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18 March 2019
Blue Ocean Equities Roundtable Presentation
Attached is a presentation being given today by Elders’ Chief Executive Officer, Mr Mark Allison, to an
investor roundtable being hosted by Blue Ocean Equities.
Peter Hastings
Company Secretary
1
Elders Limited Mark Allison BOEQ Roundtable 18 March, 2019
Disclaimer and important information Forward looking statements Non-IFRS information This presentation is prepared for informational purposes only. It contains This presentation refers to and discusses underlying profit to enable analysis forward looking statements that are subject to risk factors associated with of like-for-like performance between periods, excluding the impact of the agriculture industry of which, many are beyond the control of Elders. discontinued operations or events which are not related to ongoing operating Elders’ future financial results will be highly dependent on the outlook and performance. Underlying profit measures reported by the Company have prospect of the Australian farm sector, and the values and volume growth in been calculated in accordance with the FINSIA/AICD principles for the internationally traded livestock and fibre. Financial performance for the reporting of underlying profit. Underlying profit is non-IFRS financial operations is heavily reliant on, but not limited to, the following factors: information and has not been subject to review by the external auditors, but weather and rainfall conditions; commodity prices and international trade is derived from audited accounts by removing the impact of discontinued relations. Whilst every endeavour has been made to ensure the operations and items not considered to be related to ongoing operating reasonableness of forward looking statements contained in this performance. presentation, they do not constitute a representation and no reliance should be placed on those statements.
Agenda ▪ Business Model ▪ Financial Progress FY14 to FY19 ▪ Eight Point Plan to FY20 ▪ Balanced Growth to FY20 ▪ Strategic Gaps ▪ Summary
Business Model
Digital and technical Feed and processing
Retail products Agency services Real estate services Financial services
services services
Farm supplies Livestock Farmland Agri-finance Fee for service Killara Feedlot
Fertiliser Wool Residential Insurance Auctions plus (50%) Elders Indonesia2
Grain Property management Elders Weather Elders China
Franchise
$1.1bn retail sales 9.9m head sheep $1bn farmland sales $3.0bn loan book1 694k head
Killara 56k head
Auctions sheep
716k tonnes fertiliser 1.5m head cattle $710m residential sales $1.6bn deposit book1
Plus 78k head $8.6m
8,287 properties under $71.7m StockCo book1 Indonesia2
371k wool bales cattle sales
management
$689.9m gross written Elders $10.9m
44k grain tonnes 128 franchises premium1 190m hits China
weather sales
FY18 gross margin contribution
42% 34% 9% 11% n/a3 4%
1 Principal positions are
held by Rural Bank, StockCo and Elders insurance (QBE subsidiary respectively).
2 Announcement of Indonesian divestment in April 2018.
3 Existing agronomic activity presented within Retail margin, and Auctions Plus in Agency margin.
Elders Financial Progress FY14 to FY18
Contributed by:
▪ Resetting of operational strategy, focusing on running a pure-play agribusiness.
▪ Favourable livestock prices.
▪ Footprint expansion, acquisitions and investments, such as: Ace Ohlsson, Titan Ag, SDEA, Kerr & Co, CGX, Insurance and
StockCo etc.
▪ Market share gains.
▪ Price book management and improved supplier terms and consolidation.
▪ Increased feedlot utilisation at Killara.
▪ Delivery of Eight Point plan.
5
Eight Point Plan: 3 years to FY20 goal
To deliver 5 – 10% quality growth through the cycles
EBIT FY17 to FY20
Livestock price Other market Organic (50%) Acquisition (50%) Cost (0%) FY20
FY17 normalisation movements
▪ Livestock prices expected to ease post FY17
▪ Market share gains achieved in FY17 to offset livestock price movement
▪ EBIT improvement in the period to FY20 is anticipated to be derived from:
- organic and acquisition growth, and
- continued focus on controlling base costs to offset inflationary increases.
