NZ Farming Systems Uruguay Limited annual results announcement 2009 www.nzfsu.co.nz 26 August 2009 1
Agenda • NZS to date • Full year overview • Key financials • Market conditions • Operating conditions • Operational status • Operational status • Development status • Productivity • Cash status • Immediate priorities • Outlook 2
NZS to date • IPO in Dec 2006 • Land holding of 35,500ha – farms purchased in 2007 and 2008 • Milk production rampup slower than desired. Operations now gathering some momentum but set back with recent drought • Now the largest milk producer in Uruguay • Full production expected to be reached in spring of 2013 1 • Full production expected to be reached in spring of 2013 1 following completion of development by June 2012 • Challenging climatic conditions, difficulty in accessing development funding, and low international dairy prices have had a significant impact, overshadowing progress towards long term goals 1 Subject to funding and climatic conditions 3
Full year overview • Steady development progress - 26 milking sheds now in operation • Very challenging year with perfect storm of drought, global financial crisis and sharply lower dairy prices • Operating loss due to low milk price, drought and limited irrigation • However some bright spots • However some bright spots – Recent bond issue providing greater certainty around funding – Performance and durability of irrigated pastures – International dairy prices appearing to have bottomed out – Talent development in farming team 4
Key financials – P&L Year to Year to 30 Jun 2009 30 Jun 2008 $USm $USm 15.8 1 Revenue 7.8 6.2 2 Livestock physical changes income 2.6 Livestock / cropping COGS (8.4) (2.3) Farm working expenses (22.7) (12.0) Administration and other expenses Administration and other expenses (6.5) (6.5) (4.9) (4.9) Operating result before fair value adjustments (15.6) (8.8) (23.9) 3 Fair value adjustments 14.3 Performance fee - (13.6) Interest / financial exps / tax (6.4) 0.1 Net profit after tax (NPAT) (45.9) (8.0) 1. Milk revenue $10.0m, livestock sales $4.3m, other $1.5m 2. Livestock physical changes income – births, natural growth, less deaths 3. Fair value adjustments includes land writedown of $3.6m and livestock writedown of $20.2m – both are non-cash items 5
Key financials – farm working expenses Year to Year to 30 Jun 2009 30 Jun 2008 $USm $USm Personnel expenses 5.1 3.1 Animal health & breeding, and calf rearing 2.7 0.4 Cropping and feed costs 5.2 4.3 Repairs & maintenance 0.7 0.5 Pasture maintenance 5.7 2.1 Electricity & fuel 1.2 0.2 • Table with key farm opex and comparatives Other farm working expenses 2.1 1.4 Total farm working expenses 22.7 12.0 • Milk production has tripled and the number of milking sheds in operation more than doubled this year • Farm working expenses therefore increased although by a lesser percentage due to some scale economies and cost reductions. Last 3 months spend has been equal to the 3 months of corresponding period of prior year despite higher milk production • Cropping and feed costs again high due to climatic conditions 6
Key financials – operating cashflow Year ended Year ended 30 Jun 2009 $USm 30 Jun 2008 $USm Operating cashflow total (22.2) (18.8) Operating cashflow breakdown Receipts from customers 16.2 6.5 Payments to suppliers / employees (36.0) (23.3) Net interest paid Net interest paid (2.1) (2.1) (1.0) (1.0) Taxes paid (0.3) (1.0) • Operating cashflow expected to improve as milk production increases 7
Key financials – balance sheet As at As at 30 Jun 2009 $USm 30 Jun 2008 $USm Property, Plant & Equipment 174 165 Livestock 26 40 Cash and receivables 15 141 Liabilities 47 122 Equity Equity 168 168 224 224 Net Tangible Assets (US cps) 69c 92c Net Tangible Assets (NZ cps) 106c 120c • Land and livestock revaluations at Jun 2009 resulted in non-cash writedowns of US$36m due to mark to market. • Cash assets and liabilities both reduced due to elimination of previous back to back funding arrangement of US$96m Net asset backing now stands at just over NZ$ 1.00 per share based on Jun • 2009 independent valuations for land and livestock 8
