MAG Commodities Corporate Presentation 1
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Contents 1. Business Overview 2. Our Vision 3. Leadership Team 4. Our Value Chain 5. Global Agribusiness 6. Key Demand Drivers 7. Ukraine s Growing Importance 8. Key Supply Drivers 9. Our Opportunity 3
Business Overview MAG Commodities is a newly established marketer of agricultural products based in Baar, Switzerland We originate high-quality food and feed ingredients from the Black Sea region and market the production to a global customer base Currently focused on wheat, corn and barley expanding into oilseeds Strategic partnership in place with a major agro holding company in Ukraine provides direct access to production As we continue to grow our business, we will expand our trading activities to source grain from other major growing regions around the world to enhance our logistical flexibility and provide geographic diversification Our philosophy is that control of logistical infrastructure assets such as grain elevators, storage sites and port terminals optimizes trading activities, and therefore we will seek to build a physical presence in the origination geographies in which we operate Top class Risk Management and CTRM System 4
Our Vision " MAG is built upon the trusted relationships that we have cultivated with farmers. Our unique understanding of farmers' needs continues to distinguish us from our industry peers. We aim to be a partner of choice for farmers and destination customers around the world, and by controlling key agricultural logistics infrastructure, we will strive to be the leading originator of grains from the Black Sea region. This leadership position will be complemented by a competitive presence in other major originating countries around the world, allowing us to maximize logistical efficiency and consistently meet the needs of our global customers. 5
Major Company Milestones February 2013 MAG Commodities established Christian Joerg appointed CEO of MAG Commodities March 2013 Announced opening of offices in Baar, Kiev and Barcelona, and hiring of General Manager Jose Luis Esteban Secured a strategic land plot on the Black Sea for development of grain export terminal May 2013 Announced opening of Singapore marketing office and hiring of Managing Director for Asia, Steven Yu June 2013 Completed technical design of port terminal construction project October 2013 Hired global trading team led by Patrick Lang-Willar, to be based in Baar 6
Our Global Leadership Team Christian Joerg, CEO Over 20 years experience in commodity and trade finance VP and MD, EMEA Viterra Executive Director, Commodity Trade Finance, UBS VP, SGS Geneva Steven Yu, MD Asia Jose Luis Esteban, MD Spain Eugene Khomaiko, Head of Origination, Black Sea Patrick Lang-Willar, Trading Manager 26 years of agribusiness leadership experience MD, Viterra Asia VP and MD, ADM Asia General Manager, Viterra International Grain General Manager, Ceresban Management Director, Louis Dreyfus Head of Trading, Viterra Ukraine Wheat trader, AC Toepfer PhD in Economics, Kyiv National University of Economics Over 35 years of experience in the agribusiness Global Grain Wheat & Barley manager, Noble Resources SA General Manager, Recocer SA 7
Local Expertise, Global Presence Baar, Switzerland Kiev, Ukraine Barcelona, Spain Singapore Corporate headquarters Sales and marketing Global arbitrage Financing and risk management Global strategy Origination of high quality grain and oilseed Establish and maintain strong relationships with local producers Extends marketing network Strengthen ability to market grains and oilseeds directly to food and feed industry on the Iberian Peninsula Implement growth platform in Asia Pacific region Secure new markets in Asia Expand marketing network 8
Integration of the Value Chain Our business model is to leverage our farming partnerships and to secure control of agricultural logistics infrastructure assets (grain silos, port terminals) Trading activities are optimized by controlling both grain supply and infrastructure enhanced flexibility and margin opportunity Farming Farming Origination Origination Export Terminals Trading Security of supply natural long position Quality assurance Enhanced access to information on local crop condition Efficiency in operations, centralized purchasing of inputs and equipment results in savings Strong relationships with local producers Access to storage networks enhances flexibility and margins Manage flow into port terminal Arbitrage potential ability to trade around the silo Market information Substantial margin potential Difficult to obtain FOB capacity in many markets (Black Sea) Arbitrage opportunities trade at port Increased flexibility to support trading activities Access to global market information Logistical arbitrage Trading of physical and derivatives 9
