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2004 Full Year Results

2004 Full Year Results. 24 November, 2004. Andrew Lindberg. Managing Director. Content. Result highlights Financial performance ( presented by the CFO ) Business operations Landmark integration Dividend Outlook. AWB has delivered a strong result.

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2004 Full Year Results

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  1. 2004 Full Year Results 24 November, 2004

  2. Andrew Lindberg Managing Director

  3. Content • Result highlights • Financial performance (presented by the CFO) • Business operations • Landmark integration • Dividend • Outlook

  4. AWB has delivered a strong result • Exceeded profit guidance (2003-04 forecast) • Strong revenue growth • Significant progress on the integration of Landmark • Strong balance sheet • Quality credit ratings • Positive outlook for next year

  5. Result highlights • Net profit after tax (pre goodwill and amortisation) of $134.7 million, up 191% (exceeded forecast of $110 - $120 million pre goodwill and amortisation). Net profit after tax of $96.9 million, up 121%, post goodwill and amortisation • Total operating revenue of $5.3 billion, up 142% • Landmark integration targets exceeded, with $13 million achieved in revenue, cost synergies, and finance growth • Earnings per share (pre goodwill and amortisation) of 40.1 cents, up 139%. Earnings per share of 28.8 cents, up 81.1%, post goodwill and amortisation • Final dividend of 11 cents per share, fully franked, amounting to 25 cents per share for 2003-04 • Significant contribution from Grain Acquisition and Trading, particularly Chartering • AWB Harvest Finance loan book peaked at $1.6 billion in February 2004 • Landmark loan book balance of $1.1 billion at 30 September 2004 (record high) • Gross Pool Value currently estimated at $4.8 billion for the 2003-04 Pool ($1.3 billion in 2002-03) • Australian wheat production rebounded to 25.2 million tonnes (9.7 million tonnes in 2002-03)

  6. Paul Ingleby Chief Financial Officer

  7. Statement of financial performance 1OEI = Outside Equity Interests * Post goodwill and amortisation

  8. Change in debt position * Net of proceeds

  9. Capital expenditure • 3 year building program for grain centres has been completed • Expenditure on system development and other PP&E is related to IT, upgrades, motor vehicles (Landmark) • New building costs relate to the relocation of Head Office in January 2004 (new building is leased)

  10. Statement of financial position

  11. A-IFRS Impacts • Employee share schemes, including performance rights, to be expensed • Goodwill to be subject to annual impairment testing rather than amortised • Asset impairment testing will allow for fair value or discounted cash flows as recoverable amount • Inventories held as a commodity trader will be able to be measured at fair value less costs to sell • Financial instruments will be subject to prescriptive classifications and hedge accounting requirements. May lead to more fair value recognition in P&L and Balance Sheet • Deferred tax liabilities and assets will incorporate the tax consequences of transactions recognised in the balance sheet

  12. Business operations (PBT) 1OEI = Outside Equity Interests * Post goodwill and amortisation

  13. Business operations - performance +$69m -$10.8m -$24.6m -$35.2m +$10.5m - $6.1m - $14.7m +$56.3m $96.9m + $8.6m $43.9m * * Note: + / – change is PBT * Post goodwill and amortisation

  14. Pool Management Services Agrifood and Research & Development (formerly Grain Technology) • Agrifood technology and R&D now reported under Pool Management Services (the Seeds business is now in Landmark) • AWB will continue to fund a significant R&D program for the long term benefit of the company – this is an important investment for the future

  15. Grain Acquisition & Trading Domestic Trading • Increased its PBT contribution by 104%, with 3.2 million tonnes of wheat traded and 953,000 tonnes of other grains traded domestically Chartering • Chartering division contributed $48 million PBT to the Trading division’s result, with freight volumes increasing by 83% compared to the previous year • Successfully employed a long physical trading strategy in a rising freight market • Chartering strategy was backed by robust risk position management, with limits monitored daily AWB Geneva • Significant improvement to PBT contribution with over 2.0 million tonnes traded, which is a 67% increase on the previous year’s tonnage • Significant contribution by Chartering

  16. Supply Chain & Other Investments GrainFlow • Record receivals of 1.8 million tonnes for AWB GrainFlow, up from 185,000 tonnes in 2002-03, mainly due to improved seasonal conditions Melbourne Port Terminal (JV with Australian Bulk Alliance) • Throughput of over 1.3 million tonnes, up 177% from the previous year Overseas Investments • Overseas investments performed well • AWB has determined to divest its interest in Vietnam Flour Mills • AWB will continue to explore other overseas investment opportunities

  17. Finance & Risk Management Financial Services • Market share has been maintained by offering a varied combination of products, and the interest rate spread has been maintained • Tonnage underwritten increased to 11.7 million tonnes as a result of improved seasonal conditions RiskAssist, Basis Pool and OTC (over-the-counter) operations • Decreased PBT contribution from the risk management businesses due to a decline in popularity of the Basis Pool product and a return to more normal market conditions (compared with 2002-03 and 2001-02) • Growth in RiskAssist sales to Australian and International customers Treasury • Treasury management contributed PBT of $6.5 million which was $4.0 million below the previous year due to a return to normal market conditions

