WEBSTER LIMITED Webster Limited
Contents
Operational Highlights 2
Chairman's Overview 4
Walnuts 6
Agriculture 8
Water 10
Field Fresh Tasmania 12
Outlook 14
Directors' Report 16
Independence Declaration 31
Independent Audit Report 32
Directors' Declaration 34
Financial Statements 35
Notes to the Financial Statements 40
Annual Report 2014-15
Shareholder Details 83
2 Reports
Operational highlights for the year
Strategic investment in water
Continued Avondale West orchard development
Kooba development plans
Annual Report 2014-15
Walnut nursery expansionWebster Limited
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Courtney White inspecting cotton at Tandou farm
4 Reports
Chairman's Overview
It is a great privilege to write my first report as the Executive Chairman of Webster Limited (Webster). In accepting the opportunity to become a part of the Webster team, I was inspired by the company's rich heritage and motivated by its wealth of opportunity.
Webster today is a vastly different company to the one that reported to shareholders just 12 months ago. Throughout its history, Webster has reinvented itself many times.
The transformation that occurred over the past twelve months represents another significant milestone in its agribusiness journey.
This latest iteration has been made possible by the efforts of many however I would like to make special mention of Rod Roberts, the former Chair of Webster. Rod has been an integral part of Webster for many years and in many capacities and I am delighted that the company continues to have the benefit of his wisdom, experience and deep corporate memory.
Webster delivered a consolidated pre-tax profit of
$8.6 million for the year ended 30 June 2015 as
compared to $11.9 million for the prior year. The result was impacted by the one-off acquisition costs of $3.9 million associated with the purchase of the Kooba aggregation,
the acquisition of Bengerang Limited and the takeover of Tandou Limited. After income tax, the profit for the 2015 year was $5.8 million as compared to an after tax profit of $8.3 million for 2014. A key driver of the difference in earnings between the two years was the loss reported for the 2015 year by Field Fresh Tasmania, which was sold on 30 June 2015.
Annual Report 2014-15
Our walnut business seized the opportunity of marketing both in-shell and kernel product produced at the recently built Leeton processing plant, as well as undertaking yield improvement projects to increase orchard production that should continue to deliver improvement over the coming years.
The agriculture team delivered strong yields at Kooba for the 6 months of owning the aggregation. The potential for organic and productivity driven growth of both businesses ensures that Webster will enter the new financial year with significant momentum.
The Webster asset base is a wonderful, diverse and geographically spread portfolio for its SURETY, FLEXIBILITY and OPPORTUNITY for enhancement. Our portfolio combines permanent crops (Horticulture) with sizeable capability in broad acre cropping assets with a large entitlement of water. In addition to cropping, we have a material investment in livestock operations.
The economic implications of our portfolio are that firstly, our permanent crops should generate consistent cash flow surpluses that are more predictable and reliable than the annual cropping system. This consistency of earnings provides the Board and management with a solid reference point for sustainable gearing levels for the business.
At the same time, our ability to adjust our annual cropping program to respond to seasonal conditions and relative commodity prices provides us with tremendous potential to leverage opportunity.
Surety for Webster is achieved through the geographic diversity of our land bank. We operate substantial land holdings in northern NSW around Moree, western NSW in the Bourke district and south western NSW at Lake Tandou. We also farm a number of locations within the
Murray Darling Basin in southern NSW at Hay, Griffith and Leeton. This geographic spread provides some degree of risk mitigation against all but the most severe climatic extremes.
Finally, our land holdings represent a good mix of fully developed land and land with potential for both
productivity and value enhancement. Our opportunity to make substantial improvements at the Kooba aggregation will provide considerable productivity gains for Webster in the future.
Our water portfolio is one of the most significant in the Basin and, as with our farming assets, represents a great balance in terms of the mix between high security, general security and supplementary entitlements.
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Australia's water markets have evolved very rapidly in recent years with both primary and secondary markets exhibiting strong growth in traded volumes and values. This is perhaps more noticeable in the southern systems where system connectivity and relatively broad cropping alternatives promote the shift of water to its highest
and best value.
Our assets provide SURETY, FLEXIBILITY and OPPORTUNITY for the future. These key requirements of our business will be delivered by executing with accuracy and predictability and, in so doing, grow and expand Webster. We will achieve this by:
Walnuts
» Ensuring that we optimise our current yielding hectares and promote maximum productivity in our emerging plantings through careful stewardship.