Market conditions • Global recession / financial market turmoil – Consumer demand remains somewhat weak, although starting to pick up in Asian and Middle Eastern markets, which are key for dairy. Recovery likely to be gradual and extended – Difficulty accessing capital • Major reduction in dairy prices, to 2007 levels – latest US20 cents per litre, equivalent to ~ $US2,100/mt WMP and ~ $NZ4.30 / kgms payout • Lagged supply response to date NZFSU Farmgate Milk Price received (US cents/litre) – US cow culling – US cow culling 60 60 – US and European marginal milk production uneconomic at lower prices 40 • With demand growth starting to 20 re-appear, and supply growth slowed, prices are likely to move 0 v v l p 8 r y l p 9 r y u u e o 0 a e o 0 a a a higher J J S N M S N M M M n n a a J J • Uncertainty is “when”? 9
Operating conditions • Excellent spring conditions with strong pasture growth – Ample feed in late spring – Excess grass available for silage, however used in Q2 for feed – Strong milk production performance • From October, low rainfall led to worst drought in Uruguay for 30 years – Major reduction in soil moisture and pasture growth – Some cows dried off early – Some cows dried off early – Supplementary feed cost extra $US300,000/month during drought • Irrigation delayed by lack of funding, electricity availability and lack of water in dams – Irrigated pastures showed strong potential with dry matter production around 15.5 tonnes for the year on Monasterio, and good durability 10
Operating conditions – milk production • Impact of new milking sheds evident in monthly milk production NZFSU Monthly Milk Production 6 5 Litres 4 Doña Celia Doña Celia Millions of Lit Las Novillas Los Naranjales 3 La Gandara Tobay Urchitano 2 Flores Gerona Monasterio La Leticia 1 Menafra San Pedro Caburé 0 Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May Jul 2007/08 2008/09 11
Key operational statistics Jun 2009 Jun 2008 Total livestock (period end) 53,000 50,200 Milking herd (period end) 11,300 5,600 Milk price (US cents/lit avg) 23.7 39.7 Production (litres) 44.6m 13.4m Production 290 240 (kgms per cow/yr) Land in milk production (hectares) Land in milk production (hectares) 10,500 10,500 4,700 4,700 Production 420 380 (kgms per hectare/yr) Milking sheds 26 11 Capital expenditure for period $28m $69m ($USm excl livestock) Farm working expenses $22.7m $12.0m ($USm) 12
Development status Dec 07 Jun 08 Jun 09 % of total development Milking sheds 6 11 26 50% Dams 2 7 11 65% Houses for farm staff 3 17 62 70% Irrigated hectares 0 70 407 3% (of dairy land) Water piping km Water piping km 93 93 900 900 1,300 1,300 90% 90% Water troughs 800 3,000 5,000 90% Fencing km 240 900 1,800 90% Roading km 8 300 470 85% HT electricity km 0 30 65 10%* • Majority of farm infrastructure is now in place, around half of milking sheds completed, but significant further investment required in irrigation • * Electricity includes improvement of electricity infrastructure, with project under development with Government authorities. 10% is estimate of spend to date 13
Productivity – monitor farms Solid progress towards targets which provides confidence in the NZFSU model 1 • Milk production for the year – production range on both monitor farms: – Per cow production 320-340 kgms for 08/09 year – Per hectare production 680-700 kgms for 08/09 year – Comparative averages across all farms are 290 kgms / cow and 420 kgms / ha • Pasture growth – Non-irrigated land ~9 mt Dry Matter / hectare this year despite severe drought impact – Irrigated land ~15.5 mt Dry Matter/ha at Monasterio – Both figures are not yet at steady state targets. Ongoing improvements anticipated through further irrigation, improved pasture productivity and soil fertility (fertiliser) 1 Figures are total dairy and pasture production from monitor farms Monasterio, which had 70ha irrigated (20% of total dairy area) and Menafra 322ha (50% of total dairy area but not irrigated in first half year due to lack of water in dam) 14
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