2006 Half Year Results

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2006 Half Year Results

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Title: 2006 Half Year Results


1
2006 Half Year Results
  • Analyst Presentation 24 May 2006

2
Content
  • Half year review and highlights (Brendan Stewart)
  • Financial performance (Paul Ingleby)
  • Strategy outlook (Brendan Stewart)

3
Half year review and highlights
  • Brendan Stewart
  • Executive Chairman, AWB Limited

4
Underlying profit dividend maintained
Financial result half year ended 31 March (m) Financial result half year ended 31 March (m) Financial result half year ended 31 March (m)
2005 2006 Change ()
Underlying PBTA 81.6 85.6 5
Underlying NPAT 63.3 60.3 (3.0)
Reported NPAT 105.1 46.0 (59.1)
Dividend (cents per share) 16 16 0
5
Business Strategy
  • Growing our core business
  • Strong out-performance from 2004/05 Pool
  • 20 increase in Landmark loan book to 1.64
    billion
  • Record deliveries into Grain Centres
  • Diversifying our business
  • AWB Geneva, AWB India and AWB Brazil
  • Rural Trust funding vehicle
  • Strengthened fertiliser position
  • Joint venture and strategic Dairy Alliance with
    Fonterra

6
Financial Performance - Business Streams
  • Paul Ingleby
  • Chief Operating Officer / Chief Financial
    Officer, AWB Limited

7
Statement of financial performance
AWB Group Summary (m) Half Year Ended 31 March 2005 2006 Half Year Ended 31 March 2005 2006
Revenue 2622.6 2623.4
EBITDA 117.0 112.1
Depreciation amortisation (26.2) (21.8)
EBIT 90.8 90.3
Interest (14.2) (9.7)
PBT 76.6 80.6
Tax (13.1) (20.3)
Outside equity interest (0.2) (0.0)
Underlying NPAT 63.3 60.3
EPS () 18.5 17.4
Significant items after tax 41.8 (14.3)
Reported NPAT 105.1 46.0
EPS () 30.6 13.3

Underlying PBTA
Underlying PBT 76.6 80.6
Add back Amortisation (goodwill software) 5.0 5.0
Underlying PBTA 81.6 85.6
8
EBIT summary
4.3
7.7
1.3
8.4
5.9
90.8
0.9
90.3
9
Pool Management Services
EBITDA Pool Management Services
Half Year Ended 31 March (m) Half Year Ended 31 March (m) Half Year Ended 31 March (m)
2005 2006 Change
Revenue 42.2 51.0 21
EBITDA 11.4 19.8 74
Depreciation and amortisation 0.0 0.0 0
EBIT 11.4 19.8 74
EBITDA m
  • Pool Management Services contributed an EBIT of
    19.8 million for the half, a 74 uplift on the
    pcp.
  • Revenue growth of 14 over the pcp was due to
    strong out-performance result achieved for the
    2004/05 Pool. Final 20 of the 2004/05
    out-performance incentive brought to account this
    half.
  • 2004/05 Pool finalised in May 2006 total base
    fee was 65.1 million. 45 of base fee for
    2005/06 Pool received this half, providing
    revenue of 30 million.
  • Costs allocated to Pool Management Services
    comparable to the pcp.

10
Grain Acquisition Trading
EBITDA Grain Acquisition Trading
Half Year Ended 31 March (m) Half Year Ended 31 March (m) Half Year Ended 31 March (m)
2005 2006 Change
Revenue 1,272.9 1,114.3 -12
EBITDA 34.2 35.0 2
Depreciation and amortisation (1.0) (0.5) 48
EBIT 33.2 34.5 4
EBITDA m
  • Grain Acquisition Trading contributed EBIT of
    34.5 million, 4 up on the pcp.
  • AWBs international trading activities continued
    to provide strong earnings for the Group.
  • Chartering continued to perform strongly in a
    less volatile freight market.
  • Restrained local trading conditions in a lower
    priced environment reduced the contribution from
    domestic operations.

11
Supply Chain Other Investments
EBITDA Supply Chain Other Investments
Half Year Ended 31 March (m) Half Year Ended 31 March (m) Half Year Ended 31 March (m)
2005 2006 Change
Revenue 46.4 48.3 4
EBITDA 4.0 8.3 107
Depreciation and amortisation (5.2) (5.2) 0
EBIT (1.2) 3.1 362
EBITDA m
  • Supply Chain Other Investments contributed 3.1
    million for the period, significantly higher than
    the 1.2 million expense in the pcp.
  • Grain Centre receivals were at record levels,
    with 1.9 million tonnes delivered during 2004/05
    harvest, up 46 on the pcp.
  • Melbourne Port Terminals (MPT) overall
    contribution reduced on the pcp, while overseas
    investments remained steady.
  • MPT experienced lower throughput volumes due to
    decreased 2004/05 crop size and slow early
    shipping program for 2005/06 crop.