» Continuing to build a robust agronomic knowledge base in edible nut production to inform current farming decisions and future growth options.
» Delivering a customer-focused strategy that builds relationships with those we see as reliable and loyal to the things we value - consistency of supply, quality of product, sustainability of practice and fair recognition of value.
Agriculture
» Managing the significant development potential of our southern region's holdings.
» Making accurate judgements about the highest and best value use of our irrigation capacity.
» Lifting the productivity of the southern aggregations
to a more consistent level, in particular, when measured in terms of water-based productivity.
» Minimising the impact of significant price volatility on underlying earnings.
» Trapping economies of scale in procurement.
» Continuing to be agile in improving the overall quality of our farming portfolio.
Water
» Constantly refining the portfolio mix of our water asset base to best reflect the needs of our farming activities.
» Using our capability and knowledge in the physical markets to exploit opportunities in the traded market.
» Building 'best in class' knowledge and execution capability in water markets.
We will pursue the multiple opportunities before us through a culture of long-term operational improvement to optimise long-term financial value. For this reason, we will constantly monitor our portfolio of assets to
identify ways to boost their individual capability as well as understand the best long-term mix of land and water for us to operate and own.
Let me conclude by thanking my fellow directors and leadership team for their support, contribution and inspiration. To the hard working employees of the now larger Webster group, I sincerely thank you for your efforts thus far and look forward to us all working together moving forward.
The Webster of today represents the culmination of a carefully crafted and well executed corporate plan. A plan that was created with vision courage and conviction that provides SURETY, FLEXIBILITY and OPPORTUNITY
for the future.
Richard Haire
Annual Report 2014-15
Chairman
6 Reports
Walnuts
Growing to meet demand
Walnuts Australia is the Southern Hemisphere's largest walnut orchard owner and manager, producer and marketer of walnuts, producing approximately 90 per cent of the Australian walnut crop.
Our business is vertically integrated, from nursery through to market, where we offer both in-shell and walnut kernel products both locally and globally. We grow a range of walnut varieties and supply fresh walnuts in the
counter-season to the Northern Hemisphere.
We established our first commercial-scale walnut orchard in 1996 in Tasmania and continued expanding our orchard footprint into the NSW Riverina region in 2004. Whilst young in industry terms, our growth and maturity into
a world-class walnut operation continued in FY15.
State-of-the-art production
Ahead of the 2014 crop, we commissioned our state- of-the-art walnut cracking and processing facility and production line for in-shell and kernel product on our
Leeton orchard site. This new capability gives us increased flexibility and allows us to capture the best value from the whole crop and to offer our customers both in-shell and kernel walnuts rather than the historical offering of in-shell only. This flexibility allowed us to process more walnuts as kernel than originally planned for the 2015 crop year, gain increased value and meet our customers' needs.
Annual Report 2014-15
Globally, we are seeing a consumer preference shift in demand for kernel over in-shell. The production facility broadly met its targets in its first full year of packing with the forward focus being on achieving a higher kernel recovery rate and a reduction in production costs. We will support this in the FY16 financial year through capital investment, with our two major projects being the upgrade of the in-shell packing line to more automation and the installation of our own on-site cool room and fumigation facility for both finished goods and work in progress.
A seasonal challenge
In the spring lead up to the 2015 harvest, our NSW orchards experienced extreme weather conditions. Spring is pollination and fruit set time for walnuts and October 2014 produced high temperatures and extreme winds at this crucial time, seeing some late harvesting
varieties adversely affected and the trees abort pollination. Although this negatively impacted yields in our NSW orchards, yields did increase marginally over last year without reaching internal budgeted levels on some varieties. Our Tasmania orchard operations delivered their yield targets for the third consecutive year.
As a result of this non-pollination event, we undertook internal and external yield reviews and are confident that orchard management is best practice. We expect the trees to deliver previously flagged mature yields at 5+ tonnes per hectare on average.
Planting our future
Our own nursery operation fuels our future growth aspirations. In FY15, we ramped up nursery production to produce sufficient trees for the year two planting of our newest walnut orchard, Avondale West.
Avondale West is in The Murrumbidgee Irrigation area and is being established over three years. It will produce its first commercial harvest in 2018. We are planting 400 hectares of orchard in winter and spring 2015, with the final 360 hectares planned for planting in winter and spring 2016. On completion, our total planted orchard area at Avondale West will be 920 hectares.
