Annual General Meeting. Friday 27 October Broderick Road, Lara

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Virgil Hill
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1 Annual General Meeting Friday 27 October Broderick Road, Lara

PROFIT AND LOSS / CASHFLOW Year ending 30 June FY17 ($ 000) * FY16 ($ 000) Trading profit before tax 20,968 (385) Income tax expense (8,134) (434) Profit after income tax expense 12,834 (819) * FY16

2 PROFIT AND LOSS / CASHFLOW Year ending 30 June FY17 ($ 000) * FY16 ($ 000) Trading profit before tax 20,968 (385) Income tax expense (8,134) (434) Profit after income tax expense 12,834 (819) * FY16 restated as Olive Trees are now assessed under AASB 116 Property Plant & Equipment accounting standard. Trading profit before tax was $21.0m ($0.4m loss in FY16). Higher profit primarily driven by larger 2017 crop and lower water cost, increased return from packaged goods, offset by an increased investment in our four core growth strategies. For the year to 30 June 2017 we reported an operating cashflow surplus of $15.8 million (surplus of $16.5 million in FY16). Monthly operating cashflow is relatively stable but olive oil stocks vary greatly depending on time of year and the off-year followed by an on-year production of the trees. 2

3 UNDERLYING EBITDA Over the last four years, we have incurred significant expense from investing in our four core growth strategies FY14 ($ 000) FY15 ($ 000) * FY16 ($ 000) FY17 ($ 000) Reported EBITDA 5,121 28,374 13,559 35,190 Investment in four core growth strategies ^ 4,000 6,000 9,000 11,300 Normalised EBITDA 9,121 34,374 22,559 46,490 Over the last four years, average normalised EBITDA of over $28m * FY16 restated as Olive Trees are now assessed under AASB 116 Property Plant & Equipment accounting standard. ^ Management estimate. 3

4 BALANCE SHEET SUMMARY Shares: 57.14m share on issue Assets of $297.2m Cash, inventory, oil and receivables of $92.4m Groves and buildings $157.7m Plant and equipment $34.8m Intangibles $6.7m (mostly Cobram Estate and Red island trademarks) Other $5.6m Note: management estimate the cost to replace these assets, including investing in the trees to reach a similar maturity profile would be in excess of $513m ($9 share). This estimate does not attribute any value for the Cobram Estate and Red Island brands (sales of $79.7m in FY17) nor does it deduct Boundary Bend s liabilities, as at 30 June Liabilities (excluding deferred tax) of $115.4m* Bank loans of $84.2m (CBA) Asset finance (leasing) of $10.4m Creditors and other liabilities (current) of $15.8m Other $5.0m * Reported liabilities per FY17 Financial Report are $143.0m. Above Liabilities excludes Deferred Tax Liability of $27.6m which is predominately a tax liability (capital gain) due if Boundary Bend was to dispose of land and grove assets. 4

5 BANK DEBT At 30 June 2017 FACILITY UNUSED Core Debt Facility AUD 58.0m - Working Capital Facility * Foreign Currency Facility Import Documentary Letter of Credit ** AUD 16.0m AUD 3.5m USD 10.5m - EUR 2.5m EUR 2.5m * Facility increased by $9m to $25m on 26 October ** Facility will be terminated on 26 October 2017, as was not required. Facilities provided by Commonwealth Bank of Australia. Debt facilities provided through to 20 October Gearing 30 June June 2016 Net Debt / Tangible Assets 31.8% 32.1% 5

6 FY 2017 / 2018 TRADING Unaudited trading update Trading has been solid and profit is in line with budget for the three months to 30 September 2017, however full year profit is largely driven by the 2018 crop, which is expected to be lower than the 2017 crop due to the biennial nature of olive trees. Australian Cobram Estate & Red Island sales are ahead of budget for the year to date. US Cobram Estate sales are materially ahead of budget for the year to date. Costs in line with budget. Although water storages continue to fill, temporary water prices are holding at levels stronger than expected. 6

