SunRice

Ms Tenneti: Next speaker for the day is Michael Heine, the joint Managing Director of Netwealth Group Limited. If you could welcome Michael, thanks.

Mr Heine: Good morning all. I think that's working, which is good news. I'm going to be speaking to you maybe as potential clients today, as well as investors, so I hope you find the presentation of interest today. I'm the joint Managing Director. I founded the company in 1999 and fortunately bred very well and my son is my joint Managing Director, through ability rather than breeding, probably better than his father, which is always a problem. It's actually a good thing. A couple of key things. Firstly, what does Netwealth do? We're a platform provider which doesn't give you a lot of information, but we're a technology based company providing investment and superannuation services. The services are available to individuals directly onto our platform, but the vast majority of our business in fact comes through financial advisers who use our platform to manage their clients. The platform provides services for superannuation as an alternative to, say, an industry super fund or a self-managed super fund and the superannuation fund allows investors to select their own investments, so very much like a self-managed super fund but we're APRA regulated and we do all the hard work, you don't have to do the work at all. We obviously have accumulation and pension, life insurance and regular contributions, et cetera.

The same product exists but outside of super called the investment wrap, where funds that are either outside of the super spectrum or, alternatively, if you have a self- managed super fund, it's a very good product for you to manage. These products allow you to buy and sell assets that you want to buy and sell, when you want to buy and sell, to receive the income into the fund, to reinvest them, to have cash, to have term deposits, domestic and international equities, bonds; a very large variety of assets and very importantly in recent years, managed accounts is one of the products that we offer. The company was listed on the Australian Stock Exchange on 20 November 2017. The issued price at that time was $3.70, the price when I had a look a moment ago was in excess of $8.70, so we've done a reasonably good job in that period. Indeed market capitalisation of the company exceeds $2 billion.

Very important to us is we are the best technology in the market and I'll come to who our competitors are shortly, but you might have heard of them, there's four banks for example. So technology is really important and independent research for four years in a row has named us as the best technology. Service is really important; you can't have one of these without each of the components operating very effectively. So we've been the best in the industry for service satisfaction for seven years in a row. Some of the key business highlights for you, funds under administration, that is client money that has been put on the platform, whether in the investment wrap or the superannuation, at the end of March this year, total in excess of $21 billion and is continuing to grow. The growth of funds under administration in the year to date in that nine months was $2.8 billion. Last year it was over $4 billion and we're forecasting that we'll exceed the $4 billion for this financial year as well.

Funds under management, $3.5 billion. Funds under management, in our case, are different to funds under administration. When the money comes into the platform, we call that funds under administration. Then we can down invest it into, as I said, a wide range of assets. If they're down invested into assets that are offered and manufactured by Netwealth, we call those funds under management, so we have a range of managed funds, cash products and also, importantly, as I said, the managed account, which is a very efficient way of managing money actively these days. Two thousand plus advisers using the platform, as I said, number one ranked platform for technology, very important, number one for overall client satisfaction seventh year in a row and our brand has taken a significant uplift since our listing and for some time we were known as the best kept secret, but the listing certainly assisted us to increase that and there are other reasons as well as the Hayne Royal Commission and the banks divesting themselves out of wealth management, suddenly everybody has become aware of the independent players and not just those that are bank owned.

This chart on the left hand side is important, it just highlights what I was saying about technology and client satisfaction. On one axis is the functionality, on the horizontal axis is functionality and on the vertical axis is client satisfaction. Ideally one wants to be in the top right hand corner and that is exactly where Netwealth is. With our competitors falling well short of both technology and satisfaction. That's an important thing; we continue to invest heavily in technology, functionality, useability, ease of use in our products for our clients.

The financial highlights for the half year to December, $48 million of revenue; $24.8 million of EBITDA; and just like our previous speaker, we expense all of our R&D, we don’t capitalise that, so EBITDA basically converts fully into cash, which you can see down there at $25 million, so a little bit higher than EBITDA in this period, but generally it would all equate 100% to the EBITDA. The margin of 51.5% is very attractive in pretty much any industry and scalability is important to us. So as we continue to grow, our revenue should be increasing at a greater rate than our expenses and that gives us a comfort to continue to invest heavily and to provide the services to our clients. The net profit after tax is $16.3 million for that half year.