12
Finance Risk Management Products
EBITDA Finance Risk Management Products
Half Year Ended 31 March (m) Half Year Ended 31 March (m) Half Year Ended 31 March (m)
2005 2006 Change
Revenue 462.8 610.7 32
EBITDA 21.8 14.1 -35
Depreciation and amortisation 0.0 0.0 0
EBIT 21.8 14.1 -35
EBITDA m
  • 14.1 million EBIT contribution from Finance
    Risk Management Products, compared with 21.8
    million in the pcp.
  • Contribution from Harvest Finance increased 4 on
    pcp due to higher levels of wheat production and
    improved portfolio management.
  • Harvest Finance loan book peaked at 1.3 billion,
    up 18 on the pcp.
  • Lower than forecast earnings from OTC desk in
    Portland, USA, was main contributor to reduced
    result this half.
  • Risk Assist performed strongly.

13
Landmark
EBITDA Landmark
Half Year Ended 31 March (m) Half Year Ended 31 March (m) Half Year Ended 31 March (m)
2005 2006 Change
Revenue 710.7 778.0 9
EBITDA 42.6 33.2 -22
Depreciation and amortisation (8.1) (4.6) 43
EBIT 34.5 28.6 -17
EBITDA m
  • Landmark EBIT down by 5.9 million on pcp to
    28.6 million.
  • Other income in pcp included one-off items
    (approximately 5 million) such as sale and
    leaseback of motor vehicles.
  • Enhanced staff levels in targeted growth
    activities and through acquisition and
    integration activities.
  • Merchandise and fertiliser sales increased by 5
    on the pcp.
  • Livestock profitability marginally down on pcp.
  • Real Estate profitability down on the pcp.
  • Strong result from Wool profitability up 24.
  • Finance gross profit increased by 25.
  • Insurance increases Gross Written Premiums by
    10.
  • Investments decreased contribution with Hi-Fert
    operational losses in first quarter.

14
Corporate Items
EBITDA Corporate Items
Half Year Ended 31 March (m) Half Year Ended 31 March (m) Half Year Ended 31 March (m)
2005 2006 Change
Revenue 87.6 20.5 -77
EBITDA 3.0 1.7 0
Depreciation and amortisation (12.0) (11.5) 4
EBIT (8.9) (9.8) -10
EBITDA m
  • Corporate division contributed an EBIT expense of
    9.8 million, compared with 8.9 million in the
    pcp.
  • Result is consistent with the pcp lower
    overheads offset by lower miscellaneous revenue
    items.
  • Result excludes costs associated with Cole
    inquiry which are included in significant items.
  • Depreciation and amortisation includes
    amortisation of software associated with
    acquisition of Landmark of 5.0 million (pcp
    5.0 million)

15
Financial Performance AWB Group
16
Statement of financial position
  30 September 31 March
(m) 2005 2006
Cash 54.2 34.8
Working Capital Items 625.2 768.1
     
Landmark Lending (incl Rural Trust) 0.0 1,626.9
Grower Loan Receivables 410.9 813.8
Advanced Deferred Payment Products 167.0 445.9
Finance Options 577.9 2,886.6
     
Investments Available for Sale Assets 69.5 102.2
Intangible Assets 566.0 562.4
Property, Plant, and Equipment 202.6 195.9
     
Short Term Deposits 393.2 264.5
Interest Bearing Deposits (Landmark) (535.4) (505.0)
Deposits - AWB National Pools (565.9) (672.5)
Bank Loans (257.3) (2,474.0)
Net Debt (965.4) (3,387.0)
     
