide 17: Composition of $38.7m Loss in 2008
For personal use only Financial Analysis Composition of $38.7m Loss in 2008 ('$000) 10,000 0 -10,000 -20,000 -30,000 -40,000 -50,000 -60,000 -70,000 NPAT 2007 Mark to market Loss of GM on Drought mitigation Net AMP 2007 Senior exec Tax ef f ect & other NPAT 2008 interest rate sw aps drought sales of
Slide 18: Assets - Cattle
For personal use only Assets ‐ Cattle Cattle represent 31% of gross assets Grass fed sales volume in 2008 was 73% (48% in 2007) resulting in reduction in average sale price. Average selling price per kilo in 2008 was $3.48/kg (DW)* compared to $3.62/kg (DW) in 2007 (down 4%) Average selling price pe
Slide 19: Cattle sold out of drought
For personal use only Cattle sold out of drought Light weight cattle Normal feedlot entry weight cattle Sold at $3.40 kg DW ‐ but $365 per head Sold at $2.80 kg DW ‐ but $675 per head 19
Slide 20: Cattle sold
For personal use only Cattle sold 252,000 cattle sold during 2008 compared to 182,000 head 2007 Grain fed cattle Full Blood Wagyu Cow Sold at $3.80 kg DW ‐ but $1300 per head Sold at $6.50 kg DW ‐ but $2,400 per head 20
Slide 21: Wholesale Beef Prices – Australia
For personal use only Wholesale Beef Prices – Australia AACo Beef Price Indicator with Benchmarks Monthly : Two years (Dec 2006 - Dec 2008) c/kg DW 2007 2008 Index 410 400 230 390 380 370 360 210 350 340 330 190 320 310 300 290 170 280 270 260 150 250 240 230 220 130 December February April June Aug
Slide 22: Fertility
For personal use only Fertility Branding Percentages * 75% Reduced second round mustering activity resulted in reduced costs but fewer brandings. Late calves (post August 70% 08) will be branded in 2009. Approx 40,000 breeders were carried forward from 65% 2007. These figures have also been adjusted
Slide 23: Financials by Segment
For personal use only Financials by Segment Wholesale beef performed to expectation on a $6m investment Business segments 31/12/2008 Cattle & Cattle & Comment Wholesale Wholesale Comment Other Other Total EBIT Total EBIT Farming Farming Beef 2008 Beef 2007 2008 2007 Operations Operations 2008 2007 $
Slide 24: Financials by Segment: Supermarkets
For personal use only Financials by Segment Supermarkets a key focus for the Wholesale Beef Division E‐Mart ‐ Korea Woolworths ‐ Queensland 24
Slide 25: Financials by Segment: Premium Beef
For personal use only Financials by Segment Premium Beef still sought after as Wagyu supply is limited and restaurant grade beef now sold through supermarkets Greg Norman Wagyu distribution in the USA 1824 sold through Supermarkets 25
Slide 26: Cash Flow
For personal use only Cash Flow Consolida ted CAS H FLO W Ye ar e nde d Yea r e nde d Com m ent on S ignificant Move m ents 31/12 /200 8 31/12 /2 007 $'0 00 $'0 00 Ca sh Flow s from O perat ing Activitie s Recei pts fro m custome rs 2 68,59 7 26 6,07 2 Hig her cattle sal es o ffset by low pr ices o
Slide 27: Balance Sheet – Assets
For personal use only Balance Sheet – Assets BALANCE SHEET Consolidated ASSETS 31/12/2008 31/12/2007 Comment on Significant Movements $'000 $'000 Current Assets Cash and cash equivalents 20,047 8,487 Offset vs debt Receivables 11,415 10,633 No Bad debts in 2007 or 2008 Interest rate swaps - 2,017 Re
Slide 28: Balance Sheet – Liabilities
For personal use only Balance Sheet – Liabilities BALANCE SHEET Consolidated LIABILITIES 31/12/2008 31/12/2007 $'000 $'000 Comment on Significant Movements Current Liabilities Payables 30,691 18,163 2008 includes accrued interest - payable half yearly in Feb & Oct Provisions 2,634 2,853 Interest bea
Slide 29: Liabilities - Bank Loans
For personal use only Liabilities ‐ Bank Loans $M Facility Limit 450 Bank Loans make up the majority of interest bearing Interest Bearing Liabilities liabilities – the - Current nil balance being the interest component - Non Current 425 of lease liabilities Less: Cash on Hand 20 Net Bank Loans 405 B
Slide 30: Balance Sheet – Equity
For personal use only Balance Sheet – Equity BALANCE SHEET Consolidated EQUITY 31/12/2008 31/12/2007 Comment on Significant Movements $'000 $'000 Equity Issued capital 172,785 154,070 DRP Reserves 518,297 500,617 Land revaluation partially offset by tax adj Retained profits (accumulated losses) 14,1
Slide 31: Operational Review
For personal use only Operational Review — Large scale drought plan executed largely preserving the breeding herd (critical for 2009+) whilst maintaining cash flow — AAco’s system facilitated continued certainty of supply of high quality traceable beef to its customers despite a “perfect storm” in r
Slide 32: Outlook for 2009 - Australia
For personal use only Outlook for 2009 ‐ Australia Return to profitability supported by: – Vastly improved seasonal conditions – Increase in KGs produced with restocking and improved feed conditions – Higher cattle prices in Australia later in the year (restocking and delayed demand from global food
