Ricegrowers Ltd. Class B · ASX:SGLLV
Ricegrowers Ltd. Class B — SunRice — Investor Presentation (July 2014)
28 slides from Ricegrowers Ltd. Class B's investor presentation, July 2014
Slide 1: SunRice Independent Crop Options Analysis
SUNRICE INDEPENDENT CROP OPTIONS ANALYSIS JULY 2014 Michael Ryan – Booth Associates
Slide 2: Booth Associates
BOOTH ASSOCIATES Agribusiness and Environmental Consultants Founded in 1981 and based in Griffith Service diverse client base across all irrigated industries Advocates for best business practice not an industry Background in agronomy 2
Slide 3: Presentation Overview
PRESENTATION OVERVIEW Cotton industry context Gross margins Crop cashflow comparison Sensitivity Analysis Impact of business scale * Disclaimer – budgets are only as good as the assumptions therein 3
Slide 4: Southern NSW Crop Areas (Ha)
SOUTHERN NSW CROP AREAS (Ha) 120,000 100,000 80,000 60,000 40,000 20,000 - 2010 2011 2012 2013 2014 Maize Soybean Cotton Rice 4
Slide 5: Cotton Industry Is Growing
COTTON INDUSTRY IS GROWING Improved genetics and technology Options to forward sell up to three years out for a fixed price Two new cotton gins under construction in Murrumbidgee Northern corporate investment in land and water 5
Slide 6: Cotton Production
COTTON PRODUCTION Messages to cotton growers – IREC February 2014: Cash is king – so is yield! Do not starve your business of cash Southern NSW cotton industry is growing Cotton is hard on cashflow Understand linkage between cashflow and balance sheet High cost of cotton production deman
Slide 7: Cotton Risks – IREC Feb 2014
COTTON RISKS – IREC FEB 2014 Marketing Production – Use agronomist and timeliness of operations Harvest – Contractors/share or own picker Access to cash – Overdraft - Trade creditors – Crop lean - Merchant 7
Slide 8: Gross Margins
GROSS MARGINS Based on capable growers in Murray and long term prices Yield Price Gross Margin Gross Margin Crop Crop Agronomics T/Ha or $/T, $/B or $/HA $/ML B/Ha $/ML Rice Medium grain sod sown 11.0 $300 $2,034 $156 Cotton Roundup Ready & Bollgard 10.0 475 2,248 225 Wheat A After rice 6.0 250 833
Slide 9: Gross Margins
GROSS MARGINS Useful short term tool Can drive poor business decisions if not used correctly Gross margins in isolation ignore: Crops grown in rotation Strategic planning Cashflow and funding needs Risk Overheads and unallocated costs Lifestyle and commercial Capital investments an
Slide 10: System Gross Margins
SYSTEM GROSS MARGINS Considers the synergies of crops and rotations Analysis of a representative Murray Valley business for whole farm comparison Business assumptions: – 550ha farm with 500ha cropped area – 1,200 ML General Security • 70% allocation = 840 ML annual allocation 10
Slide 11: System Gross Margins
SYSTEM GROSS MARGINS System Gross Margin Scenario Total $ $/Ha $/ML Rice → wheat/canola → fallow → rice $271,044 $488 $323 Wheat 50% → canola 50% 246,088 492 293 Soybeans → wheat/canola 255,501 511 304 Maize → wheat/canola → fallow → Maize 271,292 484 323 Cotton → wheat → fallow → cotton 290,803 510
Slide 12: 500Ha Murray Farm System
500Ha Murray Farm System Crop Program Crop Rice System Cotton System Maize System Canola - irrigated 22 24 Wheat - irrigated 34 70 36 Wheat - dryland 388 360 380 Rice 56 Cotton 70 Maize 60 Total 500 500 500 12
Slide 13: Profit Implications
PROFIT IMPLICATIONS Murray – 500ha Farm System Compared to a Rice System Crop Rice System Cotton System Maize System Revenue $477K $655K – up 37% $492K – up 3% Expenses $396K $614K – up 55% $436K – up 10% Profit $82K $41K – down $41K $56K – down $26K 13
Slide 14: Crop Production Timeline
CROP PRODUCTION TIMELINE Cotton Month Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Operations Prepare Seed Bed Plant Grow Crop Defoliate Pick Gin Paid Cost $/Ha 270 120 1,355 125 610 985 Cumulative cost 390 1,745 1,870 2,480 3,465 Prepare Seed Bed Plant Rice Month Jul Aug Sep Oct
