Ricegrowers Ltd. Class B · ASX:SGLLV
Ricegrowers Ltd. Class B — SunRice — Investor Presentation (September 2015)
81 slides from Ricegrowers Ltd. Class B's investor presentation, September 2015
Slide 1: SunRice Shareholder Workshop
SunRice Shareholder Workshop September 2015
Slide 2: Agenda
Agenda • Strategic context • Progress of strategy to date • Challenges and opportunities • The need for change • Capital Restructure • Other matters 2
Slide 3: Strategic context
Strategic context 3
Slide 4: A new direction post-drought
A new direction post-drought Recovery post-drought signalled opportunity for SunRice to assess future direction Comprehensive strategic review undertaken in 2012/13: − Analysis by geography, market, channel and product − Opportunities identified for growth − Underpinned an optimised plan for the
Slide 5: Where we fit in international trade
Where we fit in international trade Global Commodity Rice Trade Analysis ~470mmt rice is High consumers of rice are SE Asia, China and the Indian Sub Continent. Medium consumers of rice are in the ME, Sub Sahara Africa and Latam produced globally, 85% of which is long grain and 15% Japonica Net
Slide 6: Limited opportunity for Australian rice to feed the world
Limited opportunity for Australian rice to feed the world while the domestic market alone lacks scale Productivity of Major Rice Producing Nations 2011, including Australia 10.0 Australia 10mtApproximate 9.0 Egypt production tonnes 40-50% 8.0 USA below Australian 7.0 South KoreaJapan yields Yields C
Slide 7: Finding the 'sweet spot' in the Australian crop size
Opportunities identified to strengthen returns for rice by focusing on higher value markets Effect of crop size on paddy price e.g. Retail e.g. Middle East Finding the ‘sweet spot’ in the Australian crop size 7
Slide 8: Strategic focus on international branded, value add company
Therefore our strategic focus on being an international branded, value add company differentiates us against commodity players Branded Rice Sales Growth Retail Sales Price by Region ($USb) 2012 vs 2017 Attractive high growth markets 25 2012 2017 20 15 $USbn 10 5 0 8
Slide 9: Further optimisation of product and varietal mix
Further optimisation of our product and varietal mix required to improve profitability and meet the needs of more discerning consumers Over 95% of SunRice’s varietal mix has historically been Medium and Long Grain Rice Based Foods – Global SunRice GP/tonne C12 Average Core Rice Value Add Basmati Ric
Slide 10: Implementing an ambitious strategy for growth
Implementing an ambitious strategy for growth STRATEGIC GOALS • Substantially increase annual revenue within the next 10 years • Maximise grower returns by optimising market, channel and varietal mix • Grow shareholder value and increase resilience of earnings by pursuing diversified and stable grow
Slide 11: Q&A / Discussion
Q&A / Discussion 11
Slide 12: Progress of strategy to date
Progress of strategy to date 12
Slide 13: Strategy to date has delivered results
Strategy to date has delivered results and positioned the business for the future FY12 - FY15 Business Performance REVENUE +24.6% NET PROFIT 116.5% RETURN +410 BASIS POINTS Billions After Tax - Millions ON CAPITAL 15.8% $1.25 $49.2 $1.00 11.7% $22.7* FY12 FY15 FY12 FY15 FY12 FY15 PADDY PRICE +43.5%
Slide 14: Success built on innovation and building partnerships
Success built on innovation and building partnerships with consumers and customers 14
Slide 15: Core Rice innovation road map
Core Rice innovation road map Rice & Lentils Gourmet Health & Wellbeing Everyday Range Growing Improved Pack demand for high Format protein Growing desire for premium wholesome food experiences foods Consumer seeking foods that optimise health 15
Slide 16: Microwave Rice innovation road map
Microwave Rice innovation road map Single Serve Global Kitchen Health & Wellbeing Rices Quick Cups 450g Family Consumers want healthy Pouch alternative 250g lunch choices to salads & Pouches Consumers want sandwiches convenient ‘real Growing Consumer food’ flavoured smaller desire rice households co
Slide 17: Rice Snacks innovation road map
Rice Snacks innovation road map NEW Rice Bites NEW Brown Rice Chips NEW Rice & Grain Squares NEW Mini Bites Plain & Current flavoured rice Flavoured cakes are difficult to eat ‘on the go’ Round Consumers want Cakes ‘better for you’ snacks without the taste Consumers are compromise looking for health
Slide 18: Delivering value through customer partnerships
Delivering value through customer partnerships Everyday Tier Pack Upgrade Explore the exotic Launch of 3 Tiered Dedication to Health Architecture and Wellbeing Ease of use Saved shelf space Improved retailer margins Increased sales 18
