ABB GRAIN LTD Annual Report 2008 Contents About ABB Year in Summary Chairman’s Report Managing Director’s Report Strength in our supply chain Outer Harbor A new era in grain marketing The market place – ABB’s marketing activities Growing our malt business ABB’s international presence grows Value adding through diversification ABB and the community Sustainability Board of Directors and Executives Financial Report Shareholder Information Five Year Financial History ABB GRAIN LTD ANNUAL REPORT 2008 Heading About ABB ABB Grain is a leading Australian agribusiness with a multi-faceted operation and international focus. ABB’s diversified operations stretch across the entire supply chain. The company’s core business divisions include supply chain operations, grain marketing, malt and rural services. ABB employs 1100 staff across its divisions throughout Australia and internationally. Supply Chain Grain Marketing ABB’s supply chain division involves storage, ABB utilises its supply chain strength to ABB’s grain marketing division involves a handling and logistics operations, which includes optimise the movement of grain through its national accumulation team that sources grain 111 silos with a total capacity of more than network, as well as continuing to increase the from all grain growing regions across Australia, 10m tonnes. ABB owns eight silos on the east volume of non-grain commodities handled and in turn markets all commodities both coast of Australia through its joint ownership of through its system. domestically and overseas. ABB has long Australian Bulk Alliance with Japanese trading been Australia’s largest barley exporter but The division continues to increase efficiencies house Sumitomo, which includes combined today is a significant marketer of a range of through the storage and handling network and ownership of the Port of Melbourne grain commodities. ABB’s integrated business model in recent years has successfully reduced the terminal. ABB’s South Australian grain storage enables it to source malting barley through its overall breakeven tonnage figures for its sites. network includes all seven grain export terminals grain accumulation operations to supply its This enables ABB to operate more efficiently in located in the state. This supply chain position malt houses. ABB is also an active marketer of low receival years and maximise opportunities will be strengthened further with the completion in normal to above-average years. of ABB’s world class Outer Harbor grain export terminal in early 2009. Joe White Maltings Another aspect of ABB’s supply chain activities ABB Grain’s malting division, Joe White Maltings is its container packing operations through (JWM), is one of the world’s largest producers of subsidiary, Prograin, which specialises in the malt with the capacity to produce more than containerisation of a whole range of grains 500,000 tonnes per annum. The eight malting and other commodities for export shipment. plants strategically positioned across Australia Prograin has sites at Laverton (Melbourne), include the largest malt house in the southern Dooen ( Victoria), Port Adelaide (SA), Two Wells hemisphere, situated in Perth (WA). JWM's capacity (SA) and Henderson (WA), together with a new will increase by another 108,000 tonnes when state-of-the-art facility planned for Sydney the Minto malt house, south-west of Sydney, (Minto). Complementing the container activities is completed. JWM is one of the top 10 sales are a range of cleaning, grading and bagging maltsters in the world and exports approximately options in three of the above sites. ABB has also 80 per cent of its malt. JWM supplies to brewers strengthened its freight network through an in countries including Singapore, Japan, Thailand, agreement with Genesee & Wyoming Australia Vietnam, Korea, Indonesia, Cambodia, Papua to utilise rail networks throughout South Australia New Guinea, Philippines, eastern Russia and to transport grain to port in a cost effective and Nepal. JWM supplies to major world brewers environmentally friendly way. Another aspect such as Carlsberg, Heineken, Beer Thai, San Miguel of the supply chain is Southern Wharf Services, and Sapporo. Its Australian customers include which manages the shipping program for ABB Lion Nathan, Coopers and Nestle. JWM is also and provides ship owners and shippers with responsible for research into various aspects of bulk shipping services across Australian ports. malting techniques, including a single steeping process to reduce water usage. ABB GRAIN LTD ANNUAL REPORT 2008 ABB's Pt Giles facility. Rural Services third-origin grain, enabling it to supply grain to The Rural Services division was established in customers all year round. Shipping cottonseed late 2006 as part of ABB’s