Slide 15: Farm Example – 170ha Crop
FARM EXAMPLE – 170HA CROP Cotton Rice Water required 1,700 ML 2,210 ML Gross margin $382,160 $345,780 Gross margin/ML $225 $156 Growing costs $561,340 $215,220 15
Slide 16: Example Cashflow
EXAMPLE CASHFLOW 170ha summer crop rotated with winter crops 400 200 0 Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug $K -200 -400 -600 -800 Rice Cotton Maize 16
Slide 17: Example Cashflow
EXAMPLE CASHFLOW 170ha summer crop rotated with winter crops 400 200 0 Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug $K -200 -400 -600 -800 Rice Cotton Rice with Grower Deduction Authorities Cotton with Crop Lien Maize 17
Slide 18: Example Cashflow
EXAMPLE CASHFLOW 170ha summer crop rotated with winter crops 800 Yields down 25% in Year 2 to reflect a “bad year” 600 400 200 $K 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 -200 -400 -600 -800 Rice Cotton Maize Rice and maize systems are more resilient 18
Slide 19: Example Cashflow – Ramping Up Crop Area
EXAMPLE CASHFLOW Ramping Up Crop Area 2,000 1,500 1,000 $K 500 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 -500 150ha 200ha 250ha 350ha -1,000 Rice Cotton Profit is being absorbed by the increased costs of expanded crop area 19
Slide 20: Capital Investment
CAPITAL INVESTMENT Costs to convert from rice layout to row crop – $500-$1,000/ha Land value appreciates with development but no more than 50% of capital expenditure goes to the balance sheet Plant and Equipment requirements increase substantially 20
Slide 21: Balance Sheet
BALANCE SHEET Murray – 500ha Farm System Rice Cotton Maize Assets $2.63M $3.08M $2.91M Liabilities $0.15M $0.28M $0.15M Net Worth $2.48M $2.80M $2.76M 21
Slide 22: Return on Capital
RETURN ON CAPITAL Murray – 500ha Farm System EBIT YIELD Rice Cotton Maize 3.1% 1.3% 1.9% EBIT = Earnings Before Interest and Tax - debt free profit 22
Slide 23: Sensitivity Analysis
SENSITIVITY ANALYSIS Return on capital Rice Cotton Maize 9T/ha @ $280 = 1.5% 9 Bales/ha @ $450 = -0.2% 10T/ha @ $275 = 0.4% 11T/ha @ $300 = 3.1% 10 Bales/ha @ $475 = 1.3% 11T/ha @ $300 = 1.9% 12T/ha @ $325 = 4.3% 11 Bales/ha @ $500 = 3.0% 13T/ha @ $325 = 4.2% Rice Cotton Maize 11T/ha @ $280 = 2.6% 1
Slide 24: Cotton Scale of Production
COTTON SCALE OF PRODUCTION Full suite of cotton growing equipment costs $1.5M to $2.0M – Annual repayments with or without picker Scale required (including picker) >500ha Without picker >250ha Alternatives have own row crop tractor with cultivation equipment and use contractors for primary t
Slide 25: Business Scale
BUSINESS SCALE Crop Area Area/Return Rice Cotton Maize Available on Capital 450ha Area 150ha 185ha 171ha (1/3 Rice) ROC 3.1% 2.7% 1.2% 750ha Area 250ha 308ha 286ha (1/3 Rice) ROC 4.6% 4.3% 2.9% 1,500ha Area 500ha 615ha 571ha (1/3 Rice) ROC 5.2% 5.6% 4.2% 2,250ha Area 750ha 923ha 857ha (1/3 Rice) ROC
Slide 26: Summary
SUMMARY Cotton will suit those with: Rice is best suited for: Strong balance sheet Typical family farm business Access to cash Modest balance sheets Row crop layouts Existing irrigation layouts Free draining soils Heavy soils Scale Growers who grow rice well Sufficient channel
Slide 27: Key Points
KEY POINTS Make decisions based on whole farm analysis of profit and return on capital Assess cashflow implications Understand sensitivities – downside risk High cost of production for cotton demands scale 27
Slide 28: Closing
CLOSING Don’t chase rainbows Budget properly (3 to 5 years out) Recognise linkages between your profit and loss and balance sheet Make sure your financier understands and supports what you are doing Make decisions based on your preferred long term strategy 28