Slide 19: Recent growth driven by branded, value add markets
Recent growth driven by focus on branded, value add markets but constrained by supply Sales Volume of Branded Rice (paddy equivalent tonnes) 745 718 Branded Rice +42% 558 523 FY12 FY13 FY14 FY15 19
Slide 20: Delivering on our strategic priorities
Delivering on our strategic priorities Establish a Secure and Sustainable Supply Base • Encouraging Riverina production – 43.5% increase in paddy price since FY12 • Expanding global sourcing – more than 843,000 tonnes secured since FY11 • Investing in new regions – Brandon, QLD (plans for 50,000 ton
Slide 21: Delivering on our strategic priorities
Delivering on our strategic priorities Differentiate & Build Value in Domestic Consumer Markets • Revitalised domestic product offering • Boosted retail rice market share in FY15 through consumer-led innovation from 52% to 57% (moving annual total) • Achieved net sales growth of 12% across the major
Slide 22: Delivering on our strategic priorities
Delivering on our strategic priorities Diversify Earnings by Accelerating Growth of Profit Businesses • Strategic investment by CopRice to pursue higher growth, higher margin animal feed segments • Established stockfeed businesses in PNG and Solomon Islands • Overall, SunRice has successfully divers
Slide 23: Q&A / Discussion
Q&A / Discussion 23
Slide 24: Challenges and opportunities
Challenges and opportunities 24
Slide 25: Maintaining global presence is critical
Maintaining global presence is critical • Focus on establishing new higher value markets and maintaining existing markets • Provides greater choice for Australian rice and ability to maximise paddy returns • More value add product US Asia Middle East Pacific Australia & New Zealand SunRice markets S
Slide 26: We need more rice
We need more rice • SunRice has achieved consistent growth in rice sales post-drought Rice sales volumes (paddy equivalent tonnes) FY12-FY15 (000’s) • Expectation from global customers that 80 228 SunRice will maintain supply 44 115 irrespective of Australian conditions • Ability to meet demand in b
Slide 27: Australian supply impacted by water availability and production constraints
Australian supply impacted by water availability and production constraints Australian Rice Crop Size (2001-2015, ‘000 tonnes) 1,744 1,242 1,161 1,038 963 800 829 690 529 ??? 390 305 205 167 66 19 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016E Drought period 27
Slide 28: We continue to support Riverina production
We continue to support Riverina production • Significant growth in paddy price: – 43.5% increase between FY12 ($275.00 p/t) and FY 15 ($394.62 p/t) for medium grain (Reiziq) – Increased varietal premiums • Independent crop analysis (Booth & Associates) to assist growers • Improved price forecasting
Slide 29: Group Strategic Priorities: Background and objectives of global sourcing
Group Strategic Priorities: The role of global sourcing in Background and objectives of supply and demand scenarios global sourcing • Priority always given to Riverina rice • Establish reliable sources of supply: − Grow Australian supply − Identify and establish international sourcing bases • Need t
Slide 30: Growth by developing alternative sources of supply
Growth by developing alternative sources of supply Acquisition of Blue Ribbon’s rice mill assets in the Burdekin, North QLD • The Burdekin is regarded as one of the most promising rice-growing areas outside of the Riverina • A fledging rice industry in North Queensland • Opportunity for additional s
Slide 31: Growth by developing alternative sources of supply
Growth by developing alternative sources of supply Rice Development Program in PNG • To facilitate the development and expansion of agricultural production in PNG: ‒ ‘Hub and Spoke’ model combining large and small scale farming to maximise output • To enhance rural employment opportunities • To incr
Slide 32: Opportunity now to build other origins
Opportunity now to build other origins leveraging agronomic capability Potential Sources of Supply Examples only: Hypothetical Sources of Supply in 2025 Potential Source Potential paddy Riverina (NSW) 1,000kt Burdekin (QLD) 100kt Pakistan - India 50kt Vietnam / Myanmar / 50kt Laos / Cambodia Califor
Slide 33: International sourcing project design principles
Group Strategic Priorities: International sourcing project design principles Underpinning assumptions: Australian rice volume is prioritised in fulfilling demand in best returning markets Traceability is paramount Control not ownership Capital investment reflects critical control points e.g.