6
Balanced growth plan to FY20
Organic
Acquisition 50% Maintain Cost
50%
▪ Drive continuous business ▪ Continue to evaluate strategically ▪ Invest in resourcing to identify,
improvement aligned opportunities to expand integrate and support both
our business organic and acquisition growth
▪ Capture growth opportunities opportunities
across our product and services ▪ Only transactions which are EPS
portfolio accretive will be considered ▪ Derive efficiency gains through
active cost management to offset
▪ Explore opportunities to expand ▪ Identify innovative solutions to inflationary increases
our offering and leverage the target geographical and strategic
Elders brand into new markets to gaps ▪ Reallocate and reduce
capture new clients and unproductive costs
customers ▪ Maintain a disciplined approach to
ensure acquisitions meet required ▪ Develop and implement
▪ Continuously drive and resource financial hurdles improved processes and
values based leadership through approaches
the organisation ▪ Reallocate capital from non-
performing assets if financial and ▪ Maintain robust and conservative
▪ Invest in the development of our quality targets are not met financial discipline
leaders and people
▪ Build deeper understanding of
our customers to deliver
profitable value add products
and services
7Strategic Gaps
Stable platform geared for the next wave of growth, including 20 new branches by 2020
Key gaps in market, geographical, product and service areas to be
filled through organic growth and acquisition, with 20 new branches
by 2020
Retail
▪ Increased market share and presence in high value
cropping areas, such as horticulture, viticulture, and
irrigated farming
▪ Grow highly specialised agronomy services through
Thomas Elder Consulting
▪ Product commercialisation through Thomas Elder Institute
and tertiary alliances
Agency
▪ Increased focus on livestock production advice and dairy
▪ Targeted footprint and agent growth in livestock services
▪ Expand grain network accumulation
Real Estate
▪ Increase company owned presence in major regional
centres and also expand franchise footprint
Financial Services
▪ Growth in insurance gross written premium and StockCo
livestock product
Retail Real Estate Feed & Processing Feed and Processing
▪ Controlled growth in Killara feedlot throughput
Agency Financial Services ▪ Investment in infrastructure to deliver efficiencies
8APPENDIX 1
ABARES Seasonal Conditions & Outlook
▪ Summer crop: Widespread hot and dry conditions in ▪ Lower export volumes: Australian agricultural production and
December 2018 and January 2019 are expected to have had a exports are expected to decline in 2018–19 as a result of dry
negative impact on summer crop production. seasonal conditions in the eastern states. ABARES estimates
that lower farm production could subtract 0.2 percentage
points from real GDP growth in 2018–19.
▪ Summer rainfall below average: Below average rainfall and
well above average temperatures during December 2018 and
January 2019 resulted in a decline in soil moisture. The decline ▪ Drier than average autumn rainfall outlook: The Bureau of
in soil moisture levels has contributed to poorer summer crop Meteorology's autumn climate outlook indicates that a drier
prospects and reduced pasture growth. than average end to the northern wet season is more likely
across large areas of northern Australia. A drier than average
three months is also more likely for much of the eastern half
▪ Decline in farm production: The volume of farm production in
of Australia and the Northern Territory.
2018–19 is expected to have declined by 6%, driven by an
11% reduction in the volume of crop production. The value of
farm production is expected to decline by 4% to $58 billion. ▪ Significant uncertainty around 2019-20 forecast production:
Drought in the eastern states significantly reduced the 2018– Relative soil moisture levels are extremely low to below
19 winter crop, but one of the largest Western Australian average across most of Australia for this time of year,
harvests on record has provided a buffer to the national total. following an extended period of hot and dry conditions.
Winter crop plantings, which typically begin in April and
represent 25% of the total volume of farm production, require
▪ Farm profitability to decline, however remain comparatively
sufficient and timely rainfall.
high overall: Favourable prices received for most commodities
and a lower Australian dollar are boosting export returns. The
sheep industry is also benefiting from high prices for sheep,
lambs and wool. Average 2018-19 farm income of $173,000
per farm is still well above the 10 year average of $140,000
per farm.
10 Source: ABARES Agricultural Commodities March 2019Retail
Seasonal conditions less favourable than pcp
Australian rainfall deciles for 6 months to February 2019 Rainfall deciles for 6 months to February 2019
Market
• Rainfall over the summer cropping season (Oct – Feb
19) has been below average across the majority of
Australia. Parts of NSW & QLD have recorded the
driest year on record. Southern WA and south west
SA recorded above average rainfall.
• There has been extreme flooding in north west QLD,
causing severe damage to farm and transport
infrastructure and significant cattle losses.
• Seasonal conditions are less favourable than last
year.
Summer Crop area and Production
• Area planted to summer crops is estimated to have
decreased by 23%. Total production is estimated to
decrease by 33%, predominantly in NSW & QLD.
• Summer cropping forecasts indicate a 44% reduction
in cotton plantings is expected due to reduced water
availability for irrigated crops.