7 DIVIDEND In February 2017 BBL paid a 10 cents per share (unfranked). A 12 cents per share unfranked dividend will be paid on Friday 16 February Record date will be 31 January The dividend will be unfranked due to the company utilising carried forward tax losses. It is possible that after 30 June 2018, dividends may be partially franked. The Board has also resolved to re-instate the dividend re-investment plan (DRP). Details of the plans and the DRP price will be sent to shareholders before Christmas. Please ensure that our registry has your TFN to avoid having tax withheld. Further details will be send to shareholders prior to Christmas. We have forecast to continue to pay an annual dividend, however the amount is subject to the performance of the company. 7

8 USE OF FUNDS Over the last three years we have invested in capital projects relating to our growth pillars, whilst continuing to pay a dividend 3-year average operating cashflow before interest (p.a.), $16.6m Cash from operating, borrowing and new equity 3-year average of equity raised (options & DRP) (p.a.), $2.7m 3-year average net increase in borrowings (p.a.), $5.9m 3-year average of other (p.a.), $0.9m 3-year average of dividends paid (p.a.), $4.9m Use of cash 3-year average of interest costs (p.a.), $3.8m 3-year average of capex projects (p.a.), $15.9m 8

9 CURRENT SHARE PRICE & CAPITAL RAISING UPDATE Shares consistently trading at $8.00 per share Circa $11.2m BBL shares traded at $8.00 per share in the last seven months There is no imminent announcement on the proposed share placement. 9

10 SUMMARY OF OFFERS RECEIVED BBL invited potentially suitable parties to undertake significant analysis and due diligence on our existing businesses. We have had a number of genuine, but conditional offers to consider, including: $80m equity placement (11.36% fully diluted) at $10.00 per share contingent upon their investment into a Joint Venture with Boundary Bend to develop groves globally. However Joint Venture terms could not be agreed. A range of other offers were received between; $7.50 per share for core Australian business plus a further top up payment based on earn outs in relation to future earnings of the US and Value-Add businesses, and $9 per share also complicated with an earn out and/or delayed settlement component. With all the information at hand, particularly relating to the lack of value attributed to the USA and the Value Add businesses, the Board agreed that the above offers were not in the best interest of shareholders. 10

11 CAPITAL RAISING - WHERE TO FROM HERE It is more important that we find the right shareholder/s at the right value for existing shareholders, especially as we believe there is material upside in our businesses and accordingly our share price. Our key requirements of any new shareholder subscribing capital are: o o o compatibility (i.e. need to be patient, long term, passive investors) Price / terms / conditions that are compelling based on our knowledge of the businesses and the opportunity we see to justify diluting existing shareholders Fair upside for our new incoming shareholder/s We will continue to assess capital raising opportunities that best suit BBL s objectives.

12 COMPANY OVERVIEW Grove Operations: Boundary Bend owns and manages 6,278 ha of freehold irrigated olive groves in Australia, making it Australia s producer of olive oil (producing approximately 65% of Australia s total production from its owned groves), and one of the largest single producers of olive oil in the world. Marketing and Sales: Apart from production from out own groves, Boundary Bend also buys a significant quantity of oil from other Australian growers to supply branded, private label and bulk Australian olive oil to customers globally. Retail Brands: Cobram Estate: is the number one selling retail brand of olive oil in Australia by value and units, with approximately 27.4% and 25.2% respectively (2016: 25.5% and 26.2%)*. Redisland: is the number two selling retail brand of Australian grown and the number six in total olive oil category by value with approximately 5.1% market share*. * Sales value and units based on Moving Annual Total data for 12 months to 08/10/17. Grocery scan data: Coles & Woolworths only data MAT for 12 months to 02/10/16. Source: Aztec 12

13 COMPANY OVERVIEW Milling: Boundary Bend owns and operates two large, modern, sophisticated milling plants that are both individually in the top 10 in the world by capacity. Boundary Bend also owns a smaller mill in the USA. Storage: Boundary Bend has approximately 14m litres of stainless steel storage (3 sites in Australian and 1 in California) all housed in modern purpose built sheds to control temperature, light and oxygen to ensure the oil is stored and preserved to the highest standard possible. Bottling: Australia s largest olive oil filling and packaging business capable of producing 14,400 bottles per hour. Our Californian bottling facility has a capacity of 4,500 bottles per hour. Technical Advice, Laboratory Services and Research: Advisory services, covering all aspects of the industry relating to project development, technical advice and applied research. The group also owns and operates two NATA accredited olive oil laboratory, one located at Lara and the other at our USA facility. 13