Slide 34: International sourcing 'deep dive' criteria
Group Strategic Priorities: International sourcing ‘deep dive’ criteria – what’s been analysed Restrictions on foreign-owned enterprises Export ban, minimum purchasing price, in relation to agriculture and more export licence specifically rice growing, milling, packing Political Legal and cour
Slide 35: Q&A / Discussion
Q&A / Discussion 35
Slide 36: The need for change: A dynamic business environment
The need for change: A dynamic business environment • Global consolidation is occurring at pace across food and agriculture industries and means new players in rice markets • This is both a threat and an opportunity 36
Slide 37: Changing the way we fund SunRice
Changing the way we fund SunRice to exploit opportunities and overcome challenges • We have an opportunity to reshape our structure: − To create a strong, independent, Australian- controlled food business of scale on our terms − That can more effectively compete in global markets to benefit all grow
Slide 38: SunRice's current funding arrangements
SunRice’s current funding arrangements Consider an acquisition or market entry strategy to the value of $150 million. Funding options currently available are limited to: DEBT FUNDING which would EQUITY FUNDING solely significantly increase gearing from existing shareholders, levels. This could expos
Slide 39: Q&A / Discussion
Q&A / Discussion 39
Slide 40: Capital Structure Review
40 pital’ Stru / an 4 | a aw ‘ ‘ te YE \ 4 \ \ 3 cture > ‘ Rev ¢
Slide 41: Important Notices
IMPORTANT NOTICES These materials have been prepared by SunRice for the sole purpose of providing information to its shareholders and growers on a potential new capital structure for SunRice and to seek feedback on it. The potential capital structure as outlined in these materials is a preliminary p
Slide 42: Preserving grower shareholder control is non-negotiable
Preserving grower shareholder control as it is today is non-negotiable 42
Slide 43: What does the review aim to achieve?
What does the review aim to achieve? • A structure that can more readily access external sources of equity capital at a lower cost when needed, without: ‒ Jeopardising existing grower shareholder control or paddy returns; ‒ Making the company more vulnerable to takeover; or ‒ Changing the key featur
Slide 44: Why the ASX?
Why the ASX? • Provides access to the largest pool of investors in Australia • Allows us to best achieve the review’s objectives • No initial capital raising planned 44
Slide 45: Existing structure
Existing structure Voting / control rights A Class shareholders > A Class Shares > Economic rights
Slide 46: Potential structure
46 Potential structure Voting / control rights A Class shareholders > A Class Shares Economic rights mn
Slide 47: How do B Class Shares change?
How do B Class Shares change? • Each B Class Share would be renamed and modified to become a B Preference Share • Each B Preference Share would be held by the SunRice Fund • The Fund would be listed on the ASX • For each B Preference Share, one B Security would be issued by the Fund • The B Securiti
Slide 48: B Class Shares vs. SunRice B Securities
B Class Shares vs. SunRice B Securities 48
Slide 49: Ownership interest in SunRice of B Securityholders
Ownership interest in SunRice of SunRice B Securityholders • B Class shareholders would retain an economic interest in SunRice equivalent to what they had as B Class shareholders • Includes the right to receive all dividends and other distributions • SunRice would continue to be a public company reg
Slide 50: What is the SunRice Fund?
What is the SunRice Fund? • The Fund is an MIS, established as a trust • It would be ASX listed and allow B Securities to trade freely • Protections would be in place for Securityholders and investors: ‒ A Responsible Entity to administer the Fund, which would be wholly owned by SunRice ‒ A licensed
Slide 51: Protection mechanisms in the SunRice Fund
Protection mechanisms in the SunRice Fund A Responsible Entity will be established to manage the SunRice Fund, which has certain duties to Securityholders. In addition to these duties, the SunRice Fund Constitution will include a number of protection mechanisms SunRice Fund Responsible SunRice Inter
Slide 52: Q&A / Discussion
Q&A / Discussion 52
Slide 53: Paddy Price and Dividends
Paddy Price and Dividends 53
Slide 54: Determination of Paddy Prices and Dividends
Determination of Paddy Prices and Dividends 54
Slide 55: Determination of Paddy Prices and Dividends under the potential model
Determination of Paddy Prices and Dividends under the potential model 55
Slide 56: Q&A / Discussion
Q&A / Discussion 56
Slide 57: A Class shareholders
A Class shareholders 57
Slide 58: What it means for A Class shareholders
What it means for A Class shareholders No fundamental change to A Class Shares, preserving grower shareholder control Feature Before After Director appointment to SunRice Board Majority of grower / A Class Directors Eligibility criteria to hold A Class Shares 75% vote on change of contro
Slide 59: Advantages for A Class shareholders
