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Investor Presentation June 2005

Investor Presentation June 2005. AWB - a snapshot…. Australian Wheat Board created in World War I, privatised in 1999 and listed as AWB Limited (AWB) on Australian Stock Exchange in August 2001

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Investor Presentation June 2005

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  1. Investor Presentation June 2005

  2. AWB - a snapshot… • Australian Wheat Board created in World War I, privatised in 1999 and listed as AWB Limited (AWB) on Australian Stock Exchange in August 2001 • Market capitalisation of $1.5 billion; revenues of $9 billion (including Pool revenue) and shareholder funds in excess of $1 billion • Consistently out performed the S&P / ASX 200 since listing • Markets wheat to more than 50 countries • Australian footprint includes more than 430 outlets across Australia with a spread of more than 2,700 staff reaching about 100,000 farmers

  3. Market capitalisation: $1.5 billion A class shareholders: 26,227 65,925 Shares on issue: 344 million Institutional investors: 24.8% Shareholder’s equity: $1 billion Growers / retail shareholders: 73.7% Index inclusion: S&P/ASX 100 (75% IWF) Employee shareholders: 1.5% What we have achieved … B class shareholders:

  4. Our scorecard to date… Net Profit^ & Production volume Return on average equity^ Earnings per share^ & Dividend per share Share price since listing * At least 27 cps, subject to normal seasonal conditions on the east coast ^Pre goodwill & amortisation

  5. What we have achieved… • Acquired Landmark in August 2003 for around $825 million enterprise value: • Integration of Landmark 95% complete • EBIT enhancements for 2003/04 of $13 million exceeded target of $5-10 million. On track to achieve $20 - $25 million this year. • Established fertiliser joint venture – ELF • AWB constructed 21 grain centres with a total capacity of over 3 million tonnes • Strategic focus on customer management, introduction of CMS system • Successful development of international business – Geneva, India • Sold 2.5 million tonnes to China, the first significant sale since 1996 • Positioned to tap into growing Asian markets • Progressive business expansion

  6. 100,000 customers Grain $5-$6b revenue Fertiliser 1.2m tonnes Livestock 2.0m cattle 11m sheep Wool 500k bales Real Estate $1bn sales Finance & Insurance $2.5bn loan book $600m on deposit $150m premium 2,700 employees 431 outlets What we are today … Merch $1.2b sales

  7. Business characteristics…

  8. Business characteristics… (contd)

  9. AWB Strategy

  10. Leading position in Australian rural services People and Capability Leading rural financial services and insurance provider Australia’s leading global grain trading business Targets will be achieved by implementing three dominant business strategies AWB’s overarching goal is to implement anIntegrated Business Model...

  11. 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 AWB’s 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 Australia’s leading global grain trading business

  12. Strengthen core business, in particular preserve and enhance the value of the Single Desk system Grow and diversify to improve the quality of the earnings base and reduce wheat harvest volatility The way ahead… “To be both the primary producer’s and end-use consumers’ business partner of choice” • Acquisition expected to achieve target 15% ROE by FY2005 • EPS accretive in FY 2004 and by more than 35% in FY2006 • % of PBT not related to Australian wheat: >20% in 2004/05 • Landmark will diversify AWB’s earnings base and reduce volatility of AWB’s earnings • AWB Group will achieve 15% ROE in the medium term • Stable dividend policy

  13. Outlook

  14. Outlook – 2004/05 Earnings: • AWB’s 2005 earnings forecast is expected to be comparable to 2004 earnings, assuming improved seasonal conditions on the east coast to compliment the excellent start in the west Dividend: • Increase in interim dividend to 16 cents per share, fully franked • Final dividend expected to be no less than 11 cents per share, fully franked • Full year dividend to increase from 25 cents per share in 2004, to at least 27 cents per share in 2005