11 Source: ABARES Australian Crop Report February 2019Cattle
Decline in cattle price, increase in cattle volumes
Cattle Prices
Indicator understanding
• The EYCI measures the 7 day rolling average sale
price of young cattle sold across 26 saleyards in
QLD, NSW & VIC.
• It excludes all cattle that does not meet the
definition of young and all cattle sold outside of
QLD, NSW & VIC.
Market
• Using EYCI as a guide market prices have declined
by 8% on pcp in the 5 months to Feb-19.
Cattle Yardings
Indicator understanding
• Cattle yardings represent cattle offered for sale
at saleyard auction only. It excludes private sales
to processors, growers and exporters.
Market
• The market has experienced a 6% increase in
yardings on pcp in the 5 months to Feb-19.
12 Source: MLA Statistics DatabaseSheep
Sheep prices increased, while volumes declined
Sheep Prices
Indicator understanding
• The ESTLI measures the price of lambs sold in Eastern
states saleyards.
• It excludes all sheep that do not meet the definition of
a lamb and all sheep sold outside of the Eastern states.
Market
• Using ESTLI as a guide market prices have increased by
12% on pcp in the 5 months to Feb-19.
Sheep Yardings
Indicator understanding
• Sheep yardings represent sheep offered for sale at
saleyard auction only. It excludes private sales to
processors, growers and exporters.
Market
• The market has experienced a 8% decrease in yardings
on pcp in the 5 months to Feb-19.
13 Source: MLA Statistics DatabaseWool
Increases in Wool Prices, offset by Volumes
Wool Prices
Indicator Understanding
• The Eastern Market Indicator (EMI) is based on a fixed
basket of wool types, calculated daily.
Market
• Market prices have increased by 13% on pcp in the 5
months to Feb-19
Wool Volumes
Market
• Market volumes have decreased 18% on the pcp in the 5
months to Feb-19.
14 Source: Australian Wool Innovation Limited, Weekly Price ReportsAPPENDIX 2
Industry market and outlook
Agricultural Neutral ▪ The value of Australian agricultural production has increased steadily over recent years. It is estimated to be $58 billion in
production 2018-19, increasing to a forecast $71 billion in 2022-23.
& exports ▪ Farm exports will grow by $11 billion from 2015-16 to 2022-23, up to $56 billion.
Neutral
▪ Australian beef production and export volumes are projected to stabilise (with a rebuild of the national herd) and remain
Cattle relatively steady through to 2022-23. Export market competition will put downward pressure on prices in the short term, but
they will recover in the medium term following an expected slow in global supply. Live export volumes will remain steady.
▪ Australian sheep meat production will rise over the medium term, with high lamb prices providing producers an incentive to
Neutral maintain a higher rate of turn-off. Sheep prices are expected to remain higher than the 5 year historical average.
Sheep &
Wool ▪ In the short term shorn wool production will decrease due to seasonal conditions before stabilising in the medium term. Wool
prices will remain steady with decreased supply outweighing a reduction in buyer demand.
Neutral
▪ The Australian dairy herd will decrease in the short term in part due to rising input costs before recovering in the medium
term with anticipated favourable farmgate milk prices providing an incentive for herd rebuild. Despite this, price pressure will
Dairy continue with an overall increase in global dairy supply. Dairy exports will increase in the medium term due to Asian demand.
Neutral ▪ Area planted to grains is expected to remain flat in the medium term, with profitability of pulse and oilseed crops limiting
Grains & planting. Wheat and barley prices will ease, as productivity improvements increase yields at a level that outweighs demand.
oilseeds
▪ Oilseed plantings will increase, with increased global consumption & EU renewable energy targets driving prices up.
▪ In the short term, cotton production will be down due to dry conditions, however production will increase through to 2022-
23 due to expansion in southern NSW. Cotton prices will remain relatively stable at $630/bale in the medium term.
Sugar & Neutral
▪ Sugar production & area planted will remain relatively unchanged due to growers increasing interest in horticulture. Sugar
cotton prices will decline in 2018-19 and remain unchanged in the medium term. This is due to increased health awareness reducing
the rate of per person sugar consumption.
Horticulture
Neutral ▪ Gross value of Australian horticulture is projected to increase to $13.6 billion by 2022-23 (2015-16: $9.8 billion), largely driven
by increased fruit and nut production due to rising demand in China. Domestic prices are forecast to fall as competition in the
Australian market intensifies.