diversification strategy out of the United States in containers is now one and expansion into non-grain agricultural areas, of ABB’s largest export programs. ABB has already primarily farm inputs and outputs. ABB’s range committed hundreds of thousands of tonnes of rural services include fertiliser and agchem of wheat through its significant wheat export supply, general merchandise, financial services, program following the recent deregulation wool and livestock activities. The latter have been of the Australian bulk wheat export market. supported by the acquisitions of Adelaide Wool Since the container export market was Company, Wardle Co and Stawool in 2007. deregulated in August 2007, ABB has been Wardle Co’s network expanded in 2008 with supplying customers with wheat in containers new merchandise stores in Minlaton, Streaky Bay and is now able to export wheat in bulk to its and Broken Hill. Agchem depots were opened growing network of overseas customers. in Tumby Bay, Loxton and Pinnaroo, while a new ABB’s New Zealand operations are focused livestock and real estate office was opened in on the marketing and distribution of grains Port Lincoln. and proteins. ABB supports its New Zealand Livestock marketing activities continue to be a marketing activity with strategically positioned key part of ABB’s diversification plan. The current infrastructure assets which include two new focus is on the export of dairy cattle to China, storage facilities and a state-of-the-art feed mill, Indonesia and a number of other key markets in which is currently under construction. ABB this Asia. This division successfully exported a number year completed its purchase of New Zealand of shipments of beef cattle to clients in Indonesia maize player, NZ Grain and Seed Ltd, known as earlier in the year. ABB has a dynamic live export TAG, one of New Zealand’s largest maize dryers. team and a key focus on developing new clients Also in 2008, ABB purchased the cattle feed and markets, positioning it to capitalise on an business of New Zealand’s PCL Feeds (a division increased demand for dairy products in these of New Zealand company Mainland Poultry). expanding markets. Through PCL, ABB focuses on feed manufacturing and retailing. ABB’s Ukrainian joint venture with Soufflet, New World Grain, is another element of the company’s grain marketing activity. Through New World Grain, ABB is involved in accumulating grain, managing supply chain activities and marketing grain from Ukraine. ABB GRAIN LTD ANNUAL REPORT 2008 YearHeading in Summary Supply Chain Grain Marketing Rural Services • Receivals of 3.5mt, an increase of 94% • 4.4mt marketed (up 13% on 2007) • Positive contribution in first full year on 2007, but still drought impacted • Internal supply to Joe White Maltings of operations • New pricing structure • Increase in volumes marketed • Significant growth • New mineral sands contract • Growth in international marketing • Acquisition of Stawool and Bagnell & Gordon • New five year rail freight agreement • Prudent risk management in volatile • New Wardle Co. store openings with Genesee & Wyoming Australia price environment • Port Adelaide Prograin facility commenced operations Malt • Record result • Maintaining long term customer relationships • Management of WA gas disruption • Water recycling focus • Production at full capacity Operating Revenue Earnings Before Interest Expense, Earnings Before Interest and Tax Income Tax, Depreciation and Amortisation, and Significant Items ($m) ($m) ($m) 120 2500 150 100 2000 120 80 1500 90 60 1000 60 40 500 30 20 0 0 0 2004 2005 2006 2007 2008 2004 2005 2006 2007 2008 2004 2005 2006 2007 2008 ABB GRAIN LTD ANNUAL REPORT 2008 Net Profit After Tax (Before Goodwill Earnings per Share before Amortisation Shareholder Equity Amortisation and Significant Items) of Goodwill and Significant Items ($m) (cents) ($m) 80 50 1200 1000 60 40 800 30 40 600 20 400 20 10 200 0 0 0 2004 2005 2006 2007 2008 2004 2005 2006 2007 2008 2004 2005 2006 2007 2008 Note: The results for 2005, 2006, 2007 and 2008 are reported under A–IFRS, while those before 2005 are reported under previous accounting standards. ABB GRAIN LTD ANNUAL REPORT 2008 Looking back on some of ABB’s achievements International, the debt facility received strong Heading during 2008, one highlight was the successful support from Australian and international banks and institutional placement through the issue of closed over-subscribed. The new facility provides 20.5 million new ordinary shares raising ABB with greater funding flexibility to meet its future approximately $187 million. Proceeds from that growth plans both in Australia and overseas. placement will be used to fund a new malt house ABB Grain’s Community Fund continues to support and container packing