Ruralco 2012 Full Year Results Briefing 20 November 2012 1
Presentation Outline Performance Overview Activity Performance Capital Management Strategy Update Summary & Outlook 2
Key Outcomes Performance Overview Sales growth of 13.3% despite lower livestock and wool prices, benefiting from selective footprint expansion in key farming regions. Earnings Before Interest & Tax (EBIT) up 1.8% against backdrop of reduced agency commodity prices and generally drier climatic conditions. Sector expansion strategy delivering strong growth led by grain marketing and water & environment portfolios. Net Profit After Tax (NPAT) down 7.5% driven by reduced profitability in the 100%- owned businesses relative to the joint venture operations, plus higher finance costs associated with sales growth initiatives and the Elders investment. Continuous safety focus has seen Lost Time Injury Frequency Rate (LTIFR) reach historically low levels. Restructure of the Tasmanian residential real estate business starting to take effect. Productivity improvement initiatives across the mainland agency activities ongoing in the face of falling commodity prices and mixed confidence levels. Capital management continues to track satisfactorily with only limited impact from the Elders investment and other acquisition capex. 3
Financial Performance Performance Overview Full Year ended 30 th September ($m) 2012 2011 % change Sales Revenue 1,136.3 1,003.2 13.3% Gross Profit 221.4 207.3 6.8% EBIT (underlying) 39.2 39.5 (0.8%) EBIT (reported) 37.1 36.4 1.8% NPAT (underlying) 15.6 17.6 (11.4%) NPAT (reported) 13.8 15.0 (7.5%) Gearing (Net Debt / Equity) 26.4% 9.4% 180.9% Gearing (excl Elders) 19.2% 9.4% 104.3% Earnings per share (cents) 25.5 27.2 (6.5%) Final dividend per share (cents) 10.0 9.0 11.1% Sales growth on pcp includes headline 17% increase in rural supplies revenue. Gross profit increase on pcp underwritten by grain marketing (40%), rural supplies (27%) and water & environment (22%) respectively. Livestock activity increased head volumes compared to pcp but gross profit was down 9% due to significantly reduced livestock prices impacting commission yields, with wool similarly affected. Non-controlling interest increased $1.9m (32%) on pcp reflecting the stronger performance of the nonagency focussed joint venture businesses. 4
Financial Performance Performance Overview Non Recurring Items ($m) 2012 2011 Reported Profit after tax 13.8 15.0 Restructuring Costs (1.0) (0.5) Contingent Goodwill Expensed (0.9) (1.0) Long-service Leave Legislation (Tas) (0.4) - Profit (Loss) on Discontinued Businesses 0.4 (1.0) Profit (Loss) on Sale of Assets (0.7) 1.3 Acquisition Costs - (0.4) Operational One off Costs (0.4) (1.5) Elders Mark to Market 1.2 - Project Advisory Costs (0.3) - Total Non Recurring Items before Tax (2.1) (3.1) Tax on Non-Recurring Items 0.3 0.5 Total Non Recurring Items after Tax (1.8) (2.6) Underlying NPAT to Shareholders 15.6 17.6 5
Long-term Growth Trend Performance Overview $m 2,000 1,600 1,200 800 400 Revenue ($mil) & Total Transaction Turnover ($bn) 709 751 885 837 904 1,003 CAGR 8.2% 1,136 $b 4.0 3.0 2.0 1.0 50 40 30 20 10 Underlying EBIT ($mil) & Return on Capital Employed (%) CAGR 13.5% 19% 39.5 39.2 35.0 15% 23.7 25.6 27.0 11% 18.3 7% 0 A2006 A2007 A2008 A2009 A2010 A2011 A2012 Sales Revenue Transaction Turnover 0.0 0 A2006 A2007 A2008 A2009 A2010 A2011 A2012 Underlying EBIT Underlying ROCE 3% Underlying NPAT ($mil) & Return on Equity (%) CAGR 12.7% 20 15 10 5 0 16.5 17.6 15.6 11.6 11.2 13.0 7.6 A2006 A2007 A2008 A2009 A2010 A2011 A2012 15% 13% 11% 9% 7% 5% 3% 6 Underlying NPAT Underlying ROE
Underlying NPAT Performance Overview 7
Gross Profit up 6.8% Activity Performance Pre- Intercompany sales eliminations 8
Commodity Prices & Conditions Activity Performance Seasonal conditions Rainfall deciles 1 October 2011 31 March 2012 Rainfall deciles 1 April 2012 30 September 2012 Highly variable seasonal conditions throughout the year with dry conditions in the second half softening cropping and animal health spend. 9
Commodity Prices & Conditions Activity Performance Commodities Source: Meat & Livestock Aust 10 Source: AWEX Source: Agfarm
Capital Management Capital Management (as at 30 Sep 12) Financial Gearing 26.4% 120 Net Debt ($m) & Gearing (%) 89.0% 100% - Elders investment contributed 7.2% to measure. - Net debt $45.4m, up from $15.7m as at 30 Sep 11 (business acquisitions represent $13.0m of the movement). Interest cover ratio of 7.5 times within covenants - 7.6 times as at 30 Sep 11 100 80 60 40 20 65.8% 68.3% 33.8% 26.3% 9.4% 26.4% 80% 60% 40% 20% Working capital utilisation - Operating cash Inflow $15.4m down on prior year $53.7m with inventories increase reflecting rural supplies acquisitions,greenfield outlets and drier conditions affecting stock turns. - Working capital increased by $12.1m on a pcp basis. - Investing activities comprise: $ 5.5m Depreciating fixed assets (capex) $14.3m Acquisition & other investment capital $12.7m Elders investment (incl Project costs) $32.5m Total ($18.7m prior year) EPS & Dividend - EPS of 25.5 cents (2011: 27.2 cents prior year) - Final dividend of 10.0 cents per share fully franked (2011: 9.0 cents) - The dividend reinvestment plan will not apply. 0 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 A2006 A2007 A2008 A2009 A2010 A2011 A2012 Net Debt Gearing % Capex. Depn & Amort. 6.8 6.1 6.2 5.1 5.5 5.5 A2007 A2008 A2009 A2010 A2011 A2012 Capital Expenditure Spend Depreciation and Amortisation 0% 11
