Australian Agricultural Company Limited. Results Presentation for the year ended 31 December 2007

Transcription

1 Australian Agricultural Company Limited Results Presentation for the year ended 31 December 2007

2 Key operational Highlights AAco s s system delivered certainty of supply of high quality traceable beef to its customers in continued difficult seasons in many areas of Australia Beef Production increased 7% from 73 million Kg to 78 million Kg Calving Rate increased from 71% to 74% Herd Growth of 5.7% through breeder retention Increased Wagyu specific breeding herd by 5,000 head Conversion of Goonoo Feedlot from lease to Freehold (Cost $19m) Wholesale Meat revenues grew 36% to $105.6million from $77.8million Launched 1824 brand through 85 Woolworths stores in Qld & N.T. AAco Wagyu now being enjoyed in over 400 restaurants in the USA through Greg Norman Signature Wagyu Program AAco won the NAB Agribusiness award for Employer of Choice 2007 AAco has committed to the Greenhouse Challenge Plus Program. 2

3 a challenging year following continued drought from 2006 Challenge Drought impacts on southern cattle led to forced sales in the south and oversupply resulting in lower cattle prices Cheap meat from the south impacted wholesale prices in Queensland Drought in Australia and world demand increased grain prices. Australian Dollar rose 10c thus effectively discounting meat exports by 13%. Rising Interest Rates Rising costs generally, including labour costs Lower margins and cattle retention impacted cash flow Response Female cattle that were earmarked for sale were held back through the poor selling periods and remain in stock with the ability to produce another calf. Cattle prices have since risen. Increased live export sales where possible Directed more to export (although impacted later by currency) and focused on brand penetration with slightly better margin than commodity product. Grain contracts were forward bought for most of 2007, however there was a general rise as the season continued to be poor. All USD denominated meat sales forward sold from 2006 had been hedged. Meat sales normally sold 6 month forward so the second half was significantly affected. Spot market sales were affected most of the year AAco debt is hedged 50% out for 3 years, so effective rate rise was limited. Implemented a more efficient system of pregnancy testing in cattle to save mustering costs Cut back capital expenditure on development as properties could handle the extra cattle as season in the North was good. 3

4 AAco Strategy Report Card 2007 on ten year plan (year 2) Strategy Set in 2005 Double the herd in 10 years Increase carrying capacity of existing properties Acquired additional properties to support planned growth Focus on high value markets Increase branded beef / portion control business Increase calving percentages Target Outcome Comment 8.6% p.a increase Increase Kg of Beef Production 20k per annum Less than 8% per annum increase Acquire Wagyu breeding capacity Expand 1824 to Asia Increase sales by 50% 5.7% increase to 588k head (last year 11%) Increased Kilos produced 7% from 73m to 78m (last year 9%) Over 20k head retained to stock newly developed areas No additional properties bought this year other than conversion of Goonoo farm and feedlot from lease to freehold. Increased breeders for First Cross (F1) Wagyu by 5,000 head 1824 introduced to Japan in 2006 and Hong Kong and Korea Increased sales by 36% (last year 95%) Average over the last two years is 8.5%. Drought affected market. Main developments have been on Breeding stations in the north. Net herd capacity increase of approximately 31k head on more efficient properties Successfully converted traditional Brahman breeding properties to Wagyu production. Average over the last two years is 65%. >70% 74% (last year 71%) Aim to maintain or improve this result. 4

5 AAco Cattle Inventory Movements Note in 2006 Wrotham park herd was sold and Anthony/Eva herds were acquired and thus passed through sales and purchases respectively. Closure of MIS scheme recognised as profit in other revenue. 5

6 Profit and Loss details - EBITDA

7 Profit and Loss details 2007 EBITDA broken down into Normalised Earnings 7

8 Profit and Loss details 2007 NPAT -continued 8

9 AACo Beef Price Indicator with Benchmarks Monthly : Two years - Jan 06 - Jan N ovember D ec 07 Jan 08 April 9 September O ctober June July August September O ctober N ovember D ecember Jan 2007 February March April May J une J uly August May March February Jan 06 c/kg DW Index Domestic Prices in Australia AACo All Sales AACo Grainfed Steers ESYCP QCMI

10 Historic retail Beef Prices Australia domestic Retail Beef Prices vs CPI $18.00 $16.00 Down in 07 $14.00 $12.00 $ per Kg $10.00 $8.00 $6.00 $4.00 $2.00 $ Beef CPI Retail red meat prices fell 1.2% in 2007 against a CPI rise of 3% 10

