Ethanol spot prices
. $1.61 on March 31, 2005
. $2.30 on March 31, 2006
. As of June 23, Ethanol has jumped to $5 a gallon in the spot market.
Ethanol supply coming online
. Currently, 101 ethanol bio-refineries nationwide have the capacity to produce more than
4.8 billion gallons annually.
. There are at least 34 ethanol refineries and seven expansions under construction with a
combined annual capacity of more than 2.2 billion gallons.
Business
. Producer and marketer of ethanol in the United States based both on the number of
gallons produced and sold.
. Through AVR production facilities, marketing alliances with other producers and
purchase and resale operations, marketed and distributed 529.8 million gallons of ethanol
in 2005 and 164.9 million gallons in the three months ended March 31, 2006.
. For the year ended December 31, 2005, sold approximately 13.5% of the total ethanol
volume in the United States.
. Has comprehensive national distribution capabilities through a leased railcar fleet and
terminal network at critical points on the nation's transport grid where AVR ethanol is
blended with customers' gasoline.
Revenues
Equity Production represents ‘substantial majority of operating income’
. Owns and operates one of the few coal fired corn wet milling plants in the United States
in Pekin, Illinois, which AVR refers to as the "Illinois facility," and holds a 78.4% interest in
a natural gas fired corn dry milling plant in Aurora, Nebraska, which AVR refers to as the
"Nebraska facility." The remaining 21.6% of the Nebraska facility is owned by Nebraska
Energy Cooperative, an agricultural cooperative comprised of over 200 corn producers.
. Facilities have a combined total annual ethanol production capacity of 150.0 million
gallons with corn processing capacity of approximately 56.0 million bushels per year.
. Although revenues from ethanol sourced from equity production operations represented
approximately 20.5% and 17.6% of total revenues for the year ended December 31, 2005
and the three months ended March 31, 2006, respectively, equity production operations
represented the substantial majority of operating income.
Expansion
. Expanding the Illinois facility by adding a new dry mill facility, expected to complete in
early 2007 expected to increase total annual production capacity by approximately 56.5
million gallons, or 37.7%, to 206.5 million gallons. (Dry milling refers to an ethanol
production process in which the entire corn kernel is first ground into flour before
processing. Wet milling refers to an ethanol production process in which the corn is first
soaked or "steeped" in water before processing.)
. Also see 'use of proceeds' below
Gross margin & spread between ethanol and corn prices
. During the years ended December 2003, 2004 (particularly in the fourth quarter), 2005
and the first quarter of 2006 AVR enjoyed a wide spread between ethanol and corn
prices and as a result, recognized record gross margins.
. Conversely, during 2002, the spread between ethanol and corn prices was substantially
tighter, in part, due to the excess capacity created in anticipation of the MTBE ban in
California which went into effect later than anticipated, and as a result margins were
substantially worse than those achieved in 2003 and 2004.
. Based on results of operations for the year ended December 31, 2005, a 1.0%
decrease in the average ethanol sales price would have resulted in a $2.0 million
decrease in operating income and a 1.0% per bushel increase in the price of corn would
have resulted in a $0.5 million decrease in operating income.
. The spread between ethanol and corn prices is at a historically high level, driven in large
part by ethanol demand outpacing supply, high oil prices and high corn production which
led to a significant drop in the average price of corn in the fourth quarter of 2004 and
‘2005.
VeraSun (VSE) not renewing
. VeraSun (VSE) with the capacity to produce 230.0 million gallons per notified AVR in
writing that VSE elected not to permit automatic renewal of their marketing alliance
agreement with the Company on March 31, 2007.
. Although AVR believes that the loss of this capacity will be substantially offset by the
addition of 208.0 million gallons of capacity announced or under construction by three
new alliance partners and by increased volume of purchase and resale activity
Top 10 ethanol producers:
Annual Capacity (mil. gallons)
Archer-Daniels-Midland, 1070; VeraSun Energy Corporation, 230; Hawkeye Renewables,
LLC, 200; Aventine Renewable Energy, LLC; 150; Cargill, Inc., 120; Abengoa
Bioenergy Corp., 110; New Energy Corp., 102; Midwest Grain Processors, 95; MGP
Ingredients, Inc., 78; Tate & Lyle, 67
TOTAL: 2,222 million gallons
Competition
. According to the RFA, for the year ended 2005 the United States accounted for roughly
35.1% of global ethanol production. Research indicates the world's ethanol producers
compete primarily on a regional basis; high transportation costs prohibit extensive trade
between regions, except in regions where there are not sufficient local supply sources
. Furthermore, a United States tariff of $0.54 per gallon increases costs for importers,
although imports from certain countries are exempt, up to a specified limit, from this tariff.
. As of June 2006, in the United States, there are 86 producers using 101 plants. The top
ten producers account for 46.3% of total capacity of approximately 4.8 billion gallons .
The remaining producers primarily consist of farmer cooperatives.
Use of $238mm in IPO proceeds from 6.4mm shares
(shareholders intend to offer 1.3mm shares)
. $169mm to repay debt
. Remainder for general corporate purposes
Note:
. "Although we are continually exploring opportunities to increase production capacity, at
this time we have no specific plans other than the following: (i) the currently underway
6.5 million gallon dry mill pre-funded expansion of our Illinois facility (ii) we are in the
preliminary stages of evaluating a potential 220.0 million gallon per year brownfield
development (iii) we recently signed a letter of intent with the Aurora Cooperative to
develop a second 220.0 million gallon plant adjacent to our Nebraska facility and (iv) we
are also exploring a further 110.0 million gallon dry mill expansion in Pekin."