Global Agribusiness Outlook 10
The World in 2050: A Production Gap to Be Filled According to the FAO, global agricultural output must increase by 70% by the year 2050 to accommodate for demand Cereals alone must increase by 45% by the year 2050 This takes into account growth in global population and changes in dietary preferences that accompany rising incomes in the developing world (protein-oriented) Statistics also incorporate non-food usage of crop fuel, waste etc. Source: FAO 11
The World in 2050: A Production Gap to Be Filled World Production and Use (MMT) %45 12
Key Demand Drivers World population to top 9 billion by 2050, led by developing economies (notably Asia and Africa) Rising income levels in developing nations increases demand for protein-based diets, putting further strain on global grain supplies due to the inherent inefficiency of grain to meat conversion Food for fuel usage continues to pressure prices Global Population Historical & Forecast 12 11 10 2100 9 8 7 Old Stone Age New Stone Age Bronze Age Iron Age Modern Age Middle Ages 6 5 4 2000 1975 Future 3 2 1 Black Death The Plague 1950 1900 1800 1+ million 7000 6000 5000 4000 3000 2000 1000 A.D. A.D. A.D. A.D. A.D. A.D. years B.C. B.C. B.C. B.C. B.C. B.C. B.C. 1 1000 2000 3000 4000 5000 Source: Population: A Lively Introduction Joseph A. McFall, Jr., Population Bulletin, Volume 46, Number 2, October, 1991, Pages 1 43, Population Reference Bureau, Washington D.C. 13
Key Supply Drivers ha 0.6 0.5 0.4 0.3 0.2 0.1 0 World average arable land per person, ha 1950 1960 1970 1980 1990 2000 2010 2020 F Wheat yield comparison, t/ha Source: NASA Source: World Bank Global Climate Change Source: USDA Arable land per capita is decreasing globally; we must grow more on less land Remaining areas of abundant arable land are also the least productive (i.e. Africa) On average, global crop yields are either stable or declining Increasing global temperatures have resulted in drought in certain productive regions and excessive moisture in others 14
Ukraine s Growing Importance as an Agricultural Exporter Ukraine s Share in Global Agriculture Commodities Trade Ukraine is the largest country in Europe with respect to arable land area Black Sea ports are ideally located to service demand markets in the Middle East, North Africa and Europe Ukrainian Share Dynamics in World Grain Export Land is still mainly held by small individual farmers, with corporate farming accounting for only 19% of arable land consolidation potential Due to abundant fertile black soil, Ukraine has become a leading exporter of a variety of crops Ukraine s share of global grain exports continues to increase 15
Ukraine s Potential to Bridge Global Production Gap Wheat Productivity vs. Fertilizer Usage 2011 60 50 40 30 20 10 0 Ukraine Russia Argentina Australia Canada USA Brazil Global Wheat Yield Comparisons (t/ha) Source: FAOSTAT Wheat yields in major producers, t/ha 6.00 5.49 5.00 4.00 3.38 3.11 3.00 3.08 3.00 2.38 2.00 2.25 1.00 Source: FAS USDA. Sep-2013 0.00 Ukraine accounts for 25% of global black earth area (soil characterized by high contents of humus, phosphoric acids and ammonia) The fertile soil has resulted in superior crop productivity for Ukraine, despite the fact that fertilizer usage in the country remains relatively low While yields in Ukraine are gradually improving, they are still well below EU levels there is substantial room for growth Increased use of fertilizer, crop protection products, high-tech farming equipment and modern agronomic practices should encourage further yield growth This latent potential makes Ukraine one of the world s most exciting and promising areas for agriculture Argentina Brazil Canada European Union Russia United States Ukraine Source: FAO 16
Commodity Price Volatility Over the past several years, we have seen significant volatility in global agricultural commodity prices this is expected to continue into the future Combination of supply-side shocks (droughts, floods), government policy (export bans), flat/declining yields, food for fuel and speculation Source: Bloomberg 17
A Wave of Consolidation The past five years has brought a wave of consolidation in global agribusiness Hollowing-out of mid-tier agribusiness sector; industry today is comprised of a handful of global players and a large number of regional players and cooperatives Acquisitions have become increasingly strategic global players have fewer avenues to grow organically, and consequently valuations for quality assets has soared in recent years Asset-light trading companies moving to asset-heavy models to better control logistics Major global customers are demanding uninterrupted supply, causing many agribusinesses to seek multiple global sources of origination to minimize risk 18