Source:
16 ABARES Agricultural Commodities Outlook March 2018 (2019-20 to 2022-23 data)
ABARES Agricultural Commodities Outlook December 2018 (2013-14 to 2018-19 data)Neutral
Agricultural Production & Exports
▪ The value of Australian agricultural production has increased steadily over recent years. It is estimated to be $58
billion in 2018-19, increasing to a forecast $71 billion in 2022-23.
▪ Farm exports will grow by $11 billion from 2015-16 to 2022-23, to $56 billion.
Source:
17 ABARES Agricultural Commodities Outlook March 2018 (2019-20 to 2022-23 data)
ABARES Agricultural Commodities Outlook December 2018 (2013-14 to 2018-19 data)Neutral
Cattle Outlook
▪ In 2018-19, the cattle herd will continue ▪ Cattle prices are expected to decrease ▪ Live exports of Australian feeder and
to decline with ongoing dry conditions in 2018-19 to a weighted average of slaughter cattle are forecast to increase
resulting in higher than average cattle 435c/kg, reflecting intensified export by 5% to 925,000 heads in 2018-19,
slaughter. market competition from the US and with demand from Indonesia and
Brazil, along with increased local Vietnam expected to remain strong.
▪ Assuming average seasonal conditions slaughter volumes.
for the medium term, the national herd ▪ In the medium term, Australian exports
is expected to rebuild, however this will ▪ There will be downward pressure on will remain relatively steady at around
be restricted by a relatively low breeding cattle prices through to 2020-21 due to 900,000 head. Exports are expected to
cow inventory. strong competition in export markets increase to Vietnam and China.
and expanded Australian cattle supply.
▪ Anticipated medium term high beef
prices relative to long term averages will ▪ From 2021-22 global supply is expected
incentivise producers to maintain a high to slow which will place upward
rate of turn off, which will also limit pressure on beef prices. In real terms,
rebuilding. 2022-23 beef prices are forecast to be
12% above the 10 year historical
average.
Source:
18 ABARES Agricultural Commodities Outlook March 2018 (2019-20 to 2022-23 data)
ABARES Agricultural Commodities Outlook December 2018 (2013-14 to 2018-19 data)Neutral
Sheep & Wool Outlook
▪ Dry seasonal conditions have resulted in ▪ Shorn wool production is projected to ▪ Assuming return to average seasonal
higher rates of turn off & reduced spring decrease in 2018-19, due to a decline conditions in 2018-19, sheep and lamb
lambings with the national flock reducing in the number of sheep shorn and a prices are forecast to increase in response
to 69 million heads in 2018-19. reduction in the average cut per head to restocker and major export demand.
due to poor seasonal conditions. They will fall slightly in the medium term,
▪ In the medium term, high lamb prices however will still remain 9% higher than
will provide producers with an incentive ▪ Over the medium term, wool the 5 year historical average.
to increase flock numbers, increasing production is expected to grow slowly.
gradually by around 1% each year. Whilst the sheep flock is expected to ▪ The EMI is forecast to rise in 2018-19, with
increase this is projected to be mostly decreased supply outweighing a reduction
▪ Sheep meat exports are anticipated to in sheep meat breeds. in buyer demand. Assuming superfine wool
rise 20% from 430,000 tonnes in 2018- continues to be seen as a premium natural
19 to 514,000 tonnes in 2022-23, with fibre, the EMI will also increase in the
continued strong Chinese demand. medium term.
Source:
19 ABARES Agricultural Commodities Outlook March 2018 (2019-20 to 2022-23 data)
ABARES Agricultural Commodities Outlook December 2018 (2013-14 to 2018-19 data)Neutral
Dairy Outlook
▪ Global dairy prices are expected to fall in ▪ Australian herd numbers are expected to ▪ Australian milk production is expected to
2018-19, following increases in milk decrease in 2018-19 reflecting poor fall by 4% in 2018-19, due to low farm-gate
production in key exporting regions, seasonal conditions and rising input milk prices and poor seasonal conditions.
particularly New Zealand and USA. costs. This will be the lowest level of production
▪ In real terms, global prices will continue ▪ Over the medium term, a recovery in the in 20 years.
to decrease in the medium term, as dairy herd is projected. Favourable
world supplies are expected to grow farmgate milk prices are expected to ▪ In the medium term, milk production will
faster than demand provide an incentive to rebuild herds. increase due to improvements in
productivity and recovery in the dairy herd.