This shows significant growth of our market and also of the independent providers, but the one I'd point you to here on this chart is the right hand graph, which shows the gain in our market share. The market is about $860 billion within our direct competitor market. We have the $21 billion as I mentioned before, but from 15 December we grew from 1.1% of the market and we now sit at 2.3% of the market. One of the attractions of this is that we're growing very rapidly, but more importantly, there is close to 98% of the market that we can still hope to capture a large part of. This graph shows what's happening in the industry. The banks used to dominate it, the banks, AMP and IOOF dominated this industry because they controlled the distribution and the advisers were really only allowed to use the in-house products. That's all changing dramatically and the line that goes up very steeply is ourselves and one or two of our smaller competitors' share of the market and the dark blue line that goes down shows where the banks and AMP and IOOF used to be and they had the majority share by far and that's declined very significantly and we'll touch on that a bit more.

This shows who our competitors are and where the flows are going and this is really quite a fascinating chart. So the biggest player in the market is the BT Westpac Group with 18%, followed by AMP, followed by CBA. On the right hand chart, you'll see the net flows as a percentage, the growth of each of the players of the total growth in the market. So looking at BT for example, you'll see that they're actually in outflow of $1.2 billion for that 12-month period. Netwealth, on the other hand, was the fastest growing funds under management as a percentage and as dollars. So the big ones, AMP, second bottom one there, outflow in red, MLC, the biggest outflows. So even though they were the biggest with the largest amount of funds under administration, they are now haemorrhaging badly. Why are the haemorrhaging? A lack of focus, a lack of investment, a lack of service, all the things that are critical to the clients is where they've just got lazy because they dominated the market and now are paying the price for it.

Platform revenue, revenue is continuing to grow at 28% compound annual growth rate. On the right hand chart is an interesting number. A lot of the analysts will focus on the basis points, so there is pricing competition, there's pricing pressure and basis points is very important. But because we cap our fees at $1 million or $2 million depending on what arrangement we have with a particular group, a $2 million account looks like it's half the basis points of a $1 million account, but what's important to us is the revenue per account, which is the top line on the right hand side is going up annually and that's because we've got larger accounts and we're earning fees on brokerage and other ancillary fees. So the growth in revenue per account is important to us, more so than the actual basis points.

Our revenue composition, 57% comes from the admin fees themselves and they're the ones that can cap out, but 33% come from ancillary fees which is a margin which we make on cash, international equities, administration, managed model services, insurance admin, SMSF administration which we do and 6% comes from transaction fees being particularly brokerage on domestic and international shares and offline transactions, with 4% coming from management fees of our own products. So the majority coming from the admin fee and the ancillary fees and we're also growing the revenue streams of those other sections, importantly. The cost control is really important and we're not frightened to invest because that's where the others have failed, so we're investing heavily, but we're also controlling our costs very carefully. You can see that our EBITDA margin is growing quite strongly as we get scale, so a couple of years ago 45% EBITDA margin, now at 51.5%. As I say, theoretically that can continue to expand, but pricing pressure and increased expenditure and capital expenditure will potentially see that flatten out, but gives us a lot of protection against price competition.

In terms of scalability, where does the scale come from? It comes particularly from the fact that our services can manage, all of our people can manage much larger volumes. The real growth is going to be in IT where we want to just keep on expanding our functionality and our services. So for information, 27% of our staff are in IT, albeit that their salaries are higher, so they represent more of the salaries. Investor services, which won't grow very much, 27% of the staff. Investment operations and custody, 17% and so on and we continue to grow our sales and marketing efforts.