Within our portfolio of owned and managed orchards we currently actively farm 2,023 hectare of walnuts across New South Wales and Tasmania. On completion of the Avondale West property, our orchard estate area will grow to 2,923 hectares.
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Peter Joy inspecting Tabbita Orchard with Walnuts Australia staff
Derek Goullet and Colin Bruss
Balance and opportunity in a global market
Consumption and demand for walnuts globally is being driven by increased awareness of a healthy diet and the role that tree nuts plays in this, and growing middle income consumers, particularly in China. For Walnuts Australia, this demand thematic is overlayed with an import replacement opportunity in the Australian domestic market with consumers being patriotic and recognising
the freshness of product grown locally.
Walnuts Australia further enjoys having a counter seasonal to Northern Hemisphere production window. We market the freshest walnuts in the world for six months every year and have easy access to the growing Asian region, led by China demand where walnuts are an important part of the diet.
Recent export statistics from the California Walnut Marketing Board show their exports to Australia have declined by 7% - proof our import replacement sales program is gaining traction. We continue to grow our sales footprint in Australia and globally we continue to evolve our sales mix between kernel and in-shell.
Despite the market challenges, we are growing and opening new markets. We have identified two new major export markets for sales commencing in the coming year, and continue to evolve our domestic sales strategy with further opportunities for import replacement.
Over the last few years, walnut pricing has increased in line with other tree nuts, however, most recently price deflation has occurred as a result of the walnut crop size from the two largest global growing regions, China and the USA.
Both recorded large 2014 crops and predict record or near record crops for the 2015 harvest.
The widely reported US drought conditions, that are impacting the US almond industry and driving prices up, are not currently relevant to the walnut industry. Broadly, the majority of walnuts are grown in the northern part of the Californian valley where growers have easy access to underground water compared to the majority of almond growing territory in the southern part of the valley where no underground water is available and growers rely fully on water being delivered to them.
Walnuts are sold globally in US Dollars and the recent movement in the AUD / USD exchange rate is a positive for Walnuts Australia's final AUD pricing.
Annual Report 2014-15
Walnuts Australia's commitment to producing quality walnuts is recognised on both the local and international markets and we place a strong emphasis on maintaining this. We continue to build our credentials and reputation as a highly reliable, safe, consistent partner in the supply of fresh, high quality premium walnuts to our customers.
8 Reports
Agriculture
Growth and potential
During FY15, Webster acquired, Bengerang Limited, Tandou Limited and the Kooba aggregation, adding more than 40,000 hectares of irrigated land, 2,000 hectares of dryland farming and extensive grazing country to our holdings.
The acquisition of these land and water entitlements positions us as one of the largest irrigated farmers in Australia with a geographic spread across Southern Queensland and New South Wales. To optimise the potential of our assets, we utilise the grazing land for cattle and sheep production. As part of the Kooba acquisition, we gained a quality herd of Angus/Wagyu cattle from AgReserves Australia and Tandou pastoral is among
the largest producers of organic lamb in Australia.
Partnering for experience and expertise
Webster entered into an agreement with Australian Food
& Fibre Limited (AFF) to provide management services for our agricultural operations. AFF has a 30-year history of farming, with a focus on cotton production. AFF will provide experience and expertise with the integration, expansion and development of our agricultural operations.
Making the most of every hectare and every drop
Our primary agricultural focus is to utilise science and technology to achieve optimum crop mix, yield maximisation and water efficiency. We expect the predominant crop to be cotton due to the high gross margin per hectare and per megalitre. However, our properties are suited to a range of summer and winter
crops. Our aim is to achieve a crop mix that results in long- term, sustainable farming whilst maximising profitability.
Annual Report 2014-15
The year and the outlook
We harvested 3,100 hectares of irrigated summer crop at Kooba. Seasonal conditions and operation execution produced outstanding cotton and corn yields. The 2,170
hectares of cotton averaged 13.2 bales per hectare and the 930 hectares of corn yielded 13.4 tonnes per hectare.
The majority of cotton achieved the base grade and discounts were minimal.
We expect cotton production to exceed 100,000 bales. Forward sales have been executed for 40% of budgeted production at a significant premium to historical levels. Current pricing remains above long-term levels.
We have planted a winter crop of 2,800 hectares of cereals and 2,400 hectares of chickpeas that will be harvested in November and December. To date, conditions have been better than average but we need spring rainfall in the north to achieve crop potential.