  15. Outlook - global wheat market • Production is slightly down and stocks remain tight • New crop conditions around the world are good • FSU rebound after poor 2003/04 crop has contributed to increasing major exporter carry out stocks • Markets have retraced from highs of 367 cents per bushel set in mid March to around 310 cents per bushel • 21-23 million tonnes is expected from 2005/06 domestic harvest subject to improved seasonal conditions on the east coast • Current conditions in WA are excellent • Solid performance in international grain trading business

  16. Outlook – other commodities Livestock: • Beef prices expected to tail off with increased export competition from North and South America • Lamb prices set to remain positive with increased demand from export markets Real Estate: • Rural real estate market remains promising Financial Services: • Strong medium term growth is forecast for the financial services business Merchandise & Fertiliser: • Merchandise & Fertiliser sales dependent on rain on the east coast

  17. Going forward… • Despite a difficult outlook, we are confident that Australian agriculture can be globally competitive • We have “comparative advantage” • Freight advantage to Asian region • Progress on trade reform will improve market access • AWB and Landmark can continue to capitalise on opportunities with our business model

  18. APPENDICES 1. 2005 Half Year Results 2. Wheat prices, futures & global supply 3. Rural services 4. Financial services 5. IFRS update

  19. APPENDIX 1: 2005 Half Year Results

  20. Solid result in a tough environment Financial Result - half year ended 31st March 2005 * * Outside Equity Interests

  21. Half year highlights • Net profit after tax of $91.3 million, up 69%, underlying net profit after tax of $66.6 million, down 3% • Earnings per share of 26.6 cents, with an interim dividend of 16 cents per share (fully franked) • Profit on sale of investment in Futuris of $55.2m ($41.8m after tax) • Landmark integration on track to deliver year two synergy targets • Pool performed well given tough global environment • Expansion of international trading with a new office in New Delhi, India • Harvest loan book peaked at $1.1 billion • Landmark lending book was nearly $1.3 billion • Increased merchandise and fertiliser sales by 6% nationally • Establishment of strategic partnership in fertiliser with Elders & WMC Resources

  22. “demonstrating strength through diversification” Despite a 17% decrease in wheat production over 2003/04 harvest, earnings have dropped by only 3% *NPAT pre significant items

  23. Strong yield for shareholders Shareholder Summary: “AWB continues to be a strong yield stock”

  24. Statement of financial performance

  25. Statement of financial position

  26. Cashflow *property, plant & equipment

  27. Capital expenditure

  28. Pool Management Services • 2004 Wheat Marketing Review findings showed that the Single Desk is being well managed by AWB • Following recommendations from the review, the performance based remuneration model has been refined • As out-performance is reported, Pool Management Services expects improved earnings in the second half of 2005 • Strong sales performance “challenging environment… strong performance”

  29. Trading • Trading operates on a “fund of funds” basis • There has been a return to more normal freight market conditions • AWB Geneva continues to be a strong revenue platform for the group • New office opened in New Delhi, India • Australia grain trading reduced its EBIT contribution on lower volumes and margins (mainly due to seasonal conditions) • Livestock trading (previously managed in the Landmark business) contributed strong revenue growth to the Group “presence in both domestic and international grain markets”

  30. Supply Chain & Other Investments • Receivals through the Grain Centres were down 0.5 million tonnes to 1.3 million tonnes due to adverse seasonal conditions coupled increased competitive pressures • Melbourne Port Terminal and overseas investments (Five Star Flour Mills in Egypt and AWB Zennoh in Japan) maintained their EBIT contributions at a similar level to the prior year • Efficiencies within the supply chain positively impacts the Pool Services management fee “adverse seasonal conditions impact results”

  31. Finance & Risk Management • Contribution by Financial Services decreased while Risk Management increased • Market share and margins were maintained in a highly competitive environment, although wheat production and export prices declined • AWB’s risk management businesses (AWB Riskassist, Basis Pool and the over-the-counter options desk in AWB’s Portland, USA office) provided increased contribution to the result mainly due to increased activity in Portland, USA office “highly competitive environment… but still the market leader”