Just a summary, the business financial highlights, we do have a very good record of growth in funds under administration, funds under management, revenue and profitability and that goes back to the beginning of our time and we were at profit at a much earlier stage than all of our competitors. Very highly scalable cost base, so we can continue to grow our business and to double our business over the years without increasing our expenses at the same rate .We continue to invest and capitalise on the significant market opportunities with the change in market, the change in wealth market, with the banks exiting, the Royal Commission coming out with a lot of new recommendations. Our profits turn into cash, which is very important and currently we've got the strongest sales pipeline that we've ever had. We've always had our sales people out on the road talking to new clients, potential new clients, but in the last six, 12 months, we've had a huge number of people ringing us and contacting us, wanting to talk to us about the product and the return to shareholders has been very good.

The Royal Commission was pretty kind to us overall, so we didn't suffer in there, but there are a number of things that are recommended in the Royal Commission which will further accelerate the growth of people using independent platforms. There's just some of them, but that last one, approved product list opened up to specialist platform providers, historically we just couldn't get on to a bank approved list, so the bank advisers aligned and non-aligned, just could not use Netwealth. You may have seen and in the pack that you've been given today, ANZ a couple of weeks ago appointed Netwealth as their provider because they're getting out of the business, they've got in excess of $3 billion on one platform provider at the moment, they've told that party that they're moving all their money and that we are the preferred party for that and they're growing very strongly. So that was unheard of, un-thought of a few years ago. I've got a couple of pages here of further technology developments where you want to see the whole of your household wealth, you don't want to just see one account at a time, you want to be able to aggregate it, see it across all of your different accounts, whether it's your non-super, your super, the kids, your wife, your husband, et cetera, your bank accounts, so we're working to create more and more insights into what you're doing. We've got the bank feeds from hundreds of different institutions. From either the super or the investment wrap, you can make payments into your own bank account or to third parties to pay anyone and we're just in the process of adding BPAY, so we'd like to see people using the platform for their cash and for their cash management and payment of bills, rather than their bank account. A transactional bank account earns you 0% interest, Netwealth is paying 1% on that transaction account, so we want to see people really focusing on their platform rather than on the bank. I think I have run out of time, so not bad timing.

Ms Tenneti: We do have time for a few questions though, so please wait for the microphone. Right up the back here.

Question: I actually looked at your platform and it made me think that for SMSFs, if the franking credit changes come in after the election, I saw I think an opportunity to put funds there and put them in some sort of APRA regulated fund that you have. But then thinking about it future, I worry that there's going to be a huge move to do that if the changes come in and so I'm wondering whether you think you'll have a franking balance to cover all the money that might come in, in that situation.

Mr Heine: That's a very good question. On the assumption that Labor Party win the next election, the chances are that you won't get your cash back for franking credits. If you have a self-managed super fund, you're not going to get the cash back, so we're already getting a huge number of self-managed super funds moving into our super fund itself, so closing down their self-managed and moving into our super fund where you can invest into pretty much all the things you would want to do in your self-managed super fund. Because we are a big tax payer in the self-managed super fund and we are growing very rapidly, there's contribution tax, et cetera, et cetera, we see no issue at all with being able to provide the franking credits back to people in the super fund. So we won't be running out of tax credits any time soon, whereas some of our competitors are probably in a different position, because we are growing so rapidly, we actually have very positive tax benefits which we can pass on to you.

Ms Tenneti: One more question.

Question: How do you do that?

Mr Heine: You can offset franking credits against tax paid, so the super fund is a tax payer and we offset the franking credits and they get paid into individual member accounts, very straightforward process. When you buy or sell an asset in the superannuation fund, if you sell an asset for a loss, we give you a tax credit of the loss immediately, for example. That actually ends up in cash in your account, the same way that franking credits would.

Question: Given your gross margin of 50%-plus, can you explain why your EPS is only about $0.09?

Mr Heine: Sorry, our?

Question: EPS, earnings per share, is only about $0.09 on this handout.

Mr Heine: That’s a pure mathematical calculation. The profit of, I think, $28 million last year, divided by the number of shares comes to that EPS figure. The EBITDA margin results in the profit figure, but it's a pure mathematical calculation.