Slide 33: Outlook - Seasonal Conditions
For personal use only Outlook ‐ Seasonal Conditions Transfer of Breeders back to the Barkly Region 2009 Exhibit 1: AAco’s Land Portfolio AAco’s geographic spread allowed drought mitigation Darwin plans to retain the bulk of the Delamere breeding herd. Mont eiinni Cairns Ant hony Lagoon Gregor y Down
Slide 34: Seasonal Conditions - Update
For personal use only Seasonal Conditions ‐ Update Brunette Downs on the Barkly June 2008, before rain January 2009, wet season rainfall to date 462mm 34
Slide 35: Seasonal Conditions - Update
For personal use only Seasonal Conditions ‐ Update Avon/Austral Stations on the Barkly 3rd January 2009, 471mm to date 28th January 2009, 718mm to date 35
Slide 36: Outlook - Market Conditions
For personal use only Outlook ‐ Market Conditions 2008 Jan 2009 “Overall, Australian cattle prices are expected to strengthen during 2009, particularly for young cattle and cows, with the low Australian dollar, increased restocker and feeder demand and tight young cattle supplies expected to offset
Slide 37: Outlook – Global Markets
For personal use only Outlook – Global Markets World supply of quality beef remains constrained – Herd health issues in South America impacting the supply of quality beef – US Cow calf inventories are forecast to decline further in 2009, affecting production through to 2010 and 2011 – Japanese and K
Slide 38: Strategic Priorities for 2009
For personal use only Strategic Priorities for 2009 – Restock properties that have massive feed pools as soon as practicable and eliminate agistment costs. – Ensure stations are fully stocked to improve economies of scale, any surplus land (one or two properties) to be considered for spot sales to f
Slide 39: Update on Current Transactions
For personal use only Update on Current Transactions Primary Holdings International (PHI) transaction – Sale of five properties for an estimated $250 million – PHI Due diligence progressing on land component – Cattle Joint Venture Agreement and Management Agreement in negotiation phase – Timing on f
Slide 40: Long Term Strategic Focus unchanged
For personal use only Long Term Strategic Focus unchanged The long term strategic plan, enunciated in 2005, continues to embrace the following targets for the core business: 1. More than double the herd size (under management) 2. Triple the production of feed crops 3. Improve land carrying capacitie
Slide 41: Appendices
For personal use only APPENDICES 1. More Cattle Statistics 2. Global Markets ‐ material 3. Total Shareholder Returns 41
Slide 42: Retail Beef Prices – Australia Domestic
For personal use only Retail Beef Prices – Australia Domestic Retail Beef Prices vs CPI $ / kg Increases in beef $18.00 prices have $16.00 generally kept pace $14.00 Beef CPI with inflation over $12.00 the past 50 years $10.00 $8.00 Emerging trend $6.00 since 2001 of price $4.00 growth exceeding $2.
Slide 43: Global Demand for Protein Products
For personal use only Global Demand for Protein Products Growing import demand for beef in 2009 driven by US First decline in demand for pork since 1997 due to reduction in demand from China Poultry impacted by Avian influenza in 2006, also expected to substitute for pork Note: Data in this chart re
Slide 44: Global Consumption of Beef per Capita
For personal use only Global Consumption of Beef per Capita Beef Consumption Per Capita - KGs per person 0 10 20 30 40 50 60 70 Argentina Uruguay US Brazil Australia Canada NZ Mexico Russia Hong Kong Forecast 2009 EU-27 South Africa Korea Ukraine Japan Egypt China Taiwan India Source: USDA 44
Slide 45: Global Beef Production
For personal use only Global Beef Production Global production forecast to fall for the first time in 9 years Gains in Brazil, China and India offset by lower production volumes in EU (contracting herd), Russia (poor productivity and branding) and Australia (restocking post drought) 45 Source: USDA
Slide 46: World Imports and Exports by Nation
For personal use only World Imports and Exports by Nation B e e f & Ve al Imp o rts - M e tric to n s ('000) 0 200 400 600 800 1000 1200 1400 1600 1800 U SA R u s s ia n F e d e ra tio n F o re c a s t 2 0 0 9 Ja p a n Me xic o E U -2 7 R e p u b lic o f K o re a Canada Ve n e zu e la E g yp t Ma la
Slide 47: Total Shareholder Return
For personal use only Total Shareholder Return Relative to the S&P/ASX 300 Accumulation Index over 6 years Total Shareholder Return on a $10,000 investment over the last six years $44,000 $42,000 $40,000 AAco $38,000 $36,000 $34,000 $32,000 $30,000 $28,000 $26,000 $24,000 $22,000 $20,000 $18,000 S&P
Australian Agricultural Company — FY2008 Earnings Presentation on 6ix