2004 Senior Management Briefing

1
2004 Senior Management Briefing
10 September, 2004
2
Strategy and growth overview
Andrew Lindberg
Managing Director
3
Financial objectives

• Return on equity
• - Achieve 15 return on equity for the AWB Group
  in the medium term
• Solid EPS growth
• - Landmark acquisition to be more than 35 EPS
  accretive (pre-goodwill, post synergies, post
  one-off costs) by 2005-06
• Stable dividend payment
• - Expect to maintain dividend payment at current
  levels for 2004-05
• Improve quality of earnings
• - Reduce exposure to crop by achieving more than
  20 of PBT not related to Australian wheat by
  2004-05

4
Some Landmark achievements

• Network consolidation
• Re-branding of all branches
• Back office consolidation - relocation of
  critical staff to Melbourne
• Recruitment of finance and insurance specialists
• Incentive program implemented for all staff
• AFS license and transfer of IBD arrangements with
  85 retention rate
• Phase 1 procurement completed with improved terms
  and conditions being obtained in all categories
• SA pilot program - 2/tonne merchandise voucher
• Launch of Fastrak Finance
• At least 95 of the way through the integration
  stage, and 15 of the way through the growth stage

5
Most customers are comfortable with Landmark
being an AWB company
Survey question Last year AWB took over the
Landmark organisation to form Landmark an AWB
company. Generally speaking, how comfortable
would you say you are with the two organisations
now being joined?
6
Targets will be achieved by implementing three
dominant business strategies
AWBs overarching goal is to implement an
Integrated Business Model...
7
Integrated Business Model will position AWB as
Australias leading agribusiness
8
Three growth areas

• Fertiliser and merchandise are the main areas
  targeted for growth
• Cross selling
• Leverage buying power in the network
• Improve merchandise and supply chain effectiveness

Leading position in Australian rural services

• Increase product base build on AWBs natural
  advantage to provide a wider range of products,
  better interest rates, and streamline credit
  processes
• Specific areas targeted for growth include
  lending, deposits, wealth management and general
  insurance

Leading rural financial services and insurance
provider

• Continue to focus on mandate to maximise grower
  returns
• Expand the suite of commodities, origins and
  risks managed
• Strengthen the differentiated position for
  Australian wheat

Australias leading global grain trading business
9
Outlook

• Australias agricultural outlook
• Wheat crop between 21 to 24 million tonnes for
  2004-05
• Livestock
• Cattle numbers forecast at 27.6 million head for
  2004-05
• Sheep numbers forecast at 99.5 million head for
  2004-05
• Wool shorn wool production estimated to be 440
  million kilograms greasy for 2003-04. Wool
  prices are heavily dependent on foreign exchange
  rates
• Integration of Landmark
• On track to meet EBIT enhancement opportunities
  indicated at the announcement of the acquisition
  in August 2003
• Primarily cost synergies and finance growth at
  5-10m in 2003-04 increasing to 30-40m by
  2005-06

10
Rural Services
Charles Stott
GM Rural Services
11
A period of change

• 2003
• Growth phase
• Nationalised structure
• Merchandise sales recovery
• East Coast fertiliser expansion
• Drive wool and livestock growth and productivity
• National finance and insurance expansion

• 2001 2002
• Merger Dalgety IAMA
• Achievement synergies
• Maintain revenue in existing businesses
• Establish new brand identity
• Capture merchandise and logistics opportunities

• 2004
• Integration and growth
• Capture cost and revenue synergy benefits
• Centralise head office function
• Expansion of financial services and growth
• Drive wool, livestock and merchandise growth and
  productivity
• Network optimisation
• Account management

OBJECTIVE 2004-05 Integrated Business
Model
12
Merchandise

• Merger of Wesfarmers Dalgety and IAMA in 2001
  resulted in Landmark becoming Australias largest
  rural merchandise distributor
• Stores across Australia stock a range of animal
  health, cropping, fencing, fertiliser and farm
  hardware product
• Merchandise products are distributed via 230
  company owned branches, 47 franchises and 120
  members and agents, and supported by over 200
  agronomists Australia wide