Question: How do you see the development of the blockchain effect on your business?

Mr Heine: Blockchain is a bit topical in this building at the moment I think, reading an article this morning in the Fin Review. Blockchain, I think might be - my own view is it might be a little bit like Y2K, for any of those people that are old enough to remember how every plane was going to fall out of the sky in the year 2000. I think blockchain or distributed ledger technology is really very important for certain situations and I think the ASX is obviously working well on that front. We work with a provider that does manage fund confirmations between the managed fund administrator and ourselves. They are moving to blockchain technology and that's going to make us more efficient as well. So I don't see it directly affecting us today, but around all the things we do and we connect - we've got APIs to hundreds of different services and facilities and I think blockchain will be an important part of that. But I think it's probably a bit too soon to get over-excited by it, but we've certainly done hack-a-thons where we've done proof of concept in blockchain, so our IT team know how to do it, they know what it's about and we can keep an eye on what's important and what the future holds for us.

Ms Tenneti: I think we'll have to leave it there, but thank you very much for that, Michael.

Mr Heine: Thank you very much.

Ms Tenneti: Our final speaker for today is Rob Gordon, the Chief Executive Officer of Rice Growers Limited, otherwise known as SunRice Group, one of the newest entries to our market, having listed only last week. If you could welcome Rob, that would be great.

Mr Gordon: Thank you very much. Well good morning everybody. Over the course of the next 15 minutes, I'd like to give you a little bit of a snapshot of the SunRice group, which had its debut on the ASX last Monday. First of all, I'd like to, as usual, post the disclaimers, et cetera, leave it there long enough for those of you with eyesight to read. Now on with the business. Many of you will be familiar with SunRice as a brand and I certainly hope that it's in many pantries for those of you in the audience. What you may not be aware of is the breadth and diversity of the SunRice group and in a nutshell, we believe we are a branded global food group, we have about 30 major brands in around 50 countries around the world. We have revenues of just over $1 billion and we have a very robust business model which I will share with you, particularly with the regard to the complementary nature of a number of the divisions that we go to market with across the group.

We have quite a diversity of exposure, both domestically and internationally and we have branded businesses as well as some commodity participation, as well as providing food ingredients to a number of other food manufacturers in the industry. Very importantly, we are not a commodity business. We're actually a branded food company that for many years, in fact decades, have gone to market servicing consumer needs through retail supermarkets and food service channels across the globe. We have a history of innovation and transformation and we have quite a resilient model that has actually been put to the test through drought and other business challenges over the last decade or so.

In 2012 set ourselves a new strategy and that was very much to turn what was probably something of a cooperative heritage of marketing in Australian rice crop to the world, to starting to create as much branded demand globally as we can possibly create, mainly in branded markets, as I say, around the world and then supply that from different sources, predominantly initially from the Australian marketplace, but increasingly from supply chains that we've established in different parts of the globe and I'd like to share more about that now.

So when I talk about the brand and the diversity, this perhaps captures a lot of the diversity, certainly of our categories in which we participate and if I just sort of walk you around this, it probably will give you a good feeling for the business. In the top left hand corner you can see our standard offering which is a range of different varieties of rice for different cooking occasions and cuisine types that we sell in the Australian and New Zealand marketplace. Slightly to the right of that, we take advantage of the convenience channel and sell a cooked rice, a steamed rice, in a ready format of a pouch that can be easily microwaved and this is certainly providing a lot of convenience and growth in sophisticated markets around the world. We also have gone to market with health and wellbeing ranges and you can see just below the core and I'll try to just, right here, we have a range of health and wellbeing products, from low GI, organic, rice and chia, rice and quinoa and a range of other ancient grain blends and again, these are quite topical and are in favour with consumers, not just in . We've tackled the lunchtime occasion with these cups that are readily microwaved in offices and again, that's a good growth opportunity and we've also tackled the healthy snaking market with a range of brown rice chips, which we've launched in many markets around the world to some success. What people may not be as familiar with when you hear the name SunRice or Rice Growers, is that we also compete in the companion animal and stockfeed segments through our Coprice division and you can see an example of our agricultural channel products that are branded just here with a range of dog food products, cat food products and other products for stockfeed like equine and also for hobby farms in dairying, as well as having a substantial business in providing bulk stockfeed to farmers and on feedlots for dairy, beef and sheep.

