SAV Shareholders Forum

An Important Message to Southern Agventure Limited Shareholders

Dear Shareholder,

I am writing to you today to bring you up to date on Southern Agventure Limited (SAV) and to invite you to a shareholder forum to discuss future opportunities for the Company. The forum is at 10.00 am on Monday 16 February, at the Riverine Club in Wagga Wagga.

SAV was established in 2009 by a group of farmers to seek out commercial opportunities in the agriculture supply chain ex the farm gate to gain influence, provide returns to enhance farm profitability and to improve the sustainability of local communities. Since establishment, shareholding in the company has grown to some 250 individual shareholders with a share capital of $1.412m.

SAV’s main activity has been its 50% share in Southern Ag Grain Pty Ltd, a joint venture grain accumulation and marketing company with the Emerald Group. While this initiative has been very successful, enabling dividends to SAV shareholders and providing much needed competition in grain marketing in the region, substantial reductions in future returns prompted the Board to sell the stake to Emerald. This sale, approved by shareholders on 18 December 2014, was concluded on 30 January 2015.

The sale price of $1.75m represents a $750,000 gain (less tax) on the $1m investment outlay on top of a total of some $2.652m in distributions over the five years of involvement.

The sale means that SAV currently does not have an ongoing income stream and steps have been taken to substantially reduce overheads. The sale conclusion also means the Company is at a cross roads in terms of its future.

OPTIONS FOR THE FUTURE

The Annual General Meeting in Lockhart on 18 December 2014 broadly discussed three main options for the future:

  1. wind-up the Company and distribute all funds to the shareholders;
  2. issue a sizeable dividend to shareholders while continuing the Company with the aim of seeking other opportunities in line with the broad vision of the Company; and
  3. retain approximately $2m in cash and look for other opportunities over a period of twelve months with activities reviewed at the end of the period.

The vast majority of the shareholders who attended the meeting indicated support for the third option on the proviso the Board report progress to shareholders after six months. 

The Board considers winding up the Company is not preferred at this time given the substantial time, effort and resources involved in establishing the structure and entity. The Board also considers there are opportunities available in agriculture and believes the Company has a role in seeking out and delivering on those opportunities. 

1. Lupins for Food

It is suggested Lupins are the future super food for Australia, India, Asia and indeed the world. While used traditionally in breads, pasta and as a food ingredient in Europe, in Australia lupins have generally been used for stock feed.

Nearly all Australian Sweet Lupins (L. angustifolius), also known as Narrow-leafed Lupins, are grown in Western Australia, with smaller tonnages in South Australia and here in the east. WA has been supplying 85% of the world supply of human consumption lupins for some years.

Lupins are high in protein, gluten free, have almost no fat and less than 0.02% alkaloids. They lend themselves well for flour, chipping / dehulling and flaking. They are easy to grow (in terms of a pulse) and are ideal for our region. WA yields are in the vicinity of 1.5 mt per hectare – which could be improved here. They are also ideal in a rotation with wheat and canola.

Lupin Foods Australia, a wholly owned subsidiary of CBH in WA, has been developing commercial milling, production and marketing of lupin-based foods and is gaining success. Two other niche lupins processors in WA include Irwin Valley Milling and Coorow Seeds, both of which are successfully developing domestic niche markets.

The benefits of lupins as a healthy food alternative have been identified by the Australian Research Council, which has funded research undertaken at Charles Sturt University Wagga, which confirms their importance in reducing obesity, cholesterol and the impacts of diabetes and heart disease.

Lupin flour can be used as a high protein substitute for meat and fat products in sausages and burgers, a starch substitute in breads, pasta and related foods, use in snack foods replacing high fat and starch items like potato chips and has been credited in reducing the urge to eat more because of its “filling” nature. Through the ARC, CSU has established the Functional Grains Centre led by Associate Professor Chris Blanchard to further research into and encourage the development of better food capability in Australia – in terms of functionality, nutritional benefits and production / processing improvements. To say Chris Blanchard is a champion of lupins is an understatement. He is committed to seeing the growing and processing of lupins in our region and has indicated support for a grower owned organisation such as SAV taking the lead.

Investigations conducted thus far indicate a real opportunity here for SAV to bring growers in to lupin production by developing suitable processing facilities (milling, chipping / flaking) as well as developing domestic and overseas markets for the processed outputs.

The Board considers this a primary opportunity.

2. Organic Oilseed Processing

Over the last eighteen months SAV has discussed a potential relationship with a regionally based oilseed crushing company. These discussions have been limited given SAV’s obligations under the Southern Ag Grain joint venture agreement. The sale (post the 12 month non-compete restriction) removes this hurdle to such a relationship.

With more and more emphasis on organic and clean food along with the traceability of its origins, a close relationship with an organic processor has the real potential to provide significant benefits to our shareholders through direct sale of oilseed to the processor, increased certainty of grower production and processor supply, specific supply market identification and very importantly, a good story for the consumer (and investor).

The Board considers this is also a primary opportunity and one worthy of further investigation and consideration.

3. Silo Bags

It is clear more and more on-farm grain storage capability will be required, especially as the grain accumulation and storage / logistics services are rationalised and consolidated. While there will be numerous competitors for grain, where the grain is stored will play a major part in the price the grower will receive.

Independent grain storage facilities will not be able to compete with fully integrated accumulation, storage and logistics and port operators, especially those who also have grain processing assets in Australia. To receive the best possible price for grain, growers will need to be able to play the market as it suits them rather than the accumulator. On-farm storage will provide some leeway and flexibility in this context.

Silo bags operated well have proven to be an appropriate form of short term storage and can have the effect of providing the ability to play the market.

While there are a number of silo bag suppliers in our region, competition is generally limited.

SAV has been in discussions with a very well established and regarded regionally based company which has bag manufacturing facilities in China and sells nationally and internationally. That company has the ability to develop a silo bag business in association with SAV and other partners. This has the potential to improve the quality and durability of silo bags, the potential for significantly lower prices and increased competition.

The Board considers this is also worthy of serious further analysis and consideration.

OTHER OPPORTUNITIES

The above represent only three possible opportunities. You may be aware of others.

The purpose of our forum on 16 February is to receive more ideas and information. Your input to our considerations is not only welcome, but vital for our future success.

SUBMIT YOUR IDEAS AND CONTRIBUTE TO THE OUTCOME…..

Join the directors and other shareholders to discuss the future opportunities for SAV.

9.45 am to 1.00 pm, Monday 16 February 2015

Riverine Club, cnr Sturt and Tarcutta Streets, Wagga Wagga

A light lunch will be provided after the forum


Program:

09.45 am - Welcome

10.00 am – Present Position – David Lamont, Chairman

10.10 am – Lupins – Super Food for the Future – presentation by A/Prof Chris Blanchard, Functional Grains Centre, CSU, presentation on growing and processing lupins in WA and opportunities for SAV and growers

11.00 am – Morning Tea

11.15 am – Oilseeds Opportunities in Organic Processing

11.35 am – Silo Bags – An Alternative Supply

11.50 am – Other Ideas

12.10 pm - Wrap Up

12.20 pm – Light Lunch

Please RSVP to gbreust@southernagventure,com.au or call Geoff on 0417 698336.

If you are unable to attend the forum and wish to make an input, send Geoff an email or give him a call.

Your company is at the cusp of exciting new opportunities. Your input and involvement will be well received and used by the Board in planning the future of the Company. I look forward to catching up with you at the forum.

Best regards,


David Lamont

Chairman