Australian Agricultural Company Limited · ASX:AAC
Australian Agricultural — Investor Presentation (June 2009)
38 slides from Australian Agricultural's investor presentation, Jun 3, 2009
Slide 1: Market Update Presentation
Australian Agricultural Company Limited ABN 15 010 892 270 For personal use only Market Update Presentation ASX Announcement 66/2009 3 June 2009 Market Update Presentation attached. For further information: Analyst Contact Stephen Toms Chief Executive Officer 07 3368 4400 Media contact: Greg Flynn C
Slide 2: Market Update
For personal use only Australian Agricultural Company Limited Market Update 2 June 2009 1
Slide 3: Overview
For personal use only Overview ‐ Challenges ‐ the last 18 months ‐ Where we are now ‐ Short term outlook ‐ 2009 outlook ‐ Short term operational strategy ‐ Long term strategic focus Appendix A – Rationale for property sales Appendix B – Shareholder returns 2
Slide 4: Challenges – the last 18 months
For personal use only Australian Agricultural Company Limited Challenges – the last 18 months 3
Slide 5: Challenges – last 18 months
For personal use only Challenges – last 18 months ‐ AAco set and commenced executing a 10 year strategic plan for growth ‐ Elders decided to sell its 43% stake in October 2007 which interrupted the execution of AAco’s strategic plan and caused broad uncertainty ‐ Changes to Board, senior management
Slide 6: AAco took the appropriate steps to strengthen its financial position
AAco took the appropriate steps to strengthen its financial position For personal use only Issue Steps Taken by AAco Resolved/ Action Taken Protracted Elders Board and senior management worked overtime to expedite Elders’ exit from sales process register. Focus on ensuring a premium paid to AAco sha
Slide 7: AAco took the appropriate steps to strengthen its financial position
AAco took the appropriate steps to strengthen its financial position For personal use only Issue Steps Taken by AAco Resolved/ Action Taken Significant input cost Implemented plan to reduce operating overheads by $20m imposts on key (actual savings > budget) business drivers in 2007 and 2008 Reduced
Slide 8: Operational Focus over 2008-9
For personal use only Operational Focus over 2008‐9 ‐ Preserving the value of the business through the extremes of drought (2008) and floods (2009) and through the recession ‐ Realigning production pathways to meet the changing dynamics in the beef market arising from the global recession ‐ Reducing
Slide 9: Property portfolio and pathways to markets
For personal use only Property portfolio and pathways to markets – Properties sold represented around 12% of the total AAco portfolio by area – Pathways to market remain in place 8
Slide 10: Where we are now
For personal use only Australian Agricultural Company Limited Where we are now 9
Slide 11: A stronger AAco
A stronger AAco For personal use only ‐ Stronger balance sheet ‐ Net debt now reduced to $265 million by monetising 13% of its assets at book value. ‐ Gearing reduced from 38% to 27% ‐ Recent property sales ‐ Assets realised at NTA, implying a substantial 60% premium to current share price and confi
Slide 12: AAco’s investment proposition
For personal use only AAco’s investment proposition “We view AAC as a long term asset play (land/cattle) …. We note that the Agriculture Accounting Standard makes reported earnings somewhat meaningless, hence we rely more heavily on cash flow as a gauge of value.” GS JB Were February 2009 Long term
Slide 13: A stronger AAco
A stronger AAco For personal use only Board progressively rebuilt and strengthened over the last year: ‐ Appointed independent directors ‐ Selection of candidates targeted appropriate mix of complementary skills including industry experience Director – alphabetic Core Expertise Brett Heading (Indepe
Slide 14: A stronger AAco