Again, another part of the group which you may not be familiar with is the Always Fresh range and we go to market in Australia and New Zealand predominantly with a range of products which might be described as at-home entertaining, readily taken out of the pantry when somebody comes around for a surprise, but nevertheless provide a great quality, antipasto platter and increasingly we're building that platter out from olives, stuffed peppers, sundried tomatoes and the like and just acquired a business called Roza's Gourmet, some of the products are demonstrated here, which are artisanal products for dipping, sauces and the like. Again, really take advantage of a consumer trend towards at-home entertaining and high quality premium products. Some of the other products that are demonstrated here, or highlighted here, are our range of brands that we go to market in Hong Kong, Singapore and other Asian markets, as well as some of our fine short grain rices that are used in sushi restaurants around the world.

So when I say around the world, where are we present, in which markets? Well, you can see here that we're present in a number of different markets. We actually have a very strong presence across the Pacific, indeed as rice is a staple in the Pacific Islands, we actually have a very high presence and consider ourselves really providing food security and feeding many parts of the Pacific. As an example, we have 1000 employees in , a strong presence in the Solomon Islands and trade right the way through Micronesia, Polynesia and get up into Hawaii and Guam. You can also see that we're very significant players in the Middle East and service branded rice products across most of the countries in the Middle East and increasingly are starting to move out into north Africa in one direction and up into parts of eastern Europe and southern Europe in the other direction and of course we have a home base in Australia and New Zealand. We also are forging a new market presence in parts of and as the Southeast Asian market opens up, we're starting to go to market in places such as Hong Kong, Singapore and knocking on the door of Malaysia and other markets.

If I break down the group and I mentioned that we're complementary across a number of the different divisions, the business we think of is going to market first of all in the rice pool, so this is the heritage business that effectively takes the rice that is grown in , in the Riverina and goes to market largely on behalf of a pool return for the growers who are rice growers. That is, we talk about rice in the form of paddy rice when it is harvested and then milled rice once we've processed it and sold it. Now this part of the business, as I say, largely returns to the farmer at farm gate, but nevertheless, actually contributes to the profitability of the business in three different ways. First off, whenever we go to market through the brand, there is a brand charge levied against the pool return for the farmers at farm gate; when we use the assets, there's an asset finance charge, which again contributes to profit as the pool utilises the assets of the business; and there are also shared overheads where a number of the overheads in the group are shared across the rice pool and of course across all of the other aspects of the business.

You can see that our brands are SunRice and SunWhite and SunLong, are brands that are certainly very familiar in consumer land as well as with a number of food service customers and they are evident in the Australian and New Zealand market, as well as the other markets I touched on earlier. When it comes to international rice, we actually have a business in Sacramento, in California and that business is called SunFoods. Its results are recorded in international rice division, as are the Solomon Islands, as is our substantial business in Papua New Guinea. We also have a presence in Vietnam and I'll talk about that a little while later, but all of our sales from international sources of rice are recorded under the international rice segment.

When it comes to further value adding and we start looking at snaking, rice flour and rice cakes, the manufacturing, marketing and distribution of these value-added products is recorded under the rice foods segment and this is indeed an area where we see very significant innovation and future growth. I talked briefly about the Riviana Foods business, high provenance products, largely sourced out of Europe, but other parts of the world imported and then sold into supermarkets and food service channels in Australia; Coprice being the stock food business which is increasing going into branded companion animal; and then in the corporate segment, this is where we capture the charges to the farmer for the use of assets such as the facilities and the brand that again I mentioned a moment ago. This operating structure provides a commercial resilience and protects the interests of B class shareholders from the vagaries of rice pool and I'll talk about the structure in just a second because we have a novel structure that takes a little explaining.