Net Assets 1,130.0 1,163.0
Shareholders' Equity 1,130.0 1,163.0
17
Cashflow
Half Year Ended 31 March (m) 2005 2006
Profit before tax 131.8 61.3
Add depreciation amortisation 26.2 21.8
Less profit on sale of n/c assets (58.4) (1.3)
Add other non-cash items 8.4 14.1
  108.0 95.9
Increase in working capital balances (313.2) (142.9)
Finance options (184.8) (708.9)
Income taxes paid (net) (42.9) (21.4)
Cash flows from operating activities (432.9) (777.3)
Payments for ppe (net) (0.1) (5.5)
Proceeds from / (purchases of) investments (net) 151.7 (10.0)
Payments for intangible assets (net) (1.5) (11.3)
Purchase of loan book 0.0 (1,599.8)
Proceeds / (placements) of short term deposits (50.0) 128.8
Cash flows from investing activities 100.1 (1,497.8)
Proceeds from issues of shares 8.3 8.0
Net increase in interest bearing liabilities 350.1 2,292.8
Dividends paid (38.0) (45.1)
Cash flows from financing activities 320.4 2,255.7
Net increase / (decrease) in cash held (12.4) (19.4)
18
Capital expenditure Intangibles
(m) Half Year Ended 31 March Half Year Ended 31 March Change
  2005 2006
PPE Grain Centres construction 5.0 2.4 -52
System development other property, plant equipment 17.4 6.9 -60
New building costs 0.0 0.0 0
Total 22.4 9.3 -58.5
Intangibles
Software development 1.5 2.2 47
Other Intangibles 0.0 9.1 n/a
Total 1.5 11.3 653.3
Depreciation and amortisation (26.2) (21.8) -16.8
       
excludes goodwill and software amortisation
19
Strategy Outlook
  • Brendan Stewart
  • Executive Chairman, AWB Limited

20
Strategy
  • AWBs strategy is to be Australias leading
    agribusiness through becoming the business
    partner of choice for primary producers and end
    customers.
  • Execution of this vision will enable AWB to
    deliver its financial objective of
  • Strengthening core business.
  • Growing and diversifying to improve the quality
    of earnings and reducing the share of Pool
    based earnings.
  • In the medium term, AWB expects to be less
    reliant on Pool and Pool related earnings.
  • AWB will achieve its financial objectives by
    working towards growth in the following three
    segments
  • Commodity Management
  • Financial Services
  • Rural Services

21
Commodity Management
How will we achieve our financial objectives? Diversification into select profitable segments (eg other origin grains) and niche assets. Expansion and diversification of the international trading network. What weve delivered in the first half Grain Centre receivals at record levels, 1.9 million tonnes received during the 2005/06 winter crop, up 0.6 million tonnes on 2004/05. AWBs International Trading business remains a strong contributor, led by AWB (Geneva), and more recently India. Outlook AWBs forecast for domestic wheat production for 2006/07 is 23 to 25 million tonnes. World wheat production forecast to reach 600 million tonnes for 2006/07, 3 lower than previous year. Global ending stocks for 2006/07 season projected to be lowest in 25 years, based on lower world production. World wheat consumption forecast to fall 2 despite expected increased demand from India. International activities continue to provide strong revenue platform.
22
Expanding AWBs international presence
  • AWB (Geneva) remains a strong revenue platform
    for the AWB Group.
  • AWB (India), established in 2005, is on track to
    deliver a strong profit contribution in 2006 and
    is well positioned for further growth.
  • AWB (Brazil) is expected to be operational by
    June 2006.
  • Brazil is an emerging agricultural market and has
    a dominant position across many commodities.
  • AWB (Brazil) will trade local and export markets
    and will compliment AWBs operations in Geneva
    and India.

23
Financial Services
How will we achieve our financial objectives? Growing the lending and insurance business. Moving into selected new financial products and services. What weve delivered in the first half Rabobanks 1.58 billion Landmark managed loan book purchased. Rural Trust funding vehicle implemented. New range of Landmark lending products launched strong demand seen. Landmark lending book grew over 28 on pcp to 1.6 billion. AWB harvest finance loan book peaked at 1.3 billion, up 18 on the pcp. Outlook Strong competition exists in both the finance and insurance industries across rural Australia. Despite this, growth has been strong and is expected to continue for the remainder of 2006. Rural Trust loan book experiencing solid growth attributed to the success of recently launched lending solutions and the knowledge and expertise held by specialised staff.
24
Rural Services
How will we achieve our financial objectives? Optimising network operations. Growing merchandise, fertiliser and real estate. Retaining market share and managing profitability in livestock and wool. What weve delivered in the first half Landmark strengthened its fertiliser position, following ELF Australia acquisition of BHP Billitons 33 shareholding in Hi-Fert. Landmark successfully completed a fertiliser supply agreement with Incitec Pivot. Landmarks urban growth strategy delivered results, with an increased presence in Western Australia. Outlook Cattle prices modestly weaker over coming months due to strengthening AUD. Strong lamb prices expected to continue throughout 2006. Australian beef exports continue to benefit from absence of US and Canadian exporters in traditional markets. Merchandise and Fertiliser business looks positive with improved margins expected in second half of 2006. Rural property market expected to remain flat with slight downturn. Wool prices expected to continue decline - lack of global demand.
25
Landmark Fonterra Joint Venture
  • Joint Venture with a global dairy leader
    providing further geographical earnings to the
    Landmark base
  • Landmark investment of NZ35-45m
  • EPS positive year 1
  • Timely entry into the NZ market with strong
    platform for future growth
  • Strengthens Landmarks dairy profile and
    capability in Australia
  • Furthers Landmarks commitment to maintaining its
    leading position in Australian rural services and
    follows on from the successful Hi-Fert fertiliser
    and Growmart (horticulture) investments.
  • 100 owned rural services subsidiary
  • National network of 51 stores
  • 360 staff
  • NZ 400m in annual revenue
  • Key customer interface for wider Fonterra Group
    in NZ