14 COMPANY OVERVIEW Nursery: A specialist olive nursery (Australia only) supplying olive trees to commercial growers, wholesale, retail nurseries and national chain stores. Innovation & Value Add: A recently established division tasked with value adding and commercialising various by-products. The oil component accounts for 16% of the olive, in the various waste streams there are highly sort-after minor components (phenols) that have known health, cosmetic and natural food preservative properties. US Operations: Boundary Bend owns an 8.8 acre freehold site that accommodates the milling operation, laboratory, oil storage, head office and bottling line. In March 2016, 150 acres was planted in addition to the groves which the group currently provide management services to and have long term supply arrangements with. Global olive oil trading business: A business sourcing, testing and certifying Extra Virgin olive oil from 3 rd party growers in Europe, South America and Australia for supply to customers (mostly based in the USA) who are seeking a reliable supply of authentic, high quality Extra Virgin Olive Oil. Full time staff member based in Portugal to develop relationships with growers to source high quality olive oil. 14

15 AUSTRALIAN RETAIL ALL GRADES OF OLIVE OIL 70,000 Woolworths and Coles brand share of Olive Oil - 12 months to 08/10/17 60,000 50,000 40,000 Dollars (000s) Litres (000s) Units (000s) 30,000 20,000 10,000 - Moving Annual Total (MAT) for 12 months to 08/10/17. Source: Aztec October

16 AUSTRALIAN RETAIL EXTRA VIRGIN OLIVE OIL ONLY 70,000 Woolworths and Coles Brand Share of EVOO - 12 months to 08/10/17 60,000 50,000 Dollars (000s) Litres (000s) Units (000s) 40,000 30,000 20,000 10,000 - Moving Annual Total (MAT) for 12 months to 08/10/17. Source: Aztec October

17 Dollars ($ '000) EVOLUTION OF BRAND SHARE vs ,000 Woolworths and Coles Brand Share of EVOO - 12 months to 08/10/17 60,000 50,000 40,000 MAT To 07/10/12 MAT To 08/10/17 30,000 20,000 10,000 - Moving Annual Total (MAT) for 12 months as outlined. Source: Aztec October

18 COBRAM ESTATE PREMIUM OVER IMPORTED OLIVE OIL $13.00 Historical retail selling price per litre in Woolworth and Coles $12.00 $11.00 $ average premium 56.1% $9.00 $8.00 $7.00 $6.00 $5.00 Cobram Estate Olive Oil Mediterranean Olive Oil $4.00 MAT To 13/10/13 MAT To 12/10/14 MAT To 11/10/15 MAT To 09/10/16 MAT To 08/10/17 Source: Aztec October

replants Building our vertically integrated business in the USA $/L Increasing the

19 GROWTH STRATEGIES FOUR CORE OPPORTUNITIES TO DRIVE FUTURE GROWTH Increasing yields from maturing existing orchards, together with incremental production from new plantings and replants Building our vertically integrated business in the USA $/L Increasing the farm-gate return for our Extra Virgin olive oils Value-adding by-products and waste streams 19

20 RECENT PLANTINGS A significant portion of the capital expenditure in the last three years has been new plantings, redevelopment of existing groves and irrigation infrastructure: 1,195 hectares of olives planted in last three years made up of 485 hectares replanted at Boundary Bend Estate; 405 hectares new planting and 305 hectares replanted at Boort Estate; Recent plantings represent the following: ~28% of Boundary Bend s groves are yet to reach full maturity (1,773ha); Of this, ~19% of groves less than three years old (1,195ha); Once mature, this 19% is estimated to produce an additional three million litres of oil. Photos of recent replants follow this slide. 20