Now I talked about the strategy since 2012 and the fact that we went to market to build the maximum amount of consumer demand we could across the globe and then work out where we sourced it from, not just Australian rice and that strategy has led to some significant improvements in our financial performance. You can see that our group revenues have grown to over $1 billion and topped out just shy of $1.3 billion. Our NPAT over the course of the plan has moved from $23 million, exceeding $50 million and in the last financial year was circa $45 million. Our return on capital employed, buildings around about 15% and I'll talk about the FY17 year in a moment and our dividends on a cents-per-share basis, topping out at $0.33 per share and certainly historically, when I look at the share price over the plan period that's demonstrated here, that's been about a 7% to 8% fully franked dividend yield.

So what happened in FY17? So I described the fact that we have a business that is largely the heritage business of the pool of rice that's grown in the Riverina and marketed around the world and then all of these other businesses that generate returns in other parts of the world. Clearly when we have a low Riverina crop, a low crop in Australia, the ability to absorb overheads through facilities that are underutilised diminishes and in the FY17 year, we saw quite significant water shortages and we saw a crop that was about 25% of our normal crop harvested in that year. What I think this chart shows is that despite that, we were able to leverage international supply chains to largely fill the gap on those markets that could not be supplied and we did so profitably. If you think of a business having only a quarter of its inputs in a financial year and yet still being able to maintain its sales line and see admittedly a diminution in the NPAT but nevertheless historically still a very creditable level, I think that demonstrates the resilience of the business, even in times of drought.

Fortunately we bounced back in the financial year '18 and we're close to finishing financial year '19, we're two weeks away from it, but we are facing drought conditions again in the coming year and I'll talk about that outlook at the moment. Of course that NPAT reduction in the FY17 year also played through to the ROCE in that year and you can see the recovery once we had a decent sized crop in financial year '18, but nevertheless, we had the commercial resilience to continue to pay a solid dividend and indeed during that period, our gearing actually dropped.

So I talked a little bit about B shareholders. We have a novel structure and this is a really important chart to understand. We have a dual class share structure. We have A class shares, which are held by active growers who have to qualify by growing 200 tonnes of rice every two years and this recognises the cooperative heritage of the group. There are no financial benefits conferred on an A class shareholder. They do, however, control the board and at a normal meeting, actually control the votes. What we also have are B class shares, which under normal circumstances and in a normal meeting, actually do not get to vote, but do actually own all of the equity and the returns for the business. You can see from the structure on the chart, that there is actually quite a synergy here between the As and the Bs and if I just flag, you can see that there are shared costs of the overheads of the business between the rice pool business and the paddy, so this is where the farmers participate, they grow rice, we go to market with them and we give them a return, but the return is net of all of the costs of the business in servicing those markets after they pay across into the B class shareholder return a charge for use of trademarks, as well as an asset financing charge, as well as a core share in the costs.

When it comes to the B shareholders and we call this the profit side of the business, the B shareholders effectively own the assets of the business, which is why they receive a charge, a cross-charge from the pool utilising the assets of the business; they own the brand and therefore get a brand fee or brand royalty and of course gain benefit from the scale of the rice foods business. I talk about the complementary nature of this business, when I showed the chart earlier of the globe with all of the different trade flows, historically those trade flows were established by the rice pool business as a co- op, went to market with rice to sell into these markets. As we've created demand, that demand has not just been for Riverina rice, it's actually been for all of those value- added products that I talked about a moment ago. So increasingly we are pushing those products through the established supply chains that go back decades. We have relationships with distributors and we have brand equity with consumers that literally go back 30 to 40 years. As a consequence, that enables us to on a marginally costed basis, go to market with a range of value-added food products, all of which return to this side of the business, which is effectively the B class return and that's the share that is listed on the ASX as of last week.