Grazing conditions are excellent in southern NSW following a wet winter and cattle prices are at historical highs. Yearling steers and heifers are currently being grazed on pastures and will be sold in November and December.
Future opportunities
Kooba aggregation provides scalable opportunity to convert premier Murrumbidgee land from inefficient border check irrigation to row crop farming and provides the opportunity for maximum utilisation of our water portfolio. Other works include construction of supply and recirculation systems and storage that has multiple benefits in timing of irrigation and efficient water management. Laser levelling of fields at Hay is ongoing. These improvements, in conjunction with the use of the latest technology for moisture monitoring, will provide water use efficiency and yield improvement.
Historically, cotton marketing has been conducted between growers and merchants. We have successfully trialled and will continue to investigate some innovative marketing opportunities to establish closer relationships directly
with our customers. Our production volume and ability to guarantee the supply of a consistent product provide a great opportunity.
The recent acquisitions have expanded the Webster portfolio and our Agricultural division is now a large-scale grower of commodities capable of producing in excess
of 250,000 bales of cotton, 50,000 tonnes of grain, 4,000 head of cattle and 10,000 lambs annually.
Webster Limited
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The Murray-Darling Basin region
Tambo
Augathella
QLD
Charleville
Bollon
Roma
1
Tara
Brisbane
SA
Wanaaring
Cunnamulla
Hungerford
3
Bourke
Coonamble
St George
2
Moree Narrabri
Gunnedah
Stanthorpe
Armidale
Broken Hill
Wilcannia
4
NSW
Ivanhoe
Coonabarabran
5 Dubbo Wellington
Tamworth
Renmark
Darling
Mildura
Lachlan
6 78
Griffith
River
River
Forbes Cowra
Bathurst
Sydney
Adelaide
Mannum
Murray Bridge
Balranald
Murray River
Hay
Leeton Narrandera
Murrumbidgee
Yass
Goolwa SwanHill
River
Wagga Wagga
Meningie
Kerang
Echuca
Deniliquin
Albury
Wodonga
Canberra
Horsham
VIC
Shepparton
Seymour
Cooma
Omeo
Melbourne
Lakeland Downs, Condamine
Bengerang, Garah
Darling Farms, Bourke
Tandou, Menindee
Booberoi Station, Condobolin
Pevensey, Glenmea and South Farm, Hay
Bringagee and Benerembah Station, Carrathool
Kooba Station, Darlington Point
10 Reports
Water
Acquiring surety
FY15 was a year of significant and strategic change to Webster's water portfolio. Through acquisitions completed during the year, we now hold a water portfolio of more than 225 GL spread geographically from southern Queensland to northern Victoria. Previously, we depended on water from external sources to supply our operations.
We now have the surety and flexibility of holding our own significant water entitlements.
A diverse mix
The water products within the Webster portfolio are diverse and provide many opportunities to extend the business. There is a mix of high and general security along with supplementary and groundwater entitlements. The Southern Connected Basin water products provide security for our walnut orchards and give us the flexibility to drive the economic return from production within the Murrumbidgee annual crop assets at Kooba and Hay.
Water availability at Bengerang and Darling Farms has improved marginally during recent months, however the drought in northern NSW and southern Queensland is adversely affecting water availability and crop areas
on these properties and at Lake Tandou. The Darling at Menindee has experienced a record low inflow
Annual Report 2014-15
sequence during the last 2.5 years, lower than during the Millennium Drought. This has reduced cotton plantings across these three farms to 20% of normal.
Scale and balance
The current portfolio positions Webster for significant growth in our production businesses particularly around the Murrumbidgee. Many of the land and water assets were not fully utilised under previous ownership. The scale of our business will allow us to extract significant efficiencies from the water portfolio and its connection to our land assets. In an average water allocation year, our water portfolio is able to supply an average crop planting on the currently developed land with surplus water remaining. Our future expansion plans will utilise this surplus water both within the Horticultural and Agricultural businesses.
The value of water entitlements remains strong in the Southern Basin, supported by a combination of change in use to higher value crops, government buybacks and improving commodity returns. In the Northern Basin,
water entitlement values remain steady without significant change in values since the Millennium Drought. Water supply remains tight across the basin, however the Murrumbidgee has had significantly better conditions during winter 2015 compared to areas to the north and south, placing Webster in a strong position for
production in the year ahead.
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