26
AWB Group profit - 2006
  • As stated at February AGM, forecast for 2006
    underlying PBTA similar to 2005 underlying PBTA,
    subject to normal seasonal and operating
    conditions
  • As previously indicated, reported earnings to be
    impacted by following significant items
  • Hi-Fert acquisition benefit
  • Costs associated with the Cole inquiry
  • Redundancies and restructuring
  • A-IFRS transition adjustments

27
Looking forward
Stabilise
Grow
Restore
January 2006
Next 6 24 months
24 months onwards
28
Questions
29
Additional Information
30
IFRS update
31
A-IFRS impact
  • The half-year ended 31 March 2006 is AWBs first
    A-IFRS compliant reporting period.
  • Prior comparative period data has been restated
    with the exception of financial instruments
    (AASBs 132 and 139)
  • Major impacts
  • Goodwill amortisation was replaced by impairment
    testing. The written down value of goodwill as at
    30 September 2004 remains on balance sheet
  • Grain centre carrying value was reduced on
    transition with reduced depreciation from 2005
    onwards
  • Expense share based payments
  • Grain trading inventory at fair value
  • Full profit and loss for all derivatives with a
    2006 opening equity adjustment given no
    restatement of comparatives for financial
    instruments
  • Tax impacts largely confined to balance sheet,
    exception is the tax effect of reduced
    depreciation

32
A-IFRS Analysis High Impact
AASB Ref Description Impact
AASB 1 First Time adoption elections available Grain centre plant and equipment at fair value (see also AASB 136). Use of discounted expected future cash flows from grain centre assets resulted in recognition of a lower carrying value with a consequent lower depreciation expense. No AASB 139 comparatives. No AASB 3 re-opening of business combinations No AASB 121 transfer of cumulative translation differences to opening retained earnings.
AASB 2 Expensing share based payments Fair value of executive performance rights with 4 year amortisation period. Other schemes expensed as incurred except loans. Loan schemes recognised as a financial asset amortised cost using effective interest.
AASB 136 Goodwill impairment testing 30 September 2004 carrying value supported by impairment testing at 31 March 2005. 2005 amortisation entries have been reversed for A-IFRS comparatives.
AASB 139 Grain Acquisition and Trading Financial Instruments No hedge accounting sought given onerous documentation and transaction matching requirements. All trading activities recognised at fair value with gains and losses recognised in PL.
AASB 102 Inventories Full PL for trading businesses as inventory standard is not applicable to commodity traders (fair value less costs to sell permitted). Landmark inventory remains lower of cost or net realisable value.
AASB 139 Available for Sale Financial Assets Investments and memberships previously recognised at cost are now recognised at fair value with gains and losses recognised in reserves (no PL impact).
33
A-IFRS March 2005 High Impact ()
March 2005 March 2005
Impact '000 '000
Share Based Payments Negative
Increase in operating expenses 2,098
Reduction in opening equity 226
Increase in equity reserves 2,324
Fair value of grain trading inventory Positive
Increase in revenue 1,318
Increase in inventory 1,318
Business Combinations Positive
Reduction in operating expenses 13,595
Increase in intangible assets 13,595
Property, Plant and Equipment Negative
Reduction in P, PE 30,658
Reduction in opening equity 30,658
Reduction in depreciation expense 1,363
34
A-IFRS Financial Instruments Impact
1 October 2005 1 October 2005
Impact '000 '000
Recognise derivatives at fair value Positive
Increase in financial assets 30,824
Increase in deferred tax liability 8,429
Increase in equity 22,395
Fair value of A-GAAP hedges Negative
Decrease in financial assets 13,220
Reduction in deferred tax liability 3,966
Reduction in equity 9,254
N-C financial assets reclassified Positive
Increase in available for sale assets 8,453
Reduction in non-current financial assets 4,230
Increase in deferred tax liability 1,267
Increase in equity (reserves) 2,956
35
www.awb.com.au
For more information contact Delphine
Cassidy Head of Investor Relations Ph 61 3 9209
2404 Email dcassidy_at_awb.com.au
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