I talked about the FY17 year when some of these shared costs are actually not shared as fully by the rice pool and what we certainly see is in years where there is a significantly smaller crop, that we pay a commercial price to rice and as a consequence, the pool may not always be able to recover all of its costs and therefore weigh on the profitability, which is what we saw in FY17. But in normal years, you can see that there is actually a very strong complementary nature between the two. I would flag and I'm sure everybody is aware that the Riverina is currently in the face of a very significant drought once again. The coming year, which we start from 1 May, sees us with only 50,000 tonnes of crop growing in the Riverina, which is about 5% of what we would consider to be a normal set of inputs. As a consequence, we are leveraging our international supply chain, Vietnam, Cambodia, California and other parts of the world, to fill in behind into those markets that Australian rice won't be available for. As a consequence, we'll certainly see the strategy of building those supply chains up tested to the full in the coming year.

So that sounds like quite a dismal note, doesn't it, 5% of your inputs for a business. Bearing in mind we had 25% of the inputs in FY17 and still came out with I think a very creditable result, I'm certainly optimistic that we'll be able to provide a good result for the coming year based on 5%. But what about the growth for the future? The SunRice business is really well positioned to take advantage of a number of global food trends. They are really, I think, where the exciting growth strategy for this business lies. What we are seeing is that in developing countries around the world and many of them are rice-eating nations, they are seeing rapid GDP per capita growth, we're seeing people moving from rural areas to urban areas, moving away from wet markets where they traditionally buy their rice and into supermarkets and we see the growth of the modern trade in many of these particularly Southeast Asian nations growing very rapidly indeed. As people move away from wet markets, they start to look for a branded product. So what we actually have is throughout Asia a number of consumers, a large number of consumers, with their wealth growing, a propensity to eat rice, who actually want a branded product that they can trust and believe it or not, across the Southeast Asia and most part of Asia, there isn't actually a branded rice player of note or scale and thereby hangs an opportunity for SunRice, with its credentials in rice growing, in processing and marketing, to bring a clean and green product, regardless of where it's grown, to the tables of consumers in a lot of these marketplaces.

As we look at those markets and they're clearly in different stages of development, we see those that have been growing more rapidly and for longer, ramping up the curve of GDP per capita and starting to have the diseases of affluence, as they call them, obesity, type 2 diabetes. SunRice has a proprietary variety of rice which is low glycaemic index, or low GI and therefore is very suitable for people with diabetes. We see over 100 million diabetes in China alone, Malaysia, other parts of Asia are seeing very significant rises in the incidence of diabetes and therefore we believe that our low GI rice has a role in many of these markets to solve what is actually becoming something of a health epidemic. We also grow a very high quality short grain rice which is suitable for sushi. It's known as a japonica rice. The only place in the world that grows something that's similar, of a similar quality, is Japan, but their industry is very inefficient and as a consequence, high quality restaurants around the world are seeking a quality of rice that the Australian Riverina rice can actually service and when they can't afford that, rice varieties that we can service from other parts of our supply chains that we've established around the world.

When it comes to the snaking and I showed our brown rice chips earlier, we are seeing that a lot of rice eating nations are starting to be on the go, similar to Western nations and as a consequence, they like eating rice, they want something that's convenient and therefore healthy snaking. It is in tune with the consumer trend of convenience as well as health and our brown rice chip provide yet another opportunity for us to move into the rice snaking category that is very significant and in growth in different parts of the world. Then when it comes to rice as an ingredient, I'm sure many people will be aware of the move towards veganism, vegetarianism and free from whether it be gluten or sugar or dairy. Rice is very well positioned. We have an ingredients business that is able to now isolate rice bran and provide wholegrain claims to various food manufacturers by the inclusion of stabilised rice bran, which we're just completing an investment on. So therefore yet another growth opportunity for other food manufacturers and very much aligned with a global health trend, which is evident not just in Australia.