A Wave of Consolidation Select Assets $4.9 billion December 2012 $3.4 billion Pending $394 million December 2010 Undisclosed Pending Select Assets $1.8 billion December 2012 $4.9 billion March 2010 Undisclosed Recent Discussions Terminated $91 million May 2010 $655 million October 2009 $1.4 billion July 2002 Commodity Mgmt $2.1 billion November 2011 $1.6 billion August 2010 $268 million August 2004 $279 million March 2007 $220 million March 2010 $572 million September 2002 Commodity Mgmt $863 million December 2010 $825 million August 2003 $1.8 billion September 2009 Select Assets $95 million June 2007 Fertilizer Units $325 million August 2010 $504 million May 2004 $5.6 billion May 2012 Select Assets $800 million December 2012 $1.1 billion October 2001 $2.7 billion December 2007 $1.6 billion July 2008 $1.2 billion June 2010 $72 million June 2009 $1.9 billion May 2007 Source: Canaccord Genuity Undisclosed October 2010 Select Assets $315 million June 2007 $491 million November 2005 $31 million March 2012 October 2002 As a consequence consumers want to diversify procurement 19
Global Agricultural Trade Flows 8 10 8 47 19 51 5 11 31 22 2 2 9 11 3 27 16 2 24 93 11 8 4 0 0 40 38 33 6 6 102 39 18 14 9 12 52 12 7 1 3 0 144 144158 98 98 158 147 163 147163 99 99 20
Our Opportunity 21
MAG Commodities Switzerland Centralised trading platform based in Baar Global treasury management Systematic risk management approach / SOP Technical and fundamental research teams provide market intelligence to commercial teams State of the art Commodity Trade and Risk Management System Strong equity base Group s coordination of operational, logistical and risk management Coordinated Cooperate Development Functions 22
Beside trading, the derivatives function will support any other business activities Analysis Trading Reporting Futures & Options Technical analysis (not charts) Seasonal analysis Volatility surfaces and option strategy pricing Fund activity Trading CBOT and Matif futures and options taking both speculative and hedging positions Reconciliation with broker statement Live pnl and position report Fund allocation VaR calculation Physical business and fx hedging Worldwide Trade flows consolidation Weather analysis coupled with the geo-referenced information Correlation of prices to S&D Develop physical trading activities as well as strategies and plans for commodities trading Optimization of vessel logistics Live pnl and position report PnL split in any possible way FX exposure Inventory management 23
Baar will be the research headquarter and will contribute to the trading strategy through a number of initiatives Weather Supply Weather database Analogue year calculator NDVI Index analysis Analysis of geo-referenced crop data coupled with forecast Weather Supply Production statistics per country Yield model Cost of production tables Price Action Price Model (based on S&D) Volatility surface analysis Price scenarios and position stress test Price Action S&D Trade Flows Demand S&D and Trade Flows Worldwide Trade consolidation by month Monthly S&D by country USDA Reports highlights and conclusions Demand Official customs statistics (lineups and forecast) Tenders and private business database 24
MAG Ukraine is Uniquely Positioned to Benefit from the Black Sea s Emergence as an Agricultural Powerhouse In under a year, MAG has built out a team of highly qualified agribusiness professionals Ukraine office comprised of 30 staff, including origination, trade and contract execution, finance, legal and logistics In Baar, we ve assembled a world class global trading team with a proven track record Also in Baar have added treasury and finance function, risk management, logistics and engineering and project management team to facilitate our growth 25
MAG Ukraine is Uniquely Positioned to Benefit from the Black Sea s Emergence as an Agricultural Powerhouse Within Ukraine, MAG has built a reputation as a trusted counterparty open communication with producers and fair pricing; we take a long term view Local origination team is in the markets daily, sharing information with farmers and strengthening relationships Origination team in-country are able to act on arbitrage opportunities quickly For 2013/2014, we will originate over 1MMT of grains Current area of focus has been wheat, barley and corn 5 Field Offices spread over the arable areas 26
