AWB announces a strategic partnership in fertiliser with Futuris

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AWB announces a strategic partnership in
fertiliser with Futuris WMC 9 December 2004
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Executive Summary

• Fertiliser is a critical input in Australian
  agriculture with farmers spending over A2
  billion each year. For grain farmers it
  represents a significant 15 of their total cash
  costs.
• To enable AWB to execute its strategy within the
  fertiliser industry it must play a lead role in
  the key segments of the value chain.
• A joint venture company, ELF Australia Pty
  Limited (ELF), has been formed by Landmark (an
  AWB Company) and Elders, to acquire a 66.7 per
  cent share of WMCs wholly owned subsidiary
  company, Hi-Fert.
• The purpose of this joint venture is to increase
  competition and drive cost efficiencies in the
  supply chain.

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Executive Summary (cont)

• Other major elements of the agreement include
• ELF to become the fertiliser buying arm for all
  Landmark and Elders rural retail distribution
  outlets on the east coast of Australia
• ELF to have an agreement to source a significant
  proportion of its fertiliser demand from Hi-Fert
  on an annual basis with
• the remainder of ELFs supply needs to be sourced
  in the open market.
• The joint venture is only focussed on the east
  coast (including South Australia) and will not
  alter the competitive landscape at the retail
  level.
• The transaction will not impact the Western
  Australian market where supply contracts will
  remain unaltered.

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Strategic Rationale

• The transaction allows AWB through its
  subsidiary Landmark, to enhance its position as
  the leader in Australian rural services.

Enhance Growth Provides a platform to participate in fertiliser industry rationalisation Facilitates continued high growth of retail fertiliser by ensuring price competitiveness
Minimise Risk Low cost entry point to the distribution segment Investment in an existing distributor delivers a management team, supplier relationships and procurement systems in addition to the storage and handling infrastructure AWBs price risk management expertise may allow product import margins to be enhanced
Maximise leverage Leverages Landmarks fertiliser customer relationships to provide critical mass in the distribution segment Provides an opportunity for AWB to leverage its core competencies of risk management and chartering
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Overview of Australian Fertiliser Industry
VALUE CHAIN
QFO
IMC
Cargill
Agruim
PCS
(High capital)
PRODUCERS
Hi-Fert1
Summit
CSBP1 WA
IncitecPivot1
(Commodity importers)
Direct
SouthFert
DISTRIBUTORS
RuralCo
Elders
GrainCorp
Independents
RETAILERS
Landmark
Note 1. Distributors are also aligned or
integrated with domestic production facilities
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INDUSTRY ANALYSIS

• Industry Overview
• The total market for fertiliser in Australia is
  estimated at 5.1 million tonnes per annum or A2
  billion per annum. The major fertilisers used in
  crop farming are as follows
• Urea (Nitrogen)
• Sulfate of Ammonia (Nitrogen, Sulphur)
• Mono-Ammonium Phosphate (MAP) (Nitrogen,
  Phosphorus)
• Di-Ammonium Phosphate (DAP) (Nitrogen
  Phosphorus)
• Single Superphosphate (SSP) (Phosphorus,
  Sulphur)
• Potassium based fertilisers (Potassium) (MoP,
  SoP, NoP) and
• Blends of the above.
• Fertilisers are used to supply the crop / pasture
  requirements for nitrogen, phosphorus, potassium
  and sulphur and various micro-nutrients.
• From a crop / pasture nutrient perspective, the
  plant is indifferent to the fertiliser form of
  the nutrient supplied and one nitrogen fertiliser
  is, to a large extent, substitutable for other
  nitrogen fertilisers.

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INDUSTRY ANALYSIS
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INDUSTRY ANALYSIS

• Australia has shown relatively strong nutrient
  demand growth (7.6 CAGR), with the majority
  coming from urea and MAP/DAP.
• Overall demand is expected to grow in line with
  expenditure at around 4-6.5 pa
• Broadacre will remain the largest consumer of
  fertiliser with flat demand and
• Horticulture and Dairy will increase their share
  of fertiliser consumption.

Market Growth ? stable ? increasing ? decreasin
g
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INDUSTRY ANALYSIS

• From a geographic perspective, the east coast
  market is estimated at 3.5 million tonnes with
  NSW and Victoria accounting for over 60 percent
  of the market.
• The key commodity products of SSP, MAP, DAP and
  Urea account for 2.5 million tonnes, or over 70
  percent of the east coast market.

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Transaction Details

• Key Highlights
• Elders and Landmark are 50/50 owners in ELF
  Australia Pty Ltd (ELF), a newly constituted
  company which will have 4 directors, 2 from each
  of the parent companies.
• ELF will have 2 roles
• Holding a 66.7 interest in Hi-Fert and
• Being responsible for negotiating the supply of
  all fertiliser requirements to the retailers,
  Elders and Landmark on the east coast (including
  SA)
• Hi-Fert will be owned 66.7 by ELF and 33.3 by
  WMC and will supply a significant proportion of
  fertiliser to ELF.

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Transaction Structure
The Structure of the transaction agreed between
AWB, Futuris and WMC to be as follows
66.7 ownership of HiFert
K
33.3 ownership of Hi-Fert
Other Suppliers
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Hi-Fert Organisational Structure

• Hi-Fert has a total of 98 permanent staff.
• Hi-Ferts network and distribution operations
  staff are located at the respective plants,
  providing shipping and logistics support, whilst
  management, commercial and administrative staff
  are located in Hi-Ferts Melbourne head office.
• The General Manager is supported by a senior
  management team of four, with the functions of
  HR, legal and management accounting being
  currently undertaken by WMC.

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Transaction overview

• Purchase based on net asset value.
• EPS impact in year 1 is positive.
• No impact on Credit Rating.