13
Merchandise overview
Competitive environment Key opportunities
Intense price competition Commoditisation of products Rationalisation of suppliers, particularly in the chemical sector Channel proliferation leading to increased competition in distribution Low demand for cotton inputs due to lower production, irrigation cuts and biotechnology Livestock carrying numbers reduced following drought with expected impact on Animal Health and management sales Cotton prospects improved with increased water availability Commoditisation of products 75 of chemical products expected to be off -patent by 2005 Generic products are becoming a bigger part of the farmers decision making process Operational improvement opportunities Meet all price points
a generic strategy will be important
14
Fertiliser

• Significant supplier of fertiliser distributing
  over 1 million tonnes per annum, as well as
  retailing liquid, trace element and specialist
  fertilisers
• The major fertiliser products are globally traded
  commodities, resulting in
• Limited scope for differentiation between retail
  outlets and
• Importer traders ensuring world price movements
  rapidly flow through to domestic price (i.e.
  volatility)

15
Fertiliser overview
Competitive environment Key opportunities
Limited product differentiation Large number of agents and dealers competing locally Requirement for logistics services in some markets Ongoing rationalisation of industry players Market volumes increasing Nitrogen use increasing Local prices driven by world prices Increased market share through acquisition of independents Cross sell bundled product offering
growing market share and volume is important
16
Livestock

• One of Australias largest marketers of livestock
• Operating in all States and Territories
  throughout Australia
• Handles 20 of livestock trading in Australia
• Core business is sale of livestock through
  saleyards - 70 sold via auction
• Livestock trading is also a part of the business
• Landmark supplies processors, supermarket
  processors, lot feeders and live export markets

17
Livestock overview
Competitive environment Key opportunities
Pressure on core agency business from increased direct selling to processors Major competitors involved in vertical integration Private agents cutting commission rates to gain share Rationalisation of saleyards Increase business into grain fed markets Strong meat and live export markets Productivity improvements, saleyard rationalisation
prices are expected to remain strong
18
Wool

• Handle approximately 25 of the National Wool
  Clip (500,000 bales)
• Provide traditional broking / auction selling
  services as well as a comprehensive range of Risk
  Management products
• 50 interest in Australian Wool Handlers AWH
  (with Elders) wool handling
• Not involved in any downstream processing

19
Wool overview
Competitive environment Key opportunities
Strong competition for a record low volume of wool (sheep numbers at 96 million in 2003-04) Small, low cost regional brokers have increased market share Ongoing price discounting Rationalisation amongst brokers to occur Move from wool to meat likely to continue Fall in wool production has created an opportunity for industry rationalisation and consolidation Good prospects for sheep meat will assist building flock numbers Low levels of supply will provide support to wool prices
increased throughput is the key
20
Real Estate

• Landmark real estate has two main activities

- Rural property sales - Residential property
sales
21
Real Estate overview
Competitive environment Key opportunities
Metro and town real estate agents moving into small farm areas causing margin pressure Sophisticated players with marketing and sales representatives Low market share in residential real estate Limited capital Variable pay structure Outlook is for steady growth
good platform to grow residential market share
22
Integration of Landmark
Day 1 August 29 2003
June 30 2004
September 30 2004
Completion and Signing
Transaction
Integration Project Management
Network, IT and HR Integration are on going
Transition
Integration Planning
Integration

Integration
Full completion/transition has now occurred
of all Landmark accounting, finance, treasury,
business development, HR, risk, corporate
insurance, IT, marketing services, stakeholder
relations and legal functions within AWB functions
Growth
Extending and creating value and building the
Integrated Business Model

Synergy Benefits
23
Outlook

• Opportunities exist to grow in most activities
• Commodity prices expected to remain strong
• Real Estate values expected to plateau

