Graincorp Limited Class A · ASX:GNC
Graincorp Limited Class A — Merger or Acquisition (February 2020)
70 slides from Graincorp Limited Class A's merger presentation, Feb 6, 2020
Slide 1: ASX cover letter: Investor Presentation – Demerger of United Malt
For personal use only 6 February 2020 The Manager Company Announcements Office ASX Limited 20 Bridge Street SYDNEY NSW 2000 Dear Sir/Madam, GrainCorp Limited (ASX: GNC) Investor Presentation – Demerger of United Malt Please find attached the investor presentation relating to the proposed demerger of
Slide 2: Demerger of United Malt Briefing Presentation
WORK IN PROGRESS DRAFT For personal use only Demerger of United Malt Briefing Presentation 6 February 2020 1
Slide 3: Important notices and disclaimer
Important notices and disclaimer For personal use only This presentation (Presentation) has been prepared by GrainCorp Limited (ACN 057 186 035) (GrainCorp) in statements. Except as required by law or regulation (including the ASX Listing Rules), neither GrainCorp nor relation to the proposed demerg
Slide 4: Presenting today
Presenting today For personal use only Mark Palmquist Alistair Bell Amy Spanik Managing Director and Chief Executive Group Chief Financial Officer, Chief Financial Officer, Officer, United Malt GrainCorp United Malt › Currently CEO of GrainCorp and has › Currently Group CFO of GrainCorp › Currently
Slide 5: Overview of the Demerger
Overview of the Demerger For personal use only Creation of two high quality, ASX-listed agribusiness companies, each with management teams focussed on pursuing independent strategies and growth opportunities Overview Post-Demerger › GrainCorp’s Malt business (“United Malt” or “UMG”) to be demerged t
Slide 6: Rationale for the Demerger
Rationale for the Demerger For personal use only GrainCorp is currently a portfolio of businesses with different characteristics and returns resulting in a range of investment profiles The GrainCorp Board believes that the Demerger has the potential to unlock significant value for GrainCorp Sharehol
Slide 7: Key dates
Key dates For personal use only Event Date Demerger Scheme Booklet registered with ASIC and released to ASX 6 February 2020 Demerger Scheme Meeting and General Meeting Proxy Form deadline and Record Date 10:00am, 14 March 2020 10:00am (Scheme Meeting), Demerger Scheme Meeting and General Meeting 10:
Slide 8: Contents
Contents For personal use only 1 United Malt after the Demerger 2 GrainCorp after the Demerger 3 Appendices 7
Slide 9: United Malt after the Demerger
For personal use only United Malt after the Demerger
Slide 10: Contents
CONTENTS For personal use only 1 Introduction to United Malt 2 Investment highlights 3 Financial overview 9
Slide 11: 1. Introduction to United Malt
For personal use only 1. INTRODUCTION TO UNITED MALT
Slide 12: United Malt at a glance
UNITED MALT AT A GLANCE • Fourth largest commercial maltster globally with capacity of ~1.25Mtpa across 13 processing plants in Canada, USA, Australia and UK(1) For personal use only • Customers include global brewers, distillers, craft brewers and food companies • Operates an international distribu
Slide 13: Long established history of supplying brewers, distillers and food companies
UNITED MALT HAS A LONG ESTABLISHED HISTORY OF SUPPLYING BREWERS, DISTILLERS AND FOOD COMPANIES • United Malt markets its products under a range of brands, each with a strong heritage and identity with its respective customer base and geography For personal use only 1990 1832 187 years 1995 1902 117
Slide 14: Snapshot of malt demand drivers
SNAPSHOT OF MALT DEMAND DRIVERS • The production of beer accounts for over 90% of total malt demand and emerging markets are set to drive growth in demand for beer over the next few years For personal use only • Craft beer market is important to the malt industry due to generally higher malt inclusi
Slide 15: 2. Investment highlights
For personal use only 2. INVESTMENT HIGHLIGHTS
Slide 16: Investment highlights
