annual results announcement 2009 www.nzfsu.co.nz 26 August 2009 1 - - PowerPoint PPT Presentation

NZ Farming Systems Uruguay Limited

annual results announcement 2009

1

www.nzfsu.co.nz 26 August 2009

Agenda

• NZS to date
• Full year overview
• Key financials
• Market conditions
• Operating conditions
• Operational status

2

• Operational status
• Development status
• Productivity
• Cash status
• Immediate priorities
• Outlook

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 20131

3

• Full production expected to be reached in spring of 20131

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

• Steady development progress - 26 milking sheds now in
• peration
• 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

Full year overview

4

• 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

Year to 30 Jun 2009 $USm Year to 30 Jun 2008 $USm

Revenue 15.81 7.8 Livestock physical changes income 6.22 2.6 Livestock / cropping COGS (8.4) (2.3) Farm working expenses (22.7) (12.0) Administration and other expenses (6.5) (4.9)

Key financials – P&L

5

Administration and other expenses (6.5) (4.9) Operating result before fair value adjustments (15.6) (8.8) Fair value adjustments (23.9)3 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

Key financials – farm working expenses

Year to 30 Jun 2009 $USm Year to 30 Jun 2008 $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

6

• Table with key farm opex and comparatives

Pasture maintenance 5.7 2.1 Electricity & fuel 1.2 0.2 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

Year ended 30 Jun 2009 $USm Year ended 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 (2.1) (1.0)

Key financials – operating cashflow

7

Net interest paid (2.1) (1.0) Taxes paid (0.3) (1.0)

• Operating cashflow expected to improve as milk production increases

As at 30 Jun 2009 $USm As at 30 Jun 2008 $USm

Property, Plant & Equipment 174 165 Livestock 26 40 Cash and receivables 15 141 Liabilities 47 122 Equity 168 224

Key financials – balance sheet

8

Equity 168 224 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
• f 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

• 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

– US cow culling

Market conditions

NZFSU Farmgate Milk Price received (US cents/litre)

60

9

– US cow culling – US and European marginal milk production uneconomic at lower prices

• With demand growth starting to

re-appear, and supply growth slowed, prices are likely to move higher

• Uncertainty is “when”?

20 40 60 J u l S e p N

• v

J a n 8 M a r M a y J u l S e p N

• v

J a n 9 M a r M a y

• 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

Operating conditions

10

– 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

• Impact of new milking sheds evident in monthly milk production

Operating conditions – milk production

NZFSU Monthly Milk Production

4 5 6

Litres

Doña Celia

11

1 2 3

Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May Jul

Millions of Lit

Doña Celia Las Novillas Los Naranjales La Gandara Tobay Urchitano Flores Gerona Monasterio La Leticia Menafra San Pedro Caburé 2008/09 2007/08

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

(kgms per cow/yr)

290 240 Land in milk production (hectares) 10,500 4,700

Key operational statistics

12

Land in milk production (hectares) 10,500 4,700 Production

(kgms per hectare/yr)

420 380 Milking sheds 26 11 Capital expenditure for period

($USm excl livestock)

$28m $69m Farm working expenses

($USm)

$22.7m $12.0m

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 70 407 3%

(of dairy land)

Water piping km 93 900 1,300 90%

Development status

13

• 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

Water piping km 93 900 1,300 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 30 65 10%*

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

Productivity – monitor farms

14

– 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)

umulative Irrigated ectares

1,600 ha 3,200 ha

• Irrigation installation slower than originally planned but expected

to advance steadily in next twelve months.

Key Milestones

• Monasterio monitor farm first irrigation

pivot in operation since Nov 2008 – 70 hectares.

• Currently commissioning installed pivots

from proceeds of bond issue – expect 1,600 hectares irrigated for summer 09/10 Bond issue also permits further 1,600

Productivity – irrigation

15

• Ramp up of irrigation remains subject to sufficient available funding and

electricity project. Bond issue will permit eventual 3,200 hectares to be irrigated.

• Water availability – majority of farms in East have access to India Muerta dam,

with good availability of water. Other farms in Centre and West depend on own dams, however design spec anticipates sufficient water availability for irrigation. Good availability following winter rains.

Cum Hect Summer 08/09 Expected 10/11 Current

70 ha 407 ha

• Bond issue also permits further 1,600

hectares of pivots to be installed and electricity project to proceed – expected to be in operation summer 10/11

Summer 09/10

• Cashflow from operations has been negative due to milk price,

drought and company’s early stage of development

• Bond issue very positive signal in terms of accessing

development funding

• Development funding required following first bond issue of

$US30m is $US 50-60m for irrigation, milking sheds and livestock purchases on initial stocking

• Funding sources likely to be second bond issue, and potentially

Cash status

16

• Funding sources likely to be second bond issue, and potentially
• utright sale or sale & leaseback of some farms
• If current milk prices prevail then expect to be breakeven on
• perating cashflows from 2011/12 year – with upcoming two

years of cashflow deficits (~ $US 20m at 20c milk price or around half that at 25c milk price) until sufficient milk production achieved

• Maximise milk production from available feed
• Tight control on spending
• Targeted development from $US 30m bond issue

– Completion of a further five dairy conversions, taking total to 31, likely to initiate milking in autumn 2010 – Electricity infrastructure project – Irrigation – complete commissioning so as to have 1,600 ha in operation for summer 09/10 and further 1,600 ha which will be in operation for summer 10/11

Immediate priorities

17

for summer 09/10 and further 1,600 ha which will be in operation for summer 10/11

• Continue to advance further debt funding – second bond

issue during 2nd half of 09/10 year

• Once this is completed the majority of development will have

been funded

• International dairy prices expected to move decisively

upwards at some point – uncertainty over when

• Conservative position adopted in forecasting with prices

assumed near current levels for 09/10 year

• Milk production in 09/10 year expected to be almost double

08/09 at 80-85m litres

• Milking herd expected to grow to ~18,000 cows by June 2009

Outlook

18

• Milking herd expected to grow to ~18,000 cows by June 2009
• NZS expecting operating losses and operating cashflow deficit

in 09/10 year as development and production continue to ramp up

• Despite difficult year, the progress made confirms value

proposition remains compelling: – Internationally competitive dairy farming enterprise through lowest cost operation

• Market that remains short of dairy supply in the medium term
• Development risk substantially behind us

Summary

19

• Development risk substantially behind us

NZ Farming Systems Uruguay Limited

annual results announcement 2009

20

www.nzfsu.co.nz

• Livestock numbers increased slightly during the year to

53,000 however with more mature age profile

• Herd breakdown at June 2009 is

Appendix - livestock

Jun 2009 Jun 2008 Number Value USD 000's Value/ head Number Value USD Value/ head Dairy cows 28,100 18,000 640 14,700 18,200 1,240 Heifers 10,400 5,900 570 11,800 10,900 920 Heifer calves 6,800 1,500 220 13,200 8,400 640

21

• Dairy herd mortality rate has improved this year in mature

animals with 4.3% in dairy cows / 2.6% heifers however improvement still required in calf mortality rate at 12%

Heifer calves 6,800 1,500 220 13,200 8,400 640 Calves 4,600 400 90 1,000 100 100 Beef cattle 2,800 400 140 7,800 2,500 320 Other 300 100 330 1,800 300 170 Total 53,000 26,300 500 50,300 40,400 800