A stronger AAco For personal use only – Long term strategy – a step backwards but now positioned to move forward again ‐ Targeting 1 million cattle under management by 2015 ‐ Selectively investing to increase carrying capacity and value of land portfolio – AAco’s wholesale and branded beef business
Slide 15: Strategic rationale
Strategic rationale For personal use only ‐ The AAco property portfolio is subject to diverse conditions that range from the tropical wetlands of north Queensland to the drier Barkly tablelands and Central Queensland ‐ AAco’s strategy is to maximise the benefits generated by this diversity by operat
Slide 16: Strategic rationale
Strategic rationale For personal use only ‐ AAco’s success depends on a team based management structure ‐ Day to day decision making is devolved to station management ‐ Head office takes responsibility for overall financial, supply chain, and risk management ‐ Synergy from operating individual prope
Slide 17: 2009 Outlook – Earnings
For personal use only 2009 Outlook – Earnings Cost Drivers ‐ Targeted operating cost savings over 2008 of $20m on track. Other one‐off cost items ‐ Legacy contracts ‐ Exposure to Great Southern (approx $1.7m) ‐ Co‐operator bull breeding contracts (approx $2.0m) ‐ Write off Lawn Hill agistment intang
Slide 18: 2009 Outlook – Earnings
For personal use only 2009 Outlook – Earnings Revenue Drivers ‐ AUD:USD exchange rate up 14% since 31 December 2008 from $0.70 to $0.80 ‐ Average monthly cattle prices (EYCI) have traded between 5% and 10% down on December 2008 close. ‐ A sustained 1% movement in cattle prices reflects a $1.5m fall
Slide 19: 2009 Outlook – Earnings
For personal use only 2009 Outlook – Earnings Flood Impacts – preliminary indicators ‐ Cattle Losses – Prior year mortality rate of 4% ‐ revised estimate for 2009 closer to 6% resulting in incremental revenue reduction $7m (non cash) ‐ Calving % ‐ very preliminary pregnancy testing indicates a drop
Slide 20: 2009 Outlook – Earnings – Benefits of flooding
For personal use only 2009 Outlook – Earnings – Benefits of flooding Flood Impacts. – The beneficial aspects of the floods should not be overlooked. ‐ 2008 drought affected properties increased utilisation from 60% to 100% in 2009. ‐ Increased grass feed and nutrition on all stations ‐ Better nutrit
Slide 21: 2009 Outlook – Earnings
For personal use only 2009 Outlook – Earnings Summary Position ‐The industry continues to forecast a lift in cattle prices for the second half ‐ Prices began trending up in the last week of May ‘09 ‐If cattle prices remain at subdued levels there will be negative earnings in the first half. ‐If pric
Slide 22: 2009 Outlook – Earnings – monthly average EYCI price indicator
2009 Outlook – Earnings ‐ monthly average EYCI price indicator below Dec 08 levels For personal use only EYCI in cents per Kg (Dressed Weight) 350.00 340.00 1 Jun 09 330.00 324.75 320.00 310.00 300.00 290.00 280.00 Prior Dec Close Jan Feb Mar Apr May 2009 2008 Source Data: MLA 21
Slide 23: Quarterly Variations in the EYCI - last 12 years
For personal use only 0.0% 10.0% 20.0% 30.0% 40.0% -30.0% -20.0% -10.0% 1996 / 08 1997 / 02 1997 / 08 1998 / 02 1998 / 08 1999 / 02 1999 / 08 Source Data: MLA 2000 / 02 2000 / 08 2001 / 02 2001 / 08 point in time 2002 / 02 2002 / 08 2003 / 02 2003 / 08 2004 / 02 2004 / 08 2005 / 02 2005 / 08 Quarter
Slide 24: 2009 Outlook – Earnings – price indicators below long term trend
For personal use only 100.0 150.0 200.0 250.0 300.0 350.0 400.0 450.0 1996 / 08 1997 / 01 1997 / 06 1997 / 11 1998 / 04 1998 / 09 1999 / 02 1999 / 07 1999 / 12 Source Data: MLA 2000 / 05 2000 / 10 2001 / 03 2001 / 08 2002 / 01 2002 / 06 2002 / 11 2003 / 04 Last 12 Years 2003 / 09 2004 / 02 2004 / 07
Slide 25: 2009 Outlook – Cash Flow
For personal use only 2009 Outlook – Cash Flow ‐Cash flow after operating and investing activities will be positive by $130m after restocking. ‐ Adjusting operating cash flow to include all cattle sales will deliver positive $10m before restocking. ‐ Restocking will depend on market opportunities an
