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A View of Corporate Agriculture Performance and Prospects Australian Farm Institute Conference Canberra June 2014 David Sackett Growth Farms David Scammell Pitt Capital Partners James Moreton Pitt Capital Partners Slide 2 What is corporate agriculture? Agriculture where the capital is provided by someone other than the operator. Slide 3 A range of models. Listed v unlisted Retail v wholesale Direct v fund Operate v lease Wholly owned v J-V Slide 4 A range of motivations. Financial o returns o inflation hedge o low correlation with equities Food security Low risk (capital preservation) Marketing Romance/ego/emotion Slide 5 Advantages of corporate agriculture Access to capital Access to expertise (specialisation) Slide 6 What is the track record? Entity Operating Return % p.a. Total Investor Return % p.a. (*) 1 5.4% 2 -3.2% 3 20.7% 4 -5.4% 5 -3.1% 65.8%- 7 -0.6% 8 0.5% 9 ~6.0% * From commencement or 1st of January 2000. Slide 7 Good performance of any investment requires: To buy well To manage well Slide 8 The successful family farm (culture) Long term view Flexible, adaptable and responsive Flat management and accountable Lean and mean Slide 9 Why have results been so variable? 0veremphasis on size to bring cost reduction & efficiencies o Scale benefits are mythical at farm level o Often compromises portfolio diversity (sector & regional) o Makes it harder to buy well Slide 10 Variable results (cont) Poor alignment between managers and investors Fee structures not appropriate o Returns typically 4-6% EBIT, 6-8% capital appreciation Conflicts such as rolling assets in. Slide 11 Time frames are too short o Short time frame to deploy large amounts o Year to year variability o Lumpy capital appreciation Variable results (cont).. Slide 12 Variable results (cont). A tendency to take on new and often unproven opportunities: o New industries o Tax driven (forestry, vineyards, sandalwood etc) Slide 13 Key issues for the future.. Thematic of food is widely accepted o Must work at current prices Capital is mobile so we need to compete o Sovereign risk (Aust, NZ, Nth America) o Productivity (at farm level and to port) Sources of capital o High net worth individuals o Family offices o Institutions ($1,800 B in super funds) o Retail v wholesale? A range of models o Capital is mobile and glob Slide 14 Key issues for the future.. A range of models o Large scale investors preferring direct v funds o Operate v lease v hybrid Lift the knowledge in both agriculture and the investment communities. Better performance and transparency o Index? Slide 15