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INVESTMENT IN THE AUSTRALIAN CATTLE INDUSTRY

Introduction This presentation considers the following: • The macro drivers of demand for Australian beef which are also driving investor interest in the industry • The potential sources of capital • The roadblocks inhibiting the flow of capital into the industry • How industry participants can become investment ready • Our next steps

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THE OPPORTUNITY “If you are in the farming sector now or you are thinking about it there could be, if we get things right, a golden era for…agriculture in this country” - Richard Goyder AO, Managing Director, Wesfarmers, April 2016

The opportunity • There is no shortage of rhetoric about agriculture being the next investment boom for Australia • But in reality it is difficult to attract institutional investors to the sector • However if you consider the drivers of demand it is hard to argue with the logic and there should be a great opportunities ahead

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DRIVERS OF DEMAND

Drivers of beef demand • Global population growth - will reach 9.9 billion in 2050 which is 33 percent higher than our current population of 7.4 billion • The bourgeoning middle class sectors of Asia – over the 10 years to 2025, 299 million Chinese will move into China’s mainstream consumer class. The World’s population will be wealthier and hungrier for quality food • Australia’s proximity to Asia

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Drivers of beef demand (cont) • Quality beef – we have a reputation for high quality beef produced under strict protocols • Free trade agreements – New Zealand, Singapore, Thailand, Malaysia, Korea, Japan, China, US • Relatively low Australian dollar – the AUD was at parity with the USD in May 2013 and we now sit at circa $0.76 so our exports are cheaper

Drivers of domestic investment General drivers of investment demand • Historically low interest rates – our cash rate of 1.50% is generating domestic investor activity • Consolidation opportunities – we operate in a fragmented market with 71,659 cattle businesses in Australia and 97% of them are considered small businesses having turnover of less than $2 million • FOMO - increased attention on the industry following high profile acquisitions

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Drivers of foreign investment • Global food security - a major concern because we will need to double the World’s food production by 2050 • Australian dollar – a low AUD makes our exports cheap but also makes Australia an attractive investment destination • Chasing yield - investors are searching the globe for yield when in some countries their Central Banks have a negative interest rate position • Safe and stable – Australia has a sophisticated financial system, highly transparent property industry and low sovereign risk • Global geographic diversity – e.g., invest in agriculture in regions that experience the opposite effects of the El Nino and La Nina weather patterns

SOURCES OF CAPITAL

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Sources of capital Domestic • Traditional sources – bank debt and operator/family equity • Australian Superannuation Funds - $2.1 trillion at June 2016 but with 0.3% of these funds allocated to agriculture • Sovereign Funds – Government owned investment funds - Future Fund, Queensland Investment Corporation • Investment banks – Macquarie’s Paraway Pastoral Co, Moelis • Industry participants – upstream and downstream • Family offices – the investment operations of high net worth individuals and families - Rinehart, Harvey, Forrest, Stokes, Blundy

Sources of capital (cont) Foreign • Sovereign Funds – Government Pension Fund Global of Norway is the largest with the equivalent of AUD 1.4 trillion under management • North American institutions and pension funds – Cargill, Canadian Public Sector Pension Investment Board, Ontario Teachers Pension Investment Board • European institutions and pension funds – UK based Terra Firma and Tavistock, UK based Pension Protection Fund • Asian and Middle Eastern institutions and investment funds – Shanghai CRED, Hassad

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CAPITAL FLOW ROAD BLOCKS

Capital flow roadblocks

“The chief executive of the $2.5 billion Prime Super, Lachlan Baird, has said his superannuation fund is unlikely to invest in agriculture or rural land again unless the government assists in bringing more professional and bigger-scale investment opportunities to the market.” Australian Financial Review, Matthew Cranston, 21 September 2015

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Capital flow roadblocks (cont) • Lack of scale and scalability • Lower returns due to relatively high costs of production • Regulatory hurdles for the industry • Additional risks not experienced in other asset classes • Illiquidity • Few institutional offerings or products available – AACo is the only listed beef cattle business

Capital flow roadblocks (cont) • A poor track record for investors – Wellard, PrimeAg, tax effective ag schemes • Not a focus of asset consultants – they direct where institutional super fund money is invested • Foreign investment legislation and regulatory process • Tax regime – relatively high tax rates coupled with withholding tax on distributions and capital gains for foreign investors • An industry that is not “investment ready”

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INVESTMENT READY

Investment ready • Due diligence – undertake the process on your own business before an investor asks to do it • Management practices – regular board meetings, documented minutes and decisions, a detailed business plan • Financial records – consistent, quality reporting • Risk awareness and management • Corporate culture – drive a top down culture of compliance and responsibility

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Investment ready (cont) • Tax implications – CGT, income tax, stamp duty • Employment agreements • Shareholders agreements • Intellectual property – do you have any and is it protected? • Corporate governance “Good corporate governance promotes investor confidence, which is crucial to the ability of entities … to compete for capital” - ASX

NEXT STEPS

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Next steps As an industry – remove or minimise roadblocks • Assist in reducing the regulatory hurdles – not feedlot licensing • Work with governments and industry on risk minimisation – e.g. more water infrastructure • Encourage research and the sharing of data – universities, tech companies and expert advisers. We could learn a bit from poultry and almonds in relation to their sale and leaseback transactions. • Engage with the Association of Superannuation Funds of Australia – an allocation of just 2% would represent another $35.7 billion • Help the industry evolve into an accepted asset investment class

Next steps As individual operators • Ensure you are investment ready • Engage with ALFA and other industry bodies • Seek advice on transaction structuring options • Undertake the financial modelling so you know what you are offering

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