MAG Spain Covering Iberian Peninsula As one of the largest importers for Black Sea Grains, MAG Commodities consistently supplies a fragmented Spanish market on a CFR and / or cash & carry basis MAG Commodities provides its customers constantly with market updates and provides different purchasing options depending on market developments. We further can organize and manage the entire logistic chain with final delivery of the goods to our customers premises. The Iberian Penisnual is heavily dependent on imports of agricultural commodities. At the same time, Spain is a growing and increasingly significant meat exporter increasing its dependency on feed imports. Strong synergies exists with our Ukrainian office for Black Sea imports as well as our Sing office for vegetable oils for both human consumption and the biodiesel industry. 27
MAG Singapore Covering Asia Represents MAG Commodities in Asia and the Indian sub-continent Initially responsible for the marketing, sales & distribution of MAG Commodities traded products to the regions, mainly corn and wheat from the Black Sea, taking a pipeline-margin approach to meet corporate objectives, while providing seamless service from origin to our endcustomers In the second stage, Singapore to become a full trading office covering products originating within the region and products not covered by traders in Baar, Switzerland When and where appropriate, Singapore will also consider fixed asset investments in the regions to strengthen our customer service, competitiveness and risk-control 28
Global Ambitions: Our Near and Long-term Growth Objectives Timeframe Current to 2015 2015 2020 2020 2025 Tonnage Trading 5MMT Trading:10-12MMT Port: 4MMT Enabler Existing Black Sea origination team, newly established global trade team in Baar, Switzerland Origination team in Black Sea, global trading teams in Baar and Singapore, Yuzhny port asset Trading: 20MMT Port: 5MMT Origination team in Black Sea, trading teams in Baar and Singapore, Yuzhny port asset, second port in Black Sea region Goals Leading supplier of grains sourced from growers in the Black Sea, to global destination market customers Global presence in major origination countries enabling MAG to competitively supply customers from multiple geographies, creating diversification benefits and logistical arbitrage opportunities 29
Global Ambitions: Our Near and Long-term Growth Objectives Key Drivers of Success Global trading platform supported by local market expertise Investments in high quality, strategic assets that both enhance and optimize trading activity Leverage key strategic partnerships to secure supply Dedication to building and maintaining strong relationships with both producers and end-use customers Commitment to attracting and retaining world class talent 30
Strategic Partnership with Major Farming Group MAG Commodities has a strategic partnership with Mriya Agro Holding, one of the largest agribusiness companies in Ukraine Mriya is publicly listed on the Frankfurt Stock Exchange (Frankfurt: MAYA) The company controls a highly fertile and contiguous land portfolio comprise of more than 300,000 hectares in western Ukraine Production for 2012/2013 MY was approximately 950,000 MT of wheat, barley and corn 31
Strategic Partnership with Major Farming Group More than 800,000 MT of modern storage Manage land in efficient clusters, utilizing modern equipment and agronomic practices 2012 EBITDA of USD $250 million (45% margin) Conservative, well-capitalized balance sheet Partnership with Mriya enables MAG to access a steady pipeline of grains and oilseeds Visit www.mriya.ua for more information Source: Mriya September 2013 Company Presentation 32
Strategic Partnership with an Export Terminal Control of the logistic chain from, farm gate to loading of vessel, allows optimal turnover of the port Port storage capabilities with will allow strict quality control and IP programs Ability to segregate 10 different grades of products Completion of the port will greatly enhance trading activities from Ukraine Cleaning and drying capability Enhanced margin opportunity and superior flexibility 33
State-of-the-Art Black Sea Port Terminal Project PortLem has secured a strategic land plot on the Black Sea, near Yuzhny, Ukraine Currently developing a highly efficient grain export terminal 5MMT per year throughput capacity 200,000MT storage capacity Berth designed to accommodate variety of ship configurations, including post-panamax vessels Construction to commence in early 2014 Engineers have been hired, pre-construction work is underway Source: PortLem 34
State-of-the-Art Black Sea Port Terminal Project Key link to connect the Ukrainian farms to the world Competitive advantage by controlling logistics and quality / IP Supports MAG commodities asset based trading approch 35