21 March 2017 planting (405ha) at Boort

22 March 2016 planting (350ha) at Boort

23 March 2016 planting at Boort (18 months old)

24 Bain pump station

25 Bain pump station

26 GOL GOL PROPERTY GOL GOL - GREENFIELD GROVE Settlement to occur in coming week 5,540ha property with approximately 3,000ha plantable Unique scale, location, soils and geographically close to the existing groves Soil tests and preliminary due diligence complete Planting to be staged, starting in Spring 2019 (subject to capital allocation) 26

27 GROWTH PILLARS USA RECAP WHY GO TO THE USA Significant opportunity; USA consumption currently 350 million litres with only 10 million litres sourced from domestically grown fruit. Timing right to enter market regarding consumer awareness of EVOO, health and provenance movement. Ability to leverage Australian IP, systems, know-how and people to execute our strategy. Two harvests per annum, quicker improvements to harvesting and processing techniques, effective knowledge sharing. We are more excited than ever about the opportunity and potential of our USA business and furthermore that our strategy is relatively low risk and likely highly rewarding in the medium term. 27

28 GROWTH PILLARS USA UPDATE ON VERTICALLY INTEGRATED USA BUSINESS Boundary Bend USA operates as a fully vertically integrated olive business with the following sites/functions: Fruit processing and oil storage at our Woodland facility has progressively expanded to cope with increasing fruit volumes and is about to commence its 3rd harvest. The laboratory gained full American Oil Chemists Association accreditation in May Fruit supply contracts with existing 3rd party growers including technical advice and harvesting services where required. Bottling and packaging line fully operational in January Sales bulk and branded strategy. YTD Cobram USA branded retail sales materially above forecast Grove ownership currently owns 175 acres on long term (35 years) lease land with another additional land for further plantings being finalised. 28

29 SALES AND MARKETING AUSTRALIA /17 OBJECTIVES 1. Growth in sales and net return per litre produced 2. Increase distribution points 3. Product and Position development 4. Pricing and Promotion strategy 29

30 1. GROWTH IN SALES THROUGH TVC COOKING SHOWS 10.5m People viewed #1 in timeslot Top 22 had masterclass TVC with Matt Sinclair Consumer Promotion with 20k entries Mystery Box Billboards, playouts, logos Digital content & recipes Major sponsorships to increase Cobram s awareness, get into more households, increase usage and repeat purchase. 30

31 AND OTHER SIGNIFICANT SPONSORSHIPS THROUGHOUT THE YEAR 31

UNITS GROWTH IN EVERYDAY SALES (AT FULL PRICE NOT ON PROMOTION) 750ml BASELINE SALE UNIT GROWTH 450,000

+10% 398,853 399,417 750mL growth in both Coles and Woolworths Existing buyers purchasing more EVOO (375mL

32 UNITS GROWTH IN EVERYDAY SALES (AT FULL PRICE NOT ON PROMOTION) 750ml BASELINE SALE UNIT GROWTH 450, , , ,590 Despite price increase in January , , , , , % +10% 398, , mL growth in both Coles and Woolworths Existing buyers purchasing more EVOO (375mL buyers moving into 750mL) 380, ,000 Coles 750ml Actual Fin Year 15 / 16 Fin Year 16 / 17 WOW 750ml Actual 32

33 3. DEVELOPING COBRAM S PREMIUM POSITION & BRAND EXPERIENCE HARVEST SUPER SHACK Purpose built venue 200+ guests Used by MasterChef and Better Homes & Gardens New target - Health and Fitness influencers Reach of 30.8 million through social media 33

34 3. RED ISLAND PRODUCT & POSITIONING DEVELOPMENT PET innovation did not perform as per expectations - we lost consumers Goal is to regain lost consumers back to RI by returning to Glass. This is already happening Attract and appeal to new younger audience through digital and innovation, and PET as incremental 34 34

35 GROWTH PILLARS WHY ARE WE INVESTING IN OUR BY-PRODUCTS? 1. Capture the full value of our olive goodness Opportunity to capture more value through fully utilising all of the outputs from our olive farms. 2. Turn waste challenges and costs into savings and benefits Some by-products are challenging to handle and add cost. Opportunity to covert bulk biomass into revenue-generating or cost-saving products. 3. Access potentially lucrative, high-value markets and channels Potential application for new products in the supplement, food, beverage, cosmetic and pet food channels, both in Australia and overseas. 35