  32. Rural Services (Landmark) • Higher earnings across all activities (other than wool) plus the recognition of profit on the sale of assets was partially offset by higher overhead costs (predominantly incentive payments, training and motor vehicle costs) • Merchandise and fertiliser sales increased by 6% • Livestock profitability remained comparable due to higher cattle prices offset by reduced volumes and lower sheep prices offset by increased volumes • Real Estate sales increased through increased prices driven by increased demand for prime rural properties • Finance profitability increased 4% due to growth in the loan book • Insurance profitability increased 3% due to 1% growth in gross written premium “lowest cost full service distribution network”

  33. Corporate • Combination of head office costs offset by miscellaneous revenue items • Corporate overheads decreased mainly due to non-recurring integration and restructuring costs associated with the Landmark acquisition incurred in the prior year • Dividends from Futuris of $4 million

  34. EBIT summary of business operations

  35. Integration update

  36. On track to deliver year two synergy targets Integrated Business Model “generating new revenue growth opportunities” Integration 1. Customer Management Integrated customer management developed across the distribution network combining systems and processes to better understand and serve our customers Back office integration is complete, our focus has shifted to implementation of the IBM 2. Product Development New products and bundles being developed incorporating products from across Landmark and AWB range to better meet our customers needs 3. Channel Strategy Channel management to optimise AWB-Landmark’s combined distribution network

  37. APPENDIX 2: Wheat prices, futures & global supply

  38. World wheat production • World wheat production increased by 71 million tonnes to record 625 million tonnes in 2004 after consecutive problematic years in 2002 and 2003. • Initial USDA forecast for 2005 historically large at 615 million tonnes • Second consecutive year of large crops forecast across • EU-25 136 mmt in ’04 followed by 128m forecast this year • FSU 86m and 87m resp • Major Exp 200m and 190m • China 91m and 93m • US crop forecast unchanged at 59 mmt

  39. World wheat production & consumption Source: USDA 2005

  40. World wheat trade – 5 major exporters * 2004/05 & 2005/06 – estimated Source: USDA

  41. World stocks • World wheat ending stocks have rebounded since the 2003/04 historical low in 2004/05 and are forecast unchanged in 2005/06 around 147-150mmt. • However of these stocks 35-40mmt are in China of which forecasts have proved historically unreliable. The trend erosion in world wheat ending stocks is primarily due to forecast declining Chinese stocks with major exporter stocks building. • World stocks an unreliable indicator of price due to Chinese stock uncertainty, reduced global number of government controlled balance sheets and importers and increased number of smaller private sector importers using least cost inventory management. • 5 Major exporter stocks continuing to build and becoming burdensome forecast at 57mmt in 05/06 versus 55mmt in 04/05 and 38mmt in 03/04. • World feed demand increasing primarily in Europe due to oversupply of wheat versus competing feed-grains.

  42. Chicago futures

  43. Prices • US wheat futures complex continues to price in a modest risk premium versus historical fundamental price models due to row crop weather market uncertainty, long-only index fund participation and weaker $USD regime • USDA forecast 2005/06 major exporter and US wheat fundamentals would suggest downside price risk through Sep subject to US corn supply • APW National Pool 2004/05 EPR remains at $199 FOB versus forecast $186 FOB for 2005/06 Pool primarily due to stronger $AUD

  44. 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

  45. Outlook • Downside price risk remains • Strong competition from Northern Hemisphere export origins to continue • World wheat balance sheet much more comfortable than 2003/04 able to withstand a medium scale supply shock going forward • Demand surprise risk increasing over time in both China and Sub-Continent • AWB confident of retaining 50% of Iraq import demand

  46. APPENDIX 3: Rural Services

  47. Merchandise • Merger of Wesfarmers Dalgety and IAMA in 2001 resulted in Landmark becoming Australia’s 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

  48. Merchandise overview … a generic strategy will be important

  49. 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)

  50. Fertiliser overview … growing market share and volume is important

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