11 USD prices stay stable whilst AUD equivalent fell $20.00 Volume Weighted Average Export Wagyu Meat Prices - all products including trimmings AUD Dollars AUD and USD USD $- The wholesale meat business was squeezed on margins from two sides, cheap meat from oversupply 2006 / 2006 in / southern 2006 / 2006 / 2006 Australia / 2006 / 2006 and / 2006 strong / 2006 / AUD 2007 / 2007 for / export 2007 / 2007 component. / 2007 / 2007 / 2007 / / / / / / 12 11

12 Australian Grain Prices ($A/t); Source: ABARE 12 $A/t Mar05 Qtr Jun05 Qtr Sep05 Qtr Dec05 Qtr Mar06 Qtr Jun06 Qtr Sep06 Qtr Dec06 Qtr Mar07 Qtr Jun07 Qtr Sep07 Qtr Dec07 Qtr (est) Grain prices last 3 years 2006 Wheat Barley Sorghum Maize AAco avg. forward bought

13 BALANCE SHEET Assets 13

14 Rural Property Values continue to rise in Northern Australia $' ,000 Land Revaluations - Average increase is 25% p.a. over last 4 years 45% 700,000 40% 600, , , ,000 35% 30% 25% 20% 15% 200,000 10% 100,000 5% Land only Pre revaluation Revaluation Increase % (RHS) 0% 14

15 Rural Property Values continue to rise in Northern Australia Median $/ha land values since $/ha Queensland Northern Qld Central Qld Southern Qld Northern Territory Source Data for charts : RMP/Herron Todd White Australian Grazing Property Index (AGPI) 15

16 BALANCE SHEET Liabilities 16

17 BALANCE SHEET Equity 17

18 OPERATING CASH FLOW

19 CASH FLOW FROM INVESTING AND FINANCING ACTIVITIES

20 TSR over 5 years (based on Dec 31 close) $44,000 $42,000 $40,000 $38,000 $36,000 $34,000 $32,000 $30,000 $28,000 $26,000 $24,000 $22,000 $20,000 $18,000 $16,000 $14,000 $12,000 $10,000 $8,000 $6,000 Total Shareholder Return on a $10,000 investment over the last five years Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 AAco S&P/ASX 300 AAco S&P/ASX 300 Accumulation index 20

21 Total Shareholder Return (TSR) for comparative agricultural entities with 5 years history before FCL announcement in October 2007 As at 16 August

22 CATTLE PRODUCTION FACTORS 2007 Rainfall North South Grass Fertility Grain Genetics Risk Management 22

23 12 Months to December 2007 Significant operational items Rainfall over the year was slightly above long term averages. Prices for store (trade) cattle for most of the year have been significantly affected by forced sales in the south. Mark to market impact over the 12 months is $0.5m EBIT Average Ration costs were 13% higher than

24 Average monthly rainfall pattern Monthly Rainfall ,000 4,500 4,000 3,500 3,000 2,500 2,000 Abnormal rains in June Cumulative Actual Cumulative LT Avg 1,500 1, January February March April May June July August September October November December 24

25 Actual rainfall pattern 2007 overall better than average outcome Cumulative Rainfall across all Stations ,000 12,000 10,000 8,000 6,000 Cumulative Actual Cumulative LT Avg 4,000 2,000 - January February March April May June July August September October November December 25

26 Wondoola Wylarah 1, Most stations received average and better rainfall Actual vs Long Term Average rainfall (mm) CY LT Avg CYTD Actual CY Avon Downs Brunette Downs Brighton Downs Camfield Canobie Carrum Clonagh Dalgonally Delamere Eva Downs Glentana Goonoo Gregory Downs Headingly Kalmeta Lawn Hill Meteor Downs Montejinni Rockhampton Downs South Galway Aronui Austral Downs Anthony Lagoon (m m )

27 FERTILITY Branding Percentages * 75.0% 70.0% 65.0% 60.0% Branding %. * Branding % = Calves Branded / Breeding Females eligible to have a calf branded during the year. 27

28 THE BEEF MARKET World Domestic USA Brazil Japan Korea 28

29 World Export markets in competing proteins: Beef increasing, pork slight decline, poultry slight increase Beef impacted 2002 by BSE now recovering Pork impacted 2007 by Swine flu outbreak in China, Beef now substituting Poultry impacted by Avian influenza 2006, 2008 expected to also sub for Pork 29

30 WORLD BEEF EXPORT/IMPORT DYNAMICS THE MAJOR PLAYERS Note: Whilst Australia as a whole is forecast to decline in 2008, AAco is not expecting to decline, rather expects to continue increasing production Source data - USDA 30