  18. Finance & Risk Management (continued) -$9.9m +$7.8m $36.1m -$4.0m $30.0m

  19. Landmark • All activities (except Wool operations) have outperformed when compared with the previous year • Merchandise & Fertiliser sales increased by 10%, margins also improved • Livestock gross profit increased by 17% due to higher cattle prices and increased sheep volumes • Wool gross profit reduced by 8% due to lower wool prices • Real Estate sales value increased by 31% due to increased demand for prime rural property • Finance gross profit increased by 54% with the loan book balance of $1.1 billion (record high) and IBD’s increasing to $304 million • Insurance gross written premiums increased by 20% • AWB Seeds – gained over 60% of available wheat variety licences over the past 5 years, and captured 7 new licences during 2003-04 (chick pea and lupin varieties)

  20. Landmark - gross profit growth across product lines Gross profit $million 1 2003-04 2002-03 1 Only one month incorporated in AWB Group’s results in 2002-03

  21. Corporate Corporate items • Costs include governance, compliance, shareholder services and strategic development • Integration and restructuring costs associated with Landmark of $8.0 million Group funding interest • Group funding interest revenue of $4.8 million • Interest previously earned from surplus capital now reported under “Corporate” - significantly lower than the previous year due to funding requirements for the Landmark acquisition Miscellaneous Revenue items • $5.3 million profit on sale of Ceres House (Melbourne) and Grains House (Adelaide) • $7.4 million in Futuris dividends Corporate items includes corporate overheads, miscellaneous revenue items, and the net result from group funding

  22. Integration achievements and on going initiatives • Integration achievements thus far • Network consolidation and 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 negotiated • Launch of Fastrak Finance • At least 95% of the way through the integration stage, and 15% of the way through the growth stage • Ongoing initiatives • Implementation of the Integrated Business Model due to take place over the next year • Financial Services will continue to focus on product development to improve overall offer to the customer • Grain Marketers and key branch staff will continue to focus on cross-sell opportunities • The final Procurement category - IT will be finalised by the middle of next year

  23. The first year synergy result of $13m exceeded the target $5-10m EBIT uplift Revenue, cost synergies and finance growth (EBIT) FY forecast $30 - 40m $13m (actual) FY forecast $20 - 25m 2004-05 2005-06 2003-04

  24. With the integration of AWB & Landmark now achieved, the focus is on creating value and implementing the Integrated Business Model

  25. Dividend Final dividend of 11 cents per share • Full dividend = 5.2% yield (as at 18/11/04) Dividend dates: • Ex dividend date – 29 November 2004 • Record date – 3 December 2004 • Payment date – 17 December Dividend Reinvestment Plan (changes) • DRP shares will be sourced by a combination of an on-market purchase of shares and new issue • Nil discount offered • Pricing period will be of 7 days trading immediately after the record date (3 December 2004), therefore from 6 December 2004 to 14 December, 2004 inclusive • DRP election form must be received by 3 December 2004

  26. AWB remains focused on its financial objectives AWB will focus on achieving solid financial growth, stable dividend payments, efficient capital management, improved quality of earnings and 15%* return on equity in the medium term (subject to normal seasonal conditions) * Pre goodwill and amortisation Landmark integration • Focus on further integration and achieving earnings targets of $20-25 million EBIT in 2004-05, and $30-40 million in 2005-06 Finance & Insurance businesses • Continue with current strategy of leveraging strong relationships with AWB and Landmark customers to offer the full range of lending, deposit and insurance products Landmark - Livestock, wool and merchandise • Sheep flock forecast to grow 4.3% during 2004-05, though we do expect some lagging impact from the previous drought on overall volumes of livestock and wool • Cattle numbers are expected to reach 27.6 million head, and the sheep flock is forecast to reach 99.5 million head in 2004-05, (Source: MLA) • Australian wool volumes are forecast to increase to 470 million kilograms greasy in 2004-05 (Source: ABARE) • The market for merchandise and fertiliser is promising, and meat prices look set to remain strong

  27. Global wheat market and opportunities Wheat production forecast • Estimated by AWB to be between 20 - 22 million tonnes in 2004-05 Global wheat market outlook – production, consumption and price • World ending stocks forecast to increase for the first time in five years with world wheat production expected to reach 616 million tonnes in 2004-05 as a result of good crops in both the major and non traditional exporting countries • World wheat consumption forecast to be 605 million tonnes, with human consumption demand increasing at a long term trend of 1% • Production and export supply from the Russia and the Ukraine are likely to increase • Production risk premium has been removed from the market and this has seen Kansas futures decline from in excess of US$4 bushel to US$3.40 bushel • APW National Pool return currently estimated to be $200 per tonne (weaker currency is supportive to price) Markets • AWB has a clear strategy to generate more value from the Australian wheat crop through an increasingly differentiated market position • AWB will focus on opportunities in various markets including China and Iraq

  28. Earnings forecast for 2004-05 Based on current seasonal and market conditions: • AWB’s 2004-05 earnings forecast is expected to be comparable to the 2003-04 earnings • AWB will focus on achieving Return on Equity target of 15% (pre goodwill and amortisation) in the medium term.

  29. QUESTIONS

  30. www.awb.com.au For more information contact: Delphine Cassidy Head of Investor Relations Ph: +61 3 9209 2404 Email: dcassidy@awb.com.au

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