INVESTMENT HIGHLIGHTS For personal use only 1 Attractive market dynamics in established areas of strength 2 Strong market positions and malting assets that are difficult to replicate 3 Leading craft brewing distribution platform 4 Integrated supply chain with strong barley sourcing capability 5 High
Slide 17: Attractive market dynamics – craft beer
ATTRACTIVE MARKET DYNAMICS IN ESTABLISHED AREAS OF STRENGTH – 1 CRAFT BEER • The US craft beer market has grown rapidly over the last decade, driven by consumer demand for premium beer and a preference for authenticity and variety For personal use only • United Malt’s strong position in US craft mea
Slide 18: Attractive market dynamics – distilling
ATTRACTIVE MARKET DYNAMICS IN ESTABLISHED AREAS OF STRENGTH – 1 DISTILLING • Demand for Scotch whisky is projected to grow at 1.9% – 4.2% p.a. in the period from 2018 to 2023 predominantly driven by demand in emerging markets For personal use only • Growing consumer demand for single malt Scotch whi
Slide 19: Strong market positions and assets difficult to replicate
STRONG MARKET POSITIONS AND ASSETS THAT ARE DIFFICULT TO 2 REPLICATE • Fourth largest commercial maltster globally with capacity of ~1.25Mtpa across 13 processing plants in Canada, USA, Australia and UK(1) For personal use only • Operates in key barley growing regions and has long-term trusted relat
Slide 20: Leading craft brewing distribution platform
3 LEADING CRAFT BREWING DISTRIBUTION PLATFORM… • United Malt has established itself as one of the leading malt suppliers to the craft brewing sector, offering craft brewers and distillers comprehensive solutions and a For personal use only broad product range, supported by a distribution network of
Slide 21: Supported by ~20 international craft distribution partners
…SUPPORTED BY ~20 INTERNATIONAL CRAFT DISTRIBUTION PARTNERS 3 FOCUSSED ON REGIONS EXHIBITING GROWTH IN CRAFT • Craft sales outside of North America represent a high growth opportunity focussed on high margin bagged business For personal use only • Craft brewing market is benefiting from strong growt
Slide 22: Integrated supply chain with strong barley sourcing capability
4 INTEGRATED SUPPLY CHAIN WITH STRONG BARLEY SOURCING CAPABILITY • Malting assets are strategically located across major barley regions and established long-term direct relationships with growers allows United Malt to procure high For personal use only quality barley and efficiently manage its sourc
Slide 23: High quality customer base diversified by product, end-market and geography
HIGH QUALITY CUSTOMER BASE DIVERSIFIED BY PRODUCT, END-MARKET 5 AND GEOGRAPHY • Diversified, high quality customer base, providing a low risk earnings base and platform for future growth. High visibility of earnings underpinned by long-term For personal use only contracts • Focus on craft beer drive
Slide 24: Growth strategy focussed on high-value markets
GROWTH STRATEGY FOCUSSED ON HIGH-VALUE MARKETS WHERE GROWTH 6 IS EXPECTED TO CONTINUE… • After the Demerger, United Malt will continue to provide the highest quality products to customers by leveraging its multi-sourcing capability within its value-added For personal use only supply chain Maintain a
Slide 25: Demonstrated ability to undertake major capacity expansions
…DEMONSTRATED ABILITY TO SUCCESSFULLY UNDERTAKE MAJOR 6 CAPACITY EXPANSIONS IN ATTRACTIVE MARKETS For personal use only 120kt expansion of Pocatello Malting Plant 79kt expansion of Scottish malting facilities Arbroath Inverness • Capacity expansion to support growing demand from North American • Upg
Slide 26: Highly experienced senior management team
HIGHLY EXPERIENCED SENIOR MANAGEMENT TEAM WITH DEEP SECTOR 7 KNOWLEDGE • Highly experienced senior management team with extensive domestic and international experience For personal use only Graham Bradley AM Chairman • Chairman of the GrainCorp Board since May 2017 • Also currently Non-Executive Cha
Slide 27: 3. Financial overview
For personal use only 3. FINANCIAL OVERVIEW
Slide 28: Financial highlights
FINANCIAL HIGHLIGHTS For personal use only 1 Stable, low-risk earnings base driven by business diversification across products, end-markets and geographies 61% revenue from North America High visibility of earnings underpinned by long-term contracts with majority of large customers ~90% / ~75% / ~50