36 GROWTH PILLARS CURRENT STATUS Detailed study of our by-products and potential uses completed. Resources committed in FY18 to fund internal/external research. Our first Innovation capex project has been installed and is currently being commissioned. Our second Innovation capex project has been awarded $812k grant funding under AusIndustry s Advanced Manufacturing Growth Fund. Another 6 key projects underway at various stages of development. NEXT STEPS First new projects awaiting final internal approvals for release. We have in place a strong pipeline of R&D projects, with new opportunities continuously being investigated and future projects planned. 36

37 GROWTH PILLARS ENSURING OUR AMBITIONS DON T GET IN FRONT OF PERFORMANCE How do we drive all this without the wheels falling off while continuing to research and excel in everything we do? We have relentlessly aimed at achieving the highest possible standards and efficiencies at all levels We employ (and retain) very talented staff Technical team leads research and implements management systems and information transfer periodically completing critical review and analysis to drive continual improvement. 37

38 SUMMARY UNIQUELY POSITIONED Business backed by tangle assets mostly farmland Iconic, highly visible consumer brand Inbuilt growth almost guaranteed Superior proven management Real pricing power Very strong consumer movement to Health, real foods, authenticity and provenance Blue sky potential: USA Innovation value-add business The world is about to run out of olive oil as demand continues to outstrip supply 38

39 GLOBAL STOCKS AT HISTORIC LOWS? 39

40 BARRIERS TO ENTRY We have created significant advantage & barriers to entry over any new entrant to the olive industry due to: Iconic Brand (Cobram estate) Dominant supply position creating real pricing power Our systems, knowhow and people, The high investment cost to replace our tangible assets (c $500m) Long lead time to full yields (10 years) The strength of the team we have built allows us to continue to develop and evolve, and to monitor, analyse and review all aspects of our operations, thereby ensuring cost effective, practical solutions and consequently a significant competitive advantage. Boundary Bend groves, on average, produce the highest yielding, highest quality olive oil at the lowest cost of production. 40

41 RESOLUTIONS Resolution 1 Adopt the Financial Report Proxy Votes % of total share on issue For 23,505, % Against - - Abstain - - Resolution approved unanimously 41

42 RESOLUTIONS Resolution 2(a) Re-election of Mr Paul Riordan Proxy Votes * % of total share on issue For 20,396, % Against - - Abstain - - * This excludes any proxy votes from Mr Paul Riordan s shareholding. Resolution approved unanimously 42

43 RESOLUTIONS Resolution 2(b) Re-election of Mr Craig Ball Proxy Votes * % of total share on issue For 23,373, % Against 131, % Abstain - - * This excludes any proxy votes from Mr Craig Ball s shareholding. Resolution approved unanimously 43

44 RESOLUTIONS Resolution 2(c) Re-election of Mr Matthew Bailey Proxy Votes * % of total share on issue For 23,505, % Against - - Abstain - - * This excludes any proxy votes from Mr Matthew Bailey s shareholding. Resolution approved unanimously 44

45 RESOLUTIONS Resolution 3 Adopt the Remuneration Report Proxy Votes * % of total share on issue For 7,131, % Against 5, % Abstain 400, % This excludes any proxy votes from Directors or senior management referred to in the Remuneration Report. Resolution approved unanimously 45

46 RESOLUTIONS Resolution 4 Adopt changes to the Constitution Proxy Votes % of total share on issue For 23,505, % Against - - Abstain - - Resolution approved unanimously 46

Report Run: 24/07/ :50. Boundary Bend Limited and controlled entities ABN

Report Run: 24/07/ :50. Boundary Bend Limited and controlled entities ABN Report Run: 24/07/2012 11:50 Boundary Bend Limited and controlled entities Financial report For the year ended 30 June 2014 Executive Chairman's report... 3-15 Directors' report... 16-23 Auditor's independence