So reasons to invest in SunRice, hopefully I've made the case that we have established brands and presence in a number of markets around the world, many of them high growth and that presence in those markets is not a commodity play, it's a branded play where we have relationships with retailers, with consumers and distributors that go back decades. We have the intrinsic benefit of Australia's reputation for clean, green supply and as we move overseas into other supply chains, we take the company's credentials for being international experts in rice food and actually apply the same levels of quality and assurance right the way back to farm gate that we do in Australia. We have quite a diverse and complementary business across the group. For example, Coprice benefits when water is short and feed is short in various parts of Australia and actually provides supplementary feed just at the same time as our rice business perhaps is actually seeing shortages of rice. We've demonstrated the ability to identify and execute profitable growth initiatives, despite the volatility of the Riverina rice supply and I think that's demonstrated in the financial trends that I showed since FY12. We have, in front of us, a growth strategy which provides a roadmap for future growth and diversification, leveraging current global consumer trends, albeit that we do have, in the immediate future, the challenges of a very dry year in the Riverina.

As I look forward to five years down the track, I think I see our ability to transform what was a heritage cooperative operating in the Riverina of Australia and exporting its products to the world, a transformation into a company that actually is a rice food expert that is multinational, branded, has scale and has market leading positions in various segments across multiple geographies, supplied from many different supply chains to provide a hedge for climate change in rice availability that would otherwise plague the SunRice business if we had not taken those moves. So time is up, I've got a flashing light.

Ms Tenneti: I am conscious we're over time, but I'll just take one question, because I can see there's a bit of interest in the room.

Question: Hi, you briefly mentioned on this, but I was hoping you could go into more detail on the risk of climate change, but it's not just climate change, water scarcity. A lot of your growing areas are going to become very water stressed even without droughts in the near future and with the fact that rice is one of the most water-intensive crops historically, so prices of water could increase and this could hurt margins and while you're shifting the supply chain to get more rice in the short term, that's not necessarily a long term solution. I was wondering if you could go into a little more on your long term plans, to prevent this. Mr Gordon: Indeed, great question and that obviously is one of the big risks for the company into the future, not just climate change, water availability through government regulation or policy, as well as competing crops. When I said earlier we look to provide - create as much demand as we possibly could, well beyond the Riverina, for example a good crop in the Riverina would be 800,000 paddy tonnes. We currently have demand for 1.4 million and have actually created that demand through brands and presence. So we're already sourcing a very large amount. Last year we actually stepped into - two years ago, we stepped into the Mekong Delta in Vietnam and started to grow a japonica style or temperate climate rice in the tropics. I don't know if you've had the chance to fly over the Mekong, there's a lot of water and it's free.

So as a natural climate hedge, we started to trade out of Vietnam. Last year we exported 50% of all of the high value temperate climate rice that was exported out of Vietnam and 5%, we were responsible as a company for 5% of all Vietnam's rice exports last year. We did that through commercial partners, we worked with growers and then we actually credited processors. Next month we will be operating our own mill, so we bought a mothball plant, we have brought it up to international standards, doubled its scale and it will be running in about three weeks' time. So as a consequence and we've signed MOUs with two provinces high up the Mekong Delta on the Cambodian border, which guarantee us a certain amount of land dedicated to rice growing, dedicated to SunRice. So I think that sort of talks to the drought hedging.

We're also looking at other major river systems across the globe with the right latitudes to ensure that we have a presence in those places and of course in Sacramento in California, when the east coast of Australia is in El Nino conditions, which are dry, the west coast of the US is actually very wet and it's counter-seasonal, it's six months out of cycle. So we're currently looking at a significant increase in the crop grown in California and we have a presence and we have a relationship with rice growers in California and that is a high quality rice akin to the Australian rice. We also in this year have started supplying Cambodian rice around the world and we're growing rice trials at the moment in Myanmar. So we're very, very conscious that regardless of what happens in the Riverina and ideally we want a decent sized crop there to recover overheads in the Riverina, we nevertheless are having all of these drought hedges in different parts of the world which are far more naturally wet.

Question: Thank you.

Ms Tenneti: Thank you everybody and I'll just point out that the security code for SunRice is SGL LV, to reflect the voting rights. We'll leave it there, we'll have to wrap up, but thank you very much for your attendance.

Mr Gordon: Thank you for your interest.