Slide 29: Low-risk business with proven ability to deliver stable earnings growth
LOW-RISK BUSINESS WITH PROVEN ABILITY TO DELIVER STABLE EARNINGS GROWTH THROUGH STRATEGIC INITIATIVES • Stable earnings growth underpinned by combination of strategic initiatives, including capacity expansion, acquisitions and third-party distribution partnerships in For personal use only response t
Slide 30: Strong cash generation with prudent capital structure
HISTORY OF STRONG CASH GENERATION, WITH A PRUDENT CAPITAL STRUCTURE TO SUPPORT STRATEGIC AND OPERATIONAL OBJECTIVES • United Malt has generated >88% cash conversion (on average) over the last four years, driven by strong business performance. Further, United Malt’s stay-in-business For personal use
Slide 31: United Malt's capital allocation framework
UNITED MALT’S CAPITAL ALLOCATION FRAMEWORK • A flexible balance sheet will provide funding capacity to support United Malt’s strategic and operational objectives and support dividends for UMG Shareholders For personal use only • Conservative balance sheet with flexibility to fund future growth proje
Slide 32: Conclusion
CONCLUSION For personal use only 1 Attractive market dynamics in established areas of strength 2 Strong market positions and malting assets that are difficult to replicate 3 Leading craft brewing distribution platform 4 Integrated supply chain with strong barley sourcing capability 5 High quality cu
Slide 33: For personal use only
For personal use only
Slide 34: GrainCorp after the Demerger
For personal use only GrainCorp after the Demerger
Slide 35: Contents
For personal use only Contents 1 Introduction to GrainCorp after the Demerger 2 Investment highlights 3 Operating strategy 4 Financial overview
Slide 36: Introduction to GrainCorp after the Demerger
For personal use only 1 Introduction to GrainCorp after the Demerger
Slide 37: Introducing GrainCorp after the Demerger
Introducing GrainCorp after the Demerger For personal use only Agribusiness Processing Australia International Australia & NZ ~145 country receival sites (20Mt storage) 4 high-capacity state-of-the-art elevators 2 oilseed crushing plants (one with refining with 134-car rail loops in Canada, th
Slide 38: GrainCorp's history
GrainCorp’s history For personal use only GrainCorp is an integrated Australian agribusiness with a heritage of over 100 years helping to connect growers to domestic and international customers GrainCorp was established GrainCorp was now known GrainsConnect Canada under the Grain Elevator as the Gra
Slide 39: GrainCorp is focussed on core products underpinning the food chain
GrainCorp is focussed on core products underpinning the food chain For personal use only GRAINCORP FOCUSES ON GRAINS, WHICH UNDERPIN THE GLOBAL DRIVERS OF INCREASED GRAINS AND OILS GLOBAL FOOD CHAIN CONSUMPTION Coarse Macroeconomic trends, including: Wheat Canola Pulses Organics grains1 — Strong p
Slide 40: Investment highlights
For personal use only 2 Investment highlights
Slide 41: Investment highlights
Investment highlights For personal use only #1 Integrated operating model capturing the value of agricultural products across the value chain #2 Well-positioned Australian and New Zealand supply chain infrastructure assets #3 GrainCorp leverages its significant Australian ports infrastructure to imp
Slide 42: Integrated operating model across the value chain
#1 Integrated operating model capturing the value of agricultural products across the value chain For personal use only INTEGRATED BUSINESS OPERATING ACROSS THE VALUE CHAIN IN FOUR CONTINENTS Origination and 1,000+ domestic Storage and logistics accumulation — Aggregating volumes, maintaining and in
Slide 43: Well-positioned Australian and New Zealand supply chain infrastructure assets
#2 Well-positioned Australian and New Zealand supply chain infrastructure assets For personal use only OVERVIEW OF DOMESTIC STORAGE AND LOGISTICS ASSETS AUSTRALIA AND NEW ZEALAND SUPPLY CHAIN INFRASTRUCTURE NETWORK ~145 country 20Mt storage 7 bulk export / facilities capacity import ports 4 liquid f
