Annual results announcement Year to 30 June 2010 www.nzfsu.co.nz - - PowerPoint PPT Presentation

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www.nzfsu.co.nz

NZ Farming Systems Uruguay Limited

Annual results announcement

Year to 30 June 2010

23 August 2010

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• Overview
• Key financials
• Funding
• Market conditions
• Operating conditions
• Milk production
• Management internalisation
• Outlook
• Summary
• Investor tour

NZFSU Annual Results

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• Operating loss reduced and consistent with previous guidance
• Revenue 42% higher, with continued growth in milk production
• Much lower growth in costs despite higher production and

larger dairy platform

• Farm values steady, livestock values up 22%
• Favourable weather, with good rainfall, for most of the year
• A year of consolidation on productivity
• Development progress as planned – 5 new milking sheds,

further irrigation, electricity infrastructure project underway

• Higher milk prices tempered by easing in the latter months
• Further improvement in operating results expected in current

year, with profitability in the 2012 year

• Competing funding/takeover proposals could remove funding

uncertainty on completion

Overview

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Year ended 30 June 2010 $USm Year ended 30 June 2009 $USm

Revenue (1) 22.5 15.8 Livestock natural growth (2) 2.0 6.2 Livestock cost of sales 3.7 8.5 Farm operating expenses 25.1 22.4 Mgmt fee / depreciation / other expenses 6.1 7.5 Operating loss from farming activities (3) (10.4) (16.4) Gain due to farm sales 0.3 0.8 Fair value adjustments(4) 7.3 (26.3) Interest / finance costs 5.2 3.8 Tax (benefit) / expense (0.1) 0.1 Net profit after tax (NPAT) (7.9) (45.8) (1) Milk revenue $18.8m, livestock sales $2.4m, other $1.3m (2) Livestock natural increase generated income of $2.0m – lower than prior year due to more mature livestock age profile and lower opening livestock prices (3) Before price movements in Livestock and Property (4) Fair value adjustments – farm revaluations in P&L $1.1m, livestock revaluations $6.2m

Key financials – P&L

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• Expenses up only 12% despite 52% rise in production, with increases in labour and feed,

and R&M

• Growth in employee expenses in line with growth in operations and affected by peso

strength

• Operational base grew to 31 dairies by end of year, vs 26 in 2009

Year ended 30 June 2010 $USm Year ended 30 June 2009 $USm

Labour 4.2 3.4 Pasture expenses (mtce fert, urea) 5.4 5.7 Farm repairs & mtce 1.7 0.7 Farm management 0.9 1.0 Animal health, breeding, calf rearing 2.9 2.7 Cropping and feed (forage crops, supplementary feed) 6.1 4.9 Other farm expenses 3.9 4.0 TOTAL 25.1 22.4

Key financials – farm operating expenses

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Year ended 30 June 2010 $USm Year ended 30 June 2009 $USm

Property, Plant & Equipment 169 174 Livestock 35 26 Cash and other assets 25 16 Liabilities 71 47 Equity 158 169 Net Tangible Assets (US cps) 65c 70c Net Tangible Assets (NZ cps) 92c 100c

• Farm valuations largely steady, with small increases in Centre and East, offset by

some decreases

• Livestock valuation lifted by 22%
• Bond issue during year increased liabilities

Key financials – balance sheet

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• Support of Uruguayan institutions for $US30m bond issue funded

new irrigation, milking sheds and electricity infrastructure

• Sales of undeveloped properties raised $US15.7m, with a further

$US7m under conditional contract

• Part payment of $5m on performance fee loan from PGW, leaving

remaining liability of $9.7m

• Around $US60m funding required to complete development,

purchase livestock and repay PGW debt. Development planned to be completed over next two years approx

• Indications of support from takeover offerors

Funding

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• International dairy prices recovered faster than expected, then eased toward

the end of the year

• Price trend up from US20c/litre in July 09 to US35c in May 10 then US30c in June
• Average price of US28c/litre compared with US23.7c/litre in FY09
• Ongoing volatility expected however prices anticipated to remain high

– Significant demand from China – Grain-fed dairy likely to again come under pressure with high grain prices driven by Russian export restrictions

Market conditions

NZFSU Farmgate Milk Price received (US cents/litre)

10 20 30 40 50 Jul Sep Nov Jan 08 Mar May Jul Sep Nov Jan 09 Mar May Jul Sep Nov Jan 10 Mar May

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• Favourable spring and summer conditions with good rainfall

distribution

• Irrigation, where available, used to maintain moisture and

grass growth after rainfall

• Surplus grass converted into silage
• Number of spring calvers dried off early after bad weather

in February. Subsequent recovery in pastures and focus on livestock body condition

• Upcoming spring calving herds in excellent condition

Operating conditions

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• Production up from 44.6m to 68m litres for the year – below anticipated

range due to February/March weather disruption

• Condition of milking cows recovered in the first half from the after-effects of

earlier drought

• Spring peak of 8.5m litres in October, and 20,000 milking cows in November

Milk production (1)

NZFSU Monthly Milk Production

1 2 3 4 5 6 7 8 9

Jul Aug Sep Oct NovDec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul

Millions of Litres

Sta Elvira Higueron Doña Celia Las Novillas Los Naranjales La Gandara Tobay Flores/Sta Rita Gerona Monasterio La Leticia Menafra San Pedro Caburé

2008/09 2009/10

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• Farm expenses per litre fell rapidly as production increased
• FY10 expenses of $25.1m equate to 37c/litre compared to

50c/litre in FY09 – includes dry stock expenses not just dairy

Milk production (2)

NZFSU Milk Production vs Farm Working Expenses Rolling 12 mths to date

10 20 30 40 50 60 70 80 J u n

• 8

A u g

• 8

O c t

• 8

D e c

• 8

F e b

• 9

A p r

• 9

J u n

• 9

A u g

• 9

O c t

• 9

D e c

• 9

F e b

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A p r

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Millions of USD and litres

Milk production (m lits) Farm Working Exps (USD m)

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• Terms for ending the Management Agreement with PGW

agreed, effective 19 July

• Subject to bank, bondholder and shareholder approval.
• Board now preparing for internalisation of management, if

approved – Enhanced accountability and decision-making – Anticipated cost savings c. US$1.5m/year

• Search process for CEO to be based in Uruguay commenced

Management

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• Forecast production of 100 million litres for FY11
• Milk prices forecast at just over 30c/lit in 10/11
• Projected EBIT loss halved this year to around $US5m
• On that basis, positive operating earnings in 2011-12

Outlook

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• Year of consolidation and steady growth, with tight

management of operating costs

• Production profile improving with farm development, irrigation

and focus on feed and management

• Dairy price outlook remains favourable
• Funding proposals could remove uncertainty on funding

development

• Steady state production expected on average on all farms in

2015 calendar year – a number of farms earlier

Summary

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• Upcoming tour of NZS’ farms in Centre and East of

Uruguay, 26-29 September

• Register interest on website www.nzfsu.co.nz

Investor Tour

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www.nzfsu.co.nz

NZ Farming Systems Uruguay Limited

Briefing on Annual Results

Year ended 30 June 2010