Advantages for A Class shareholders • Improved ability to raise capital and support future growth initiatives • Preserves existing control of A Class shareholders (active growers) on an ongoing basis • Should enhance SunRice’s ability to grow the business to optimise paddy returns 59
Slide 60: Disadvantages for A Class shareholders
Disadvantages for A Class shareholders • More expensive for growers who do not hold B Class Shares to meet the minimum Securityholding requirement • Potential for further dilution of alignment in A and B Class shareholder interests 60
Slide 61: A Class Share redemption during exceptional circumstances
A Class Share redemption during exceptional circumstances • The Board can defer the redemption of an A Class Share if it believes the holder will resume being an Active Grower in the future, as it did during the Millennium drought • The Board also periodically assesses the A Class shareholder base t
Slide 62: Q&A / Discussion
Q&A / Discussion 62
Slide 63: B Class shareholders
B Class shareholders 63
Slide 64: What it means for B Class shareholders
What it means for B Class shareholders Feature B Class Shares B Securities Dividends Director appointment rights X X Voting rights in SunRice (only on “variation of rights”) Ownership / estate Restricted Unrestricted planning Potential for significant uplift Liquidity / share price uplift Li
Slide 65: Advantages for B Class shareholders
Advantages for B Class shareholders • Improved ability to raise capital and support future growth initiatives • Expected enhanced liquidity for B Class shareholders • Potential for significant increase in security price for B Class shareholders over time • Addresses estate planning issues 65
Slide 66: Disadvantages for B Class shareholders
Disadvantages for B Class shareholders • Potential for greater volatility in the market price of B Securities compared to B Class Shares • B Securityholders would hold an indirect, rather than a direct, interest in SunRice through the Fund 66
Slide 67: Q&A / Discussion
Q&A / Discussion 67
Slide 68: Valuation perspectives
Valuation perspectives 68
Slide 69: Trading comparables: Price earnings ratio
Trading comparables Price earnings ratio (FY15A) SunRice B Class shares FY15 PE multiple of 5.5x is a significant discount to the comparable peer set of 18.9x and the S&P ASX200 Food, Beverage, and Tobacco index of 19.9x FY15A PER 35 29.5x 30 26.9x Peer average: 18.9x 25 21.9x FY15E PE (x times) 19.
Slide 70: Trading comparables: Dividend yield
Trading comparables Dividend yield (FY15A) SunRice’s dividend yield is significantly higher than peers at 7.2%, compared to the comparable peer set of 3.7% and the S&P ASX 200 Food, Beverage, and Tobacco index of 3.5% 1. Implied payout ratio 35.2% 100% 3. 78.8% 67.2% 60.6% 41.1% 58.1% 52.2% 47.7% 39
Slide 71: Trading comparables: EV/EBITDA
Trading comparables EV/EBITDA (FY15A) SunRice’s FY15 EV/EBITDA multiple of 4.0x is a significant discount to the peer set of 10.2x and the S&P ASX 200 – Food, Beverage, and Tobacco index of 10.2x FY15A EV/EBITDA Peer average: 10.2x 14 13.1x 12.7x 12.1x 12 11.3x 11.1x 10.0x 10.2x 10 8.7x 8.6x 8.5x 8
Slide 72: What will attract future external investors?
What will attract future external investors? • An established milling and marketing operation • An established global distribution platform for rice products • The ability to leverage our international distribution platform • A well-diversified portfolio across operating segments • A track record of
Slide 73: Future capital raisings
NEW SLIDE – CONFIRM INCLUSION Future capital raisings • If the new model is implemented, future capital raisings would involve issuing new SunRice B Securities in the SunRice Fund most likely through: ‒ An entitlement offer to existing Securityholders; ‒ A placement, combined with an issue to existi
Slide 74: Q&A / Discussion
Q&A / Discussion 74
Slide 75: If not the Capital Restructure, then what?
If not the Capital Restructure, then what? 75
Slide 76: Alternatives considered
Alternatives considered • Status quo and NSX options limit access to capital for growth • Other options considered do not preserve grower control • A unique model was needed to balance these needs 76
Slide 77: Review objectives vs. model
Review objectives vs. model Objective Delivered Comment • A Class shareholders maintain control Control preserved • • Director appointment and voting rights in relation to a change of control and changes to the Constitution remain consistent with today Existing paddy payment policies protected • O
Slide 78: Why are we pursuing this model?
Why are we pursuing this model? • The Board believes the model is in your best interests • It delivers a win-win for both classes of shareholders and the SunRice business: Ongoing grower control for A Class shareholders Improved access to capital to fund growth to deal with contingencies, better
Slide 79: Your views and feedback on change and adapting for the future
Your views and feedback on change and adapting for the future 79
Slide 80: Q&A / Discussion
Q&A / Discussion 80
Slide 81: Thank you
Deeley ST 51 Thank you