Cash Flow Capital Management Sep 2012 $m Sep 2011 $m Net operating cash flow 15.4 53.7 Net capital spend (5.5) (4.3) Free cash flow 9.9 49.4 Payment for share in subsidiaries (14.4) (14.4) Purchase of investments (12.7) - Proceeds from sale of assets 3.3 10.7 Dividends paid (15.3) (12.5) Working capital movement (29.2) 33.2 Proceeds from (repayment of) borrowings 16.1 (2.4) Net cash movement (13.1) 30.8 * * Net Debt (45.4) (15.7) * FY11 comparative include re-classification of $0.7m contingent goodwill from Operating to Investing segment within the Statement of Cash Flows 12
Net Debt Capital Management Sep 2012 $m Sep 2011 $m Cash 52.7 67.7 Current Borrowings * (70.4) (60.1) Non-Current Borrowings ** (27.7) (23.3) Net Debt (45.4) (15.7) * Current Borrowings include $66.1m of unsecured deposits (Sep 11 $54.1m) ** Non-Current Borrowings mature 28 Feb 2015 Bank Facilities as at 30 Sep 2012 Facilities Drawn 25.0 26.9 Facilities Limit 109.6 99.5 Facilities Available 84.6 72.6 Key Metrics Gearing 26.4% 9.4% Interest Cover *** 7.5 times 7.6 times *** Net profit before interest, tax, depreciation & amortisation / Total interest expense 13
Balance Sheet Capital Management Sep 2012 $m Sep 2011 $m Trade Receivables 301.5 307.3 Inventory 108.1 83.5 Trade Payables (314.1) (307.4) Working Capital 95.5 83.4 Property, Plant & Equipment 41.9 47.9 Intangibles 72.9 65.3 Net Debt (45.4) (15.7) Investments & Other Items 6.8 (13.4) Shareholders Equity 171.7 167.5 Gearing 26.4% 9.4% ROE 8.9% 9.7% 14
Strategy Strategy Update Focus on our core strategies remains strong Broaden the company s operating platform geographically by partnering with quality regional businesses and people on a majority equity basis. Add product / activity portfolio throughout expanded operating platform. ELDERS Capture the benefits of one back office, providing scale benefits to our regional businesses and actively manage our portfolio of assets. Significantly contribute to our local communities within which we operate. Underpin these strategies by fostering in our people a culture of innovation, customer focus and operational excellence throughout the Group characteristics inherent with independent, local businesses 15
Elders investment Strategy Update Strategic investment made by Ruralco in June 2012 (current stake 12.04%). Supportive of decision to sell Automotive (announced August) to create a pure-play Rural Services business. Recent announcement of Rural Services sale has created considerable uncertainty for all stakeholders. We are concerned over the poor result for shareholder value this process will generate. Ruralco continues to monitor situation and reserves position on participation in sale process, currently no clear understanding of process or timing. Participation would only be considered where clearly value accretive to Ruralco shareholders. Ruralco expects to benefit under either outcome. 16
Platform Growth Strategy Update Key contributors to Footprint growth EBIT - FY12 (Full year contribution) Footprint growth FY12 Acquisition outlets 19 Greenfield outlets 3 Total 22 17
Sector Expansion Strategy Update Grain Marketing - Grain throughput up 43% to 3.0m tonnes lead by the Advantage managed pool products increasing 600kt compared to prior year. - Agfarm continues to drive innovation with its expanding suite of grain marketing product options and blend of personal and web engagement with its client base. - Dedicated grain accumulation teams added into newer geographic markets. - Launch of freight broking business with throughput of 250kt. 18
Sector Expansion Strategy Update Water & Environment - Traded water up 13% despite generally full catchments through the lower Murray Darling Basin. - Waternet successfully tendered to market 17,000 meg parcel of permanent entitlement (10,000 meg sold to date to commercial irrigators). - Developed ProWater Nationwide to bring together our irrigation and water product segment sales specialists under common brand and strategy now one of the largest water groups nationally. - On-farm irrigation solutions business up 20% on prior year led by Archards Irrigation and Roberts Irrigation. Source: Waternet 19
Sector Expansion Strategy Update Financial Services - CGU and NAS alliances grew insurance premium by 32% (+$4.6m) in FY12 driven by targeted appointments of insurance specialists into the network. - Term and seasonal finance book (off-balance sheet) passed $230m as at September 12, with 130% growth achieved on prior year. - Ruralco Finance broking business now achieving scale benefits and lifted EBIT 153% on prior year. - NAB Ruralcard approved limits increased 47% on prior year with on-balance sheet lending continuing to run-off. Soft Commodities - Ag Concepts joint venture gaining strong traction in its wool forward contracting product, which is one of the few of its kind backed by a transparent trading platform. EBIT up 317% on pcp. 20