Slide 44: Leveraging significant Australian ports infrastructure
#3 GrainCorp leverages its significant Australian ports infrastructure For personal use only IMPORT / EXPORT INFRASTRUCTURE SERVICES TOTAL IMPORT / EXPORT VOLUMES 15.0 GrainCorp utilises its unique portside, storage and logistics assets to provide infrastructure services to third parties 12.0 In
Slide 45: Diversified, international customer base
#4 Diversified, international customer base For personal use only Strong value proposition in the markets in which GrainCorp operates, offering tailored and flexible solutions to meet customer requirements INTERNATIONAL CUSTOMER BASE SERVICE OFFERINGS AND AREAS OF EXPERTISE International customer
Slide 46: International platform enables GrainCorp to meet customer demand
#5 International platform enables GrainCorp to meet customer demand and generate insights For personal use only GRAINCORP’S INTERNATIONAL OPERATING FOOTPRINT Europe and Ukraine exports Canada exports 86Mt 40Mt Presence in international markets accounting for over 40% of global trade in core grains
Slide 47: Vertically integrated edible oils business
#6 Vertically integrated edible oils business is well- positioned to maximise value for customers For personal use only Expected to benefit from Agribusiness origination recovery in crush margins provides inputs and harvest throughput Exports, e.g. Canola, Tallow Bulk liquid exports / imports termin
Slide 48: Experienced Board and management team
#7 Experienced Board and management team For personal use only Highly experienced senior management team with extensive domestic and international experience Peter Richards Non-Executive Chairman GrainCorp Board member since Robert Spurway November 2015 Managing Director and Chief Currently Chai
Slide 49: Operating strategy
For personal use only 3 Operating strategy
Slide 50: Focussed operating strategy leveraging international integrated value chain
Focussed operating strategy leveraging the strengths of our international integrated value chain capabilities For personal use only Purpose: Enriching lives with essential ingredients from the land A leading international agribusiness through the value chain; the preferred choice to connect producer
Slide 51: Initiatives underway to strengthen and evolve the core
Initiatives underway to strengthen and evolve the core For personal use only GRAINCORP’S INITIATIVES 10-year contract to Managing variability — Executed the 10-year Crop Production Contract with effect from FY20, which will ensure GrainCorp’s cash flows are supported manage ECA crop during poor ECA
Slide 52: Financial overview
For personal use only 4 Financial overview
Slide 53: Current operating environment for GrainCorp
Current operating environment for GrainCorp For personal use only GrainCorp has been operating in a challenging environment as a result of the prolonged drought on the east coast of Australia and depressed oilseed crush margins EAST COAST AUSTRALIA DROUGHT CONDITIONS MARKET FUNDAMENTALS 20 The 201
Slide 54: Overview of key earnings metrics
Overview of key earnings metrics For personal use only GrainCorp has undergone a challenging period due to the drought in eastern Australia. From FY20, the Crop Production Contract is expected to help support the business’ cash flows and profitability PRO FORMA EBITDA (A$M) COMMENTARY 200 During t
Slide 55: FY19 pro forma earnings impacted by drought and significant items
FY19 pro forma earnings impacted by drought, significant items and abnormal factors For personal use only GrainCorp’s FY19 financial performance was impacted by several significant items and abnormal factors FACTORS IMPACTING FY19 EBITDA Abnormal factors 40 5 20 Pro forma significant items 15 23 - E
Slide 56: 10-year contract to manage East Coast Australia crop production risk
10-year contract to manage East Coast Australia crop production risk For personal use only KEY ADVANTAGES AND CONTRACT TERMS CROP PRODUCTION CONTRACT – PRODUCTION PAYMENT PROFILE1 By helping to smooth future cash flows, the Crop Production Contract 100 provides management with the flexibility to p
Slide 57: Disciplined capital expenditure