24
Network Operations
John Maher
GM Network Operations
25
Network structure and rural footprint
Staff 363
46
1
Staff 293
Branches
Staff 239
29
35
47
43
11
19
Franchises / Agents
Staff 350
28
14
37
Members
Staff 455
31
8
57
26
Network operations will focus on

• Account Management
• Network Optimisation
• Integrated Business Model
• as well as.
• Training Development
• Profitability Improvements (financial services
  merchandise / fertiliser)
• Operational Excellence

27
Account management cross sell opportunities
The number of activities utilised by each
customer of Landmark is low
Activity Key Customers
Fert Ins L/Stock Merch Wool
Fert
Ins
L/Stock
Merch
Wool
Penetration across other activities ()
High cross sell growth opportunities
28
Account management customer relationship
management (at branch level)

• Utilising data to segment Landmark AWBs
  customer base
• Developing appropriate service level protocols
  disciplines
• Improving differentiation in service levels

29
Key strategies for account management

• Institutionalise the customer knowledge
  historically maintained with individual
  employees.
• Evolve the culture from an activity
  specialisation focus to a customer relationship
  focus, and build an account management
  philosophy.
• Increase share of wallet from our existing
  customer bases.

30
Network optimisation (continued)
Improve profitability, capture growth and improve
return on capital
Optimise current branch /franchise options
Optimise network footprint
Optimise network format

• Branch categorisation

• Outlet design and standards

• Identification and analysis of growth
  opportunities

31
Identified opportunities within each geographic
segment and branch catchment area
Corporate Branch Market Share vs Market Size
Average size
Profit contribution by outlet is variable due to
a number of factors
Market Share
Market Potential
32
Network configuration

• Three distinct channels to market
• Leveraged properly, provides a competitive
  advantage

Branch
Franchise
Member
Channel partners inflation adjusted growth rate
Principals share of channel partners product
category sales
Size of circle indicates value of channel
partners revenue
33
What will the network look like in 3 years?

• Strategies in place to optimise our foot-print
  and maximise profit pool opportunities
• High potential business managers matched to high
  potential locations
• Optimal store configurations
• Optimal catchment areas
• Efficient channels to market

34
Update on IFRS
Paul Ingleby
Chief Financial Officer
35
Update on IFRS

• Background
• Progress to date
• Project timeline
• First time adoption
• Whats next

36
IFRS background

• In July 2002, the AASB committed to full adoption
  of International Standards
• Global capital requires consistent reporting
• Consistency with Europe, fewer differences from
  US GAAP
• Applies for financial years on or after 1 January
  2005
• First applies to AWB for the half year ended 31
  March 2006 including comparatives
• Impact disclosure is qualitative at 30 September
  2004, and quantitative at 30 September 2005
• AWB project kicked off January 2004 and Deloitte
  was enlisted as an expert consulting partner

37
Progress to end of August

• Major impacts identified
• No impact on pool reporting
• Impediments to hedge classification
• Goodwill impairment testing
• Performance rights and share plans to PL
• Balance sheet method for deferred tax
• Documentation of first time adoption position
• Realistic project timelines with resources
  identified and committed
• Board and audit committee regularly briefed

38
Project timeline
Sep 04
Sept 05
Sept 06
Mar 05
Mar 06
1
2
3
4
5

• March 06
• Half year IFRS compliant report

• Sept 06
• First full year IFRS compliant annual report

• Sept 04
• Comparative opening balance sheet
• Exclusion of AASB 132 139
• ASIC disclosure AASB 1047 qualitative impact
  analysis
• Systems implementation strategy

• March 05
• Half year comparatives
• Exclusion of AASB 132 139
• Inventory of instruments
• Accounting for trading transactions
• Valuation methodology

• Sept 05
• Full year comparatives excluding AASB 132 139
• Transition entries identified for AASB 132 139
• Full policies to include AASB 132 139
• Systems in place for all IAS requirements
  including AASB 132 139, where applicable hedge,
  designations, effectiveness and testing
• AASB 1047 quantitative impact analysis