Capturing the benefits of one back office & active portfolio asset management Strategy Update Consolidation momentum now building with benefit of IT platform capacity investment: SAP major server upgrade completed as key enabler for bulk store migrations. Planned SAP migrations completed across Queensland business units. Additional 23 outlets in WA scheduled for 1Q13 and 9 outlets in Victoria for 2Q13. Conversion of these sites will result in 90% of the Group being converted to the common platform. Livestock sales migration to common platform completed for 5 business units. Centralised payables processing continued to absorb additional business units in FY12 and SAP integrations will see further consolidation 1H13. Ruralco s Perth hub absorbed Farmworks back-office in July. Monds & Affleck sale completed which continues strong momentum on non-core business divestments Tasmanian freehold properties recently re-valued and rationalisation efforts continue on non-core assets in order to release capital. 21
Our People and Our Communities Strategy Update Our People - Safety at Ruralco continues to be our first priority. Continuous review of safety processes, including monitoring any near miss and medical treatment injuries, contributed to the LTIFR reaching historic lows. - Incentive Program and General Employee Share Scheme closely linked to key deliverables. - Leadership development program via Diploma Study Assistance. Our Communities 22 At the heart of Ruralco s culture is a commitment to giving back to the communities that support our businesses. In excess of $1.6 million in assistance to local community groups through the whole Ruralco family Over $108,000 donated to Ronald McDonald House Charities from funds raised during the Ride for Rural Kids charity bike ride $15,000 donated to Autism Awareness Australia from the proceeds of an auction of a specially commissioned portrait of Ruralco Ambassador, Lee Kernaghan, at Beef Australia $30,000 raised by Ruralco staff in support of the MS Society at the 24 hour MS Mega Swim Ride for Rural Kids bike ride Oct 2011 Ruralco Reefers Mega-Swim for MS
Summary & Outlook Rural Supplies and Sector activities delivered important revenue growth and evidence key strategies being executed well. Productivity improvements in the commission sensitive businesses still a work in progress and will be a focus in FY13. High grain prices should provide an injection of liquidity into cropping enterprise cash flows, with Ruralco well-placed to benefit from upside in general confidence levels and spend capacity. Lower store sheep and cattle prices have the potential to stimulate livestock fattening activity, although customers will remain cautious pending evidence of adequate rainfall and stabilised market prices. Balance sheet continues to be strongly positioned to execute growth strategies. Back-office initiatives approaching key milestone events. Targeted footprint and people investment remain a priority through FY13. 23
Disclaimer This presentation may contain forward-looking statements with respect to Ruralco's business and operations, market conditions, results of operations and financial condition, capital adequacy and risk management practices. Readers are cautioned not to place undue reliance on any forward-looking statements. Actual results or performance could be significantly different from those expressed in, or implied by, any forward-looking statements. Forward-looking statements are not guarantees of future performance and involve known and unknown risks, uncertainties and other factors, many of which are beyond the control of Ruralco. Ruralco does not undertake to publicly release the result of any revisions to these forward-looking statements to reflect any change in expectations, assumptions or circumstances after the date of this presentation. The information contained in this presentation is given in summary form and does not purport to be complete. It is not financial product advice and does not take into account the investment objectives, financial situation or particular needs of individual investors. These should be considered, with or without professional advice, before deciding if an investment is appropriate. This presentation is not an offer, invitation, solicitation or recommendation with respect to the subscription for, purchase or sale of any security and neither this presentation nor anything in it shall form the basis for any contract or commitment whatsoever. The distribution of this presentation in jurisdictions outside Australia may be restricted by law and you should observe such restrictions. The securities have not been, and will not, be registered under the Securities Act, or the securities laws of any state of the U.S. or other jurisdiction and the securities may not be offered or sold within the U.S. or to, or for the account or benefit of, U.S. persons (as defined in Regulation S under the Securities Act). 24