31 31

32 WORLD IMPORTS BY NATION *1000T 2008 forecast '000 Tonnes Beef Imported USA largest importer by far United States Russian Federation EU-27 Japan Mexico Russian beef consumption remains strong as economic growth driven in part by natural gas and oil revenues surge Korea Republic of Egypt Canada Taiwan Hong Kong Others South Africa Republic of ,000 1,200 1,400 1,600 1,800 Source data USDA 32

33 AUSTRALIA 1000 Tonnes of Beef and Veal Drought impact of ,300 2,100 1,900 1,700 1,500 1,300 1, f Produced Consumed Source : USDA 33

34 13000 USA 1000 Tonnes Produced of Beef and Veal US consumption outstrips US production f Production Consumption Source : USDA 34

35 CHINA 1000 Tonnes Produced of Beef and Veal Rising Consumption met by rising internal production f Production Consumption Source : USDA 35

36 BRAZIL 1000 Tonnes Produced of Beef and Veal Whilst consumption is increasing, production is ahead Kg 000 allowing greater export capacity f Production Consumption Source : USDA 36

37 3, Tonnes Exported USA recovering, AUS flat, Brazil expanding 2,500 2,000 1,500 1, f Australia USA Brazil Source : USDA 37

38 Australian value of beef still strong 38

39 JAPAN 1000 Tonnes of Beef and Veal 1,600 1,400 Slight increase 1,200 1, f Japan Consumption Imports Source : USDA 39

40 KOREA 1000 Tonnes Imported of Beef and Veal Recovering f Korea (Sth) imports 1000T Source : USDA 40

41 THE FUTURE Outlook for 2008 Outlook for

42 Outlook for 2008 Market Outlook Factors influencing the market in Australia as assessed by AACo are: Cattle prices are expected to lift with a return to more normal seasons in the South as graziers re-stock. As fuel prices are likely to stay at current high levels, the company is reassessing cost benefit of moving further energy sources to solar as technology improves. Seasonal conditions The finish to 2007 was excellent particularly in Southern Qld, NSW and Victoria has started modestly in the North however more rain is required in the North in the next 3 months to ensure a good season for the breeding properties. Growing and backgrounding stations have had some excellent rain in January AAco s operations for 2008 are based on the assumption that the AU$/US$ relationship will stay in the range of 88 to 90 cents if this can not be passed on to overseas markets then margins will be squeezed. AAco s forward purchases of grain has limited the immediate impact of increases in grain prices felt in the spot market during

43 Outlook for 2008 continued The world supply of quality beef remains limited by historically low herd numbers in the USA and Australia and herd health issues in South America, although current USDA forecasts 1.4% growth this year. The protocols restricting access of US beef into Japan and Korea are likely to continue ease in 2008 Australian beef supply is progressively being seen as high quality and reliable by Japanese wholesalers retailers and consumers. The world demand for clean exportable beef remains strong and growing on a per capita basis The Australian Industry needs to focus on lifting Beef consumption per capita in Japan, particularly as US beef imports rise. Consumers are becoming increasingly focused on traceable, quality assured and source verified products with Australia s electronic identification scheme (NLIS), a world leader in this regard Consistent with prior years, an announcement in relation to the 2008 dividend will be made at the half year when the Company will have a clearer picture of the seasonal and market conditions 43

44 Outlook for 2015 The long term strategic plan enunciated in 2005 continues to embrace the following targets for the core business: 1. To more than double the herd size 2. To Triple the production of feed crops 3. To improve land carrying capacities by up to 20% on selected properties 4. To acquire additional grazing lands that fit the current pathways and that support geographic diversity to lower portfolio risk profiles 5. To increase staff capacities to fulfil operational requirements 6 To improve margins through economies of scale and improved management programs 7 To increase the % throughput of our own cattle through feedlots and thereby increasing branded product resources. 8 To increase the % of beef production sold as branded beef to a minimum of 40% of total cattle sold. 44

45 Looking to the future - business development opportunities under consideration 1. Increasing participation in the portion control section of the beef supply chain our new facility has space to triple its current capacity. This will be driven by internal development, however see note Further brand penetration into Australia, Asia, Middle East and the USA 3. Expansion of Feedlot facilities allowing specialisation in Wagyu and 1824 animals. 4. Continue to monitor international opportunities in Brazil and China. 5. AAco will continue to review investment opportunities in the geographic areas in which it operates where that investment adds value to the business and its shareholders. 45