Slide 26: 2009 Outlook – Net Tangible Assets
For personal use only 2009 Outlook – Net Tangible Assets The two main drivers of NTA are land assets and cattle. ‐ Land valuations are not forecast to increase in 2009. ‐ Cattle values may range +/ – 10% of herd value impacting NTA by around 10 cents per share. ‐ On this basis, NTA should remain in
Slide 27: Short term operational strategy
Short term operational strategy For personal use only Maximise property portfolio utilization ‐ Transfer breeders back to the Barkly Region from the Gulf ‐ Mitigate legacy issues – Exit Lawn Hill sub lease due to expire in Sept 2009 (releases cash costs of leases and operations of $4m pa but writes
Slide 28: Long term strategic focus continues
For personal use only Long term strategic focus continues 27
Slide 29: Appendix A – Rationale for property sales
For personal use only Australian Agricultural Company Limited Appendix A – Rationale for property sales 28
Slide 30: Review of rationale for property sales
For personal use only Review of rationale for property sales Drought combined with GFC required AAco to consider options to manage its capital base. ‐ The first tranche of AAco’s $450 million debt facility, being $200m, was due for refinancing in January 2010 ‐ Elders’ overhang constrained access to
Slide 31: Review of rationale for property sales
For personal use only Review of rationale for property sales Strong demand for rural property in Northern Australia ‐ Slowing in the rate of property price increases in Northern Australia in 2008 indicated that market was close to peaking ‐ Strong demand for AAco properties realised sale prices at b
Slide 32: Sale of the Gulf properties
For personal use only Sale of the Gulf properties Strategic shift away from properties supplying Brahman cattle to the domestic market ‐ AAco’s lowest return on beef is Brahman cattle sold into the domestic commodity markets ‐ Best return on Brahman cattle is through live export sales via best net p
Slide 33: Sale of the Gulf properties
For personal use only Sale of the Gulf properties ‐ Of the three properties, only one was used for breeding and was sold because the environmental conditions were better suited for Brahman cattle (ticks, heat, nutrition) ‐ The sale allowed AAco to unlock capital value generated through improving lan
Slide 34: Sale of Rockhampton Downs
For personal use only Sale of Rockhampton Downs Cash returns important in the current economy. ‐ As a result of severe drought conditions, Rockhampton Downs was de‐stocked in 2008 ‐ Cost of re‐stocking was estimated at $15m ‐ $20m and: ‐ would not have yielded a cash return on calves produced for 2‐
Slide 35: Sale of Rockhampton Downs
For personal use only Sale of Rockhampton Downs The sale of Rockhampton Downs realised two key benefits for AAco: ‐ Increased utilisation of AAco’s adjoining properties generating economies of scale - The unlocking of $35.7m in capital value in the balance sheet created through ongoing development o
Slide 36: Appendix B – Shareholder returns
For personal use only Australian Agricultural Company Limited Appendix B – Shareholder returns 35
Slide 37: Shareholder returns
For personal use only Shareholder returns ‐ AAco has provided an average shareholder return over the past 5 years in excess of 9% ‐ AAco’s performance when measured against its peer group puts it near the top of its sector Average SH return last 5 Code Company Market Cap years TGR Tassal Group 285,4
Slide 38: Broker recommendations
For personal use only Broker recommendations ‐ Independent analysts regard AAco as undervalued at current prices ($1.60) ‐ Valuations based on net asset value ‐ reported earnings regarded as meaningless ‐ Support sale of properties to realise cash and pay down debt ‐ Viewed sale of Elders holding as
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