▪ Dairy demand is expected to strengthen
through the medium-long term, ▪ Total Australian dairy exports are forecast
particularly in China, the Middle East & to increase from $3.4b in 2017-18 to $4.2b
North Africa, driven by population in 2022-23, mainly due to increases in milk
growth, rising incomes and changing power, infant formula & cheese exports.
consumer diets.
Source:
20 ABARES Agricultural Commodities Outlook March 2018 (2019-20 to 2022-23 data)
ABARES Agricultural Commodities Outlook December 2018 (2013-14 to 2018-19 data)Neutral
Grains and Oilseeds Outlook
▪ Grain and oilseed prices are expected to ▪ Planted area to wheat and barley has ▪ Production of wheat, barley and coarse
rise across the board in 2018-19, typically fallen in 2018-19, due to poor seasonal grains is expected to decrease in 2018-19
due to lower production in key exporting conditions particularly in central and following the predicted decline in plantings
regions, including Australia. northern NSW cropping regions. as a result of dry conditions.
▪ In the medium term, wheat & barley ▪ Assuming a return to normal seasonal ▪ In the medium term, production of wheat
prices are predicted to ease with conditions, planted area for wheat and will increase due to productivity gains.
productivity improvements increasing barley in the medium term will remain Australian Barley production is expected to
yields (and hence supply) at a level that relatively flat, as profitability of pulse and remain flat as profitability of pulse and seed
outweighs increases in demand. seed production will limit planting. production will limit planting.
▪ Canola prices are anticipated to rise in the ▪ The area planted to canola has decreased ▪ Canola production will increase through to
medium term, driven by anticipated in 2018-19, due to unfavourably dry 2022-23, with expected price uplift
increases in global consumption & EU conditions and higher expected returns providing incentive to increase plantings.
renewable energy targets. for cereal crops. In the medium term EU
demand is expected to provide incentive
for increased Australian plantings.
Source:
21 ABARES Agricultural Commodities Outlook March 2018 (2019-20 to 2022-23 data)
ABARES Agricultural Commodities Outlook December 2018 (2013-14 to 2018-19 data)Neutral
Sugar and Cotton Outlook
▪ The planted area to sugar is ▪ Sugar production is projected to ▪ Cotton production is forecast to
expected to remain largely marginally increase in 2018-19 and decrease by 42% in 2018-19 reflecting
unchanged due to limited suitable remain at similar levels out to 2022-23. decreased plantings, however it is
land and Queensland farmers expected to grow annually to 1m tonnes
increasing interest in horticulture. ▪ Returns to cane growers is projected to by 2022-23 with much of the expansion
decrease 14% in 2018-19 and remain in southern NSW.
▪ Cotton planted area is forecast to unchanged until 2022-23, largely
decrease by 44%. This is largely due reflecting the forecast decline in the world ▪ A return of dry seasonal conditions
to significantly reduced water levels sugar price. during this outlook period will result in
in irrigation dams and low levels of decreased production.
stored soil moisture. ▪ The expectation is world sugar
consumption will grow at a moderate rate ▪ Returns to cotton growers are projected
as population increases but health to remain relatively stable in the
awareness reduces the rate of per person medium term, to $630/bale in 2022-23.
consumption, holding production and
price stable.
Source:
22 ABARES Agricultural Commodities Outlook March 2018 (2019-20 to 2022-23 data)
ABARES Agricultural Commodities Outlook December 2018 (2013-14 to 2018-19 data)Neutral
Horticulture Outlook
▪ The gross value of horticulture production is
projected to increase marginally from $10.7 billion
in 2017-18 to $10.9 billion in 2018-19, underpinned
by growing domestic demand for fresh produce and
favourable export opportunities.
▪ China was the largest export market for fruit in
2017-18 ($336m), and accounted for 27% of all fruit
exports by value, which is up from 14% in 2016-17.
▪ Production of fruit is expected to increase, including
emerging industries such as the avocado and
blueberry industry.
▪ Over the medium term, tree nut production is
expected to rise slowly as tree plantings from the
past decade come into maturity.
▪ Production increases in China, South Africa, Turkey
and the US are expected and prices are predicted to
weaken over the medium term due to additional
global supply.
▪ Vegetable production is expected to increase over
the projection period, reflecting expansion of
under-cover farming and new varieties of leafy and
easy to process vegetables.
Source:
23 ABARES Agricultural Commodities Outlook March 2018 (2019-20 to 2022-23 data)
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