39
AWBs first time adoption

• Maintain Landmark acquisition accounts
• No financial instruments comparatives
• Retain Foreign Currency Translation Reserve
• No revaluation of fixed assets

40
Whats next for IFRS

• Draft opening balance sheet
• Implement comparative data capture
• 2005 financial year
• Non financial instruments only
• Leverage tax consolidations software and Market
  Risk Control Framework
• Implement financial instruments detailed hedge
  assessment

41
Wheat prices, futures and global supply
Sarah Scales
GM, AWB (International) Limited
42
World wheat production

• World wheat production has increased 56 million
  tonnes to 608 million tonnes in 2004
• Significant production increases occurred in the
• EU-25 106 mmt to 129 mmt
• FSU 61 mmt to 84 mmt
• India 65 mmt to 72 mmt
• China 86 mmt to 90 mmt
• US crop declined from 64 mmt to 58 mmt

43
World wheat production consumption
Source USDA 2004
44
World wheat trade 5 major exporters
2003/04 2004/05 estimated Source USDA
45
World stocks

• A larger world production was required as world
  stocks remain historically low
• From 202 mmt in 2002-03 to 167 million tonnes in
  2003-04 to 132 million tonnes in 2004-05 and 142
  million tonnes 2005
• Other major world crops are showing the same
  trend
• Corn from 148 million tonnes in 2002-03 to 85
  million tonnes in 2004-05
• Rice from 139 million tonnes in 2002-03 to 68
  million tonnes in 2004-05
• This prevents a huge production swing into one
  crop
• Human consumption demand increasing at long term
  trend of 1
• Feed demand will increase 7 million tonnes due to
  larger feed wheat availability in 2004-05

46
Kansas futures
47
Prices

• Production risk premium has been removed from the
  market and this has seen Kansas futures decline
  from in excess of US4 bushel to US3.40 bushel
• APW National Pool return has declined from 220
  FOB to 197 FOB for 2004/05 pool
• Weaker currency is supportive to price

48
The future

• Increased production and export supply from the
  Russia and Ukraine likely over time
• Exports from the Black Sea work initially into
  the Mediterranean, then Africa and the Middle
  East
• This is one of the major drivers for AWB to focus
  on increasing exports into Asian markets over the
  next five years
• AWB exports into Asia in 2004 will be greater
  than 10 million tonnes for the first time

49
Outlook

• Risk premium has been taken out of current prices
• Strong competition from Northern Hemisphere
  export origins in the short term
• There is still a tight balance sheet that will
  react to any production issue in 2005
• China expected to continue strong import program
  in 2005
• AWB confident of retaining 50 of Iraq import
  demand

50
Financial Services
Marcus Kennedy
GM Financial Services
51
What we have achieved to date
Priority
Outcome
AFSL licence

• Licence approved within timeframe
• Enabled AWB to continue to offer the IBDs

• IBD Prospectus major
• customer migration

• Prospectus launched
• 85 conversion

Protect shore-up Harvest Finance business

• Over 70 market share

• Improved sales mgt RFMs recruited
• Segmentation of customers
• Aligned targets and incentive plan

On track to achieve 5m uplift
52
What do we offer clients?
Lending
Deposits
Insurance
Net Access
Harvest Finance
Wealth Management

• Term Loans
• Seasonal Finance
• Line of Credit
• Fastrak Finance

• Call Investment Account
• Rural Cheque Account
• Rural Card
• Term Deposit

• General Insurance
• Crop Insurance
• Stud Livestock Insurance
• Transit Insurance