Disciplined capital expenditure For personal use only GrainCorp’s capital expenditure peaked in FY17 and has since declined as major capital works have completed, D&A continues to track above steady-state SIB capex FY16 – FY19 CAPEX Investment in future network COMMENTARY program and Processing asse
Slide 58: Sustainable capital structure
Sustainable capital structure For personal use only GrainCorp has low pro forma core debt, sustaining the business through the cycle COMMENTARY FY19 PRO FORMA CORE DEBT BUILD UP GrainCorp’s pro forma balance sheet as at 30 September 2019 includes core debt of $82 million and net debt of $416 milli
Slide 59: Maintaining a conservative capital structure and investment discipline
Maintaining a conservative capital structure and investment discipline For personal use only CAPITAL ALLOCATION PRIORITIES — Targeting an investment grade capital structure with minimal core debt 1 Service debt obligations — Debt financing primarily for seasonal commodity inventory and working capit
Slide 60: Conclusion
Conclusion For personal use only Operating initiatives underway to strengthen and evolve the core #1 Integrated operating model capturing the value of agricultural products across the value chain #2 Well-positioned Australian and New Zealand supply chain infrastructure assets #3 GrainCorp leverages
Slide 61: Appendix A: Additional UMG financial information
For personal use only Appendix A Additional UMG financial information 60
Slide 62: United Malt – Pro forma cash flow statement
United Malt – Pro forma cash flow statement For personal use only (A$m, unless noted otherwise) FY16A FY17A FY18A FY19A MD&A EBITDA 149.2 145.8 155.4 160.2 › FY16 working capital movements reflect inflows from inventory movements and associated borrowings › FY18 working capital requirements increase
Slide 63: United Malt – Pro forma Sep-19 balance sheet
United Malt – Pro forma Sep-19 balance sheet For personal use only Financing Transaction (A$m, unless noted otherwise) Reported structure costs Other Pro forma Pro forma adjustments for Demerger 1 2 3 4 › Represents assets and liabilities held by United Malt at end of 1 Cash and cash equivalents 181
Slide 64: Summary of United Malt's debt facilities upon Demerger
Summary of United Malt's debt facilities upon Demerger For personal use only Facility type Term facilities Working capital facilities Inventory facilities Currency AUD (with optional currencies as required) AUD (with optional currencies as required) AUD (with optional currencies as required) Commitm
Slide 65: Appendix B: Malt industry information
For personal use only Appendix B Malt industry information 64
Slide 66: Overview of the malting process
Overview of the malting process For personal use only Malting is the process of converting barley or other cereal crops into malt through a germination phase This activates enzymes which convert the grains starch reserves and proteins into sugars and amino acids, these are then heated up with hops a
Slide 67: Appendix C: GrainCorp additional information
For personal use only Appendix C GrainCorp additional information 66
Slide 68: Adapt the ECA network
Adapt the ECA network For personal use only GrainCorp is adapting its ECA network to meet grower and end-customer needs KEY PRIORITIES FOR ECA NETWORK ECA GRAINS NETWORK OF THE FUTURE Core network of highly-efficient rail and road outload sites 1 Growing on-farm engagement and service offering Me
Slide 69: Targeted international market expansion
Targeted international market expansion For personal use only GrainCorp will continue to have a strategic focus on building and developing its international grains and oilseeds origination and customer destination network Origination Priority destination markets Orig. Thesis assets Significant inves
Slide 70: Expand feeds business and capabilities
Expand feeds business and capabilities For personal use only Continue to grow our feeds business by providing an integrated customer offering to satisfy market demand … will grow the feeds … and providing an Utilising GrainCorp’s segments both integrated customer competitive advantage… domestically