• Landmark Finance Online Plus
• Transfer funds
• Views statements
• Pay bills

• Harvest Loan
• Flexible Drawdown Loan
• Advanced Payment
• Deferred Payment

• Financial Advice
• Master Trust Platform
• Investment Products

• 1b book

• 280m book

• 120m book

• 2,800 clients

• 1.5b book

• New business opportunity

53
How big is the opportunity?
Earning potential of total market
Total Agri-business market
30-35b
610m
Lending
2.1b
42m
Harvest Finance
11b
110m
Deposits
4b
80m
Wealth Management
Insurance
760m
140m
54
Market trends and impacts
Lending Harvest Finance Deposits Wealth Insurance
Larger clients Larger deals More professional operators Cashflow out of sector Equity in Farms unlocked Lower premiums
Scope to differentiate Market share erosion Increased choice and competition Increased choice and competition Greater competition for customer ownership
Pressure on smaller operators Increased need for seasonal funding E-solution Barriers to entry Focus on choice and independence Shake-out of Intermediaries E-solutions
Clients approached by brokers on fee for success basis Maintain strength Greater focus on lifetime value Greater competition for customer ownership Role of intermediary is key
Lending opportunities Leverage client base Increased investment High advice need Increased complexity
Farm consolidation
Competitive market
Technology, scale, increased regulation
Increasing role of intermediaries
Farm succession issues
55
Why we can win

• 430 outlets across all regional areas
• Local representation and service
• 70 Finance specialists
• Often on farm close to clients business

Distribution footprint in rural

• Insight into the financials and operations of a
  clients total business
• More individualised business/product transactions
  per client

Deeper customer relationships than other
Financial Service providers

• Specialist focus on agri means no distractions
• Deeper understanding of agri needs e.g. we want
  the physical, we see the fund flow (e.g.
  livestock, grain, wool etc)

Rural focus

• Strong suppliers in all categories
• Lending Rabo
• Deposits NAB, WBC
• Insurance WFI, CGU

Supplier relationships
56
What are our major initiatives
to be a broad-based rural and regional financial
services distributor with niche manufacturing
capability where we have a natural competitive
advantage
Lending Harvest Finance Deposits Wealth Mgt Insurance
Product Relationship pricing and bundling Cross sell and bundling programs Tap into commodity cashflows Create agri specific offering Fill product gaps
People Recruit and develop high calibre RFMs Specialist grain expertise FSRA skill accreditation Recruit/ acquire advisory business Recruit and develop specialist staff
Process Enhanced loan platform Web enabled Improve client statements Full online proposition Establish new platform Supplier sales conversions Web enabled
Positioning Build FS brand with primary producers Reinforce strong brand with grain clients Build FS brand across rural, regional and metro Build FS brand with primary producers Build FS brand across rural, regional and metro
57
Outlook

• Rural customers traditionally under serviced
• Service based proposition
• Leverage customer insights across all business
  streams
• Business partnership

58
Trading
Peter Geary
GM Trading
59
Trading group

• Sales marketing
• (Services function deal making)

Australia Trading
International Trading
Derivatives Trading
60
Objective of the Trading group

• To strengthen core trading capability and be a
  world class global niche agricultural commodity
  trader on a light asset base model

Trading will build on existing capabilities,
domestically and internationally

• - Utilising a fund-of-funds approach to
  achieve

• Tighter and faster decision making
• Dynamic capital and resource allocation
• Global trading focus
• Trading and marketing synergies

61
Capturing Trading Marketing synergies

• Trading adds value to the Pool Marketing (ISM)
  activities through its

• Pool Marketing (ISM) complements Trading
  activities through its

• Market position
• AWB brand
• Wheat market information
• Customer relationships

• Risk management skills
• Wheat acquisition skills and marketing
  information
• Customer solutions / product bundling offerings
• Competing product information
• Customer relationships

62
AWBs global reach
World trade based on 2003-04
Importers
World total
AWB Share
Sth Amer
Other
Wheat
107 mt
16
26
18
11
1
11
15
1
17
AWB wheat exports
26
3
18
4
24
21
1
3
Sth Amer
Other
75 mt
1.3
Oilseeds
1
28
1
1
2
47
19
1
Corn
Sth Amer
Other
74 mt
1.4
5
10
1
1
5
35
9
34
Source USDA AWB trade data 2004
63
Grains industry used to look like this



Heavy
CARGILL
CARGILL
CARGILL
ADM
ADM
ADM
CONAGRA
CONAGRA
CONAGRA
Assets
LOUIS DREYFUS
ANDRE
ANDRE
ANDRE
CONTINENTAL
BUNGE
CONTINENTAL
BUNGE
CONTINENTAL
BUNGE
NIDERA
NIDERA
NIDERA
TRADIGRAIN
TRADIGRAIN
TRADIGRAIN
GLENCORE
AWB
CWB
CWB
CWB
Light
Low
High
Trading risk profile
64
But has changed dramatically over the past five
years
opening space for a global niche market
positioning



CARGILL
Heavy
ADM
WILMAR
BUNGE
CONAGRA
Assets
LOUIS DREYFUS
GLENCORE
AWB
CWB
CWB
CWB
Light
Low
High
Trading risk profile
65
Australia Trading (formerly Domestic Trading)
Environment Priorities initiatives Outlook
Large crop, margins continue to be pressured Drought Consolidating customer base Strengthening competitor base consolidation of trading houses Conservative selling by growers following drought Opportunity to develop deeper relationships with key customers Strengthen sales links to intensive domestic livestock industries Expand commodity base Develop business in non-regulated export grains Develop livestock value-add activity Improve efficiency of risk capital utilisation (use fund-of-funds approach) Bullish domestic crop production outlook Weakening international and domestic commodity prices Market price curve keeping grain away from market
Outcome diversification of Trading earnings
66
Chartering
Environment Priorities initiatives Outlook
Volatility in freight rates driven by commodity boom Counterparty/market default driven by price extremities Pool chartering dependent on size of export crop Opportunity to expand primary grain export business into 3rd party freight opportunities Opportunities to increase global presence through single operational strategy of all AWB freight books Opportunity to develop back freight businesses (e.g. fertiliser) Develop additional skills in freight market intelligence Increase operations of vessels in global freight market Increase CNF sales of Pool and Non-Pool tonnage Continue to develop a presence as a 3rd party freight supplier Freight rates weakening globally through 2005 Increased vessel supply Economic growth rates from China
Outcome 24 hour global market coverage in
conjunction with Geneva Chartering
67
Freight market

68
International Trading (formerly Global Operations)
Environment Priorities initiatives Outlook
2004-05 larger world crops, lesser price volatility prospects (lower execution risk, but fewer trading opportunities) Inability to attract capabilities to develop niche strategy of business Increased competitive pressures from global multi-national trading entities Merchants industry international consolidation Improve quality and origin of earnings and build deeper tailored relationships with a range of highly valued customers Secure regular supply and/or origination agreements in key markets Diversify revenue by covering more markets and products Leverage marketing and trade finance capacity Expand and strengthen trading skill set capability Align IT to origination and marketing strategies Larger global crop production declining market volatility Increase penetration of AWB IT into new markets and customers
Outcome better market coverage and increased
other origin grain volume traded
69
Derivatives Trading
Environment Priorities initiatives Outlook
Drought impacting physical volume Grower willingness to forward contract Market price environment and its impact on product attractiveness Customer buying in at lower price environment Build deeper tailored relationships with a range of highly valued customers Leverage Landmark business to provide an expanded product service offering to our suppliers and customers Continue to build on business through existing AWB customer base and physical flows Expand business to external financial clients and other commodities Broaden the grower product range to increase volumes and marketability of products Improve sales effort through regional networks Good uptake of scale with overseas buyers Opportunity to bundle with physical wheat price
Outcome Improved quality and origin of earnings
70
Outlook

• Strong growth across all activities
• Only domestic trading with national presence
  reliable trading partner
• Fewer players through industry consolidation and
  exit of medium sized trackers
• Strong uptake by international customers on
  product range
• Well recognised expertise in chartering
  environment

71
Questions
72

• www.awb.com.au
• For further information contact
• Delphine Cassidy
• Head of Investor Relations
• T 61 3 9209 2404
• E dcassidy_at_awb.com.au