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AUSTRALIAN DAIRY FARMS GROUP ASX’s only vertically integrated dairy company
ADF + CDC = Vertical Integration
Dairy Farming - Processing - Own Brands - Exports
Fresh Milk - Specialty Milk - Organic Milk - Value Added Milk Products
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Commercial in Confidence This Presentation contains general information only and is, or is based upon, information which has been released to ASX. This document is not an invitation, offer or recommendation (express or implied) to apply for or purchase or take any other action in respect of securities and is not a prospectus, product disclosure statement or disclosure document for the purposes of the Corporations Act 2001 (Cth) and has not been lodged with ASIC. None of Australian Dairy Farms Group and its Associates1, (collectively the “Issuer Network") is providing or offering investment advice or services by making this Presentation. Neither the Group nor any of the Issuer Network makes any representation, warranty or guarantee of any kind, express or implied, as to the accuracy, completeness or reasonableness of the information contained herein or any other written or oral communication transmitted or made available to any Recipient. To the maximum extent permitted by law, the Group and its affiliates and representatives expressly disclaim any and all liability based on or arising from, in whole or in part, such information, or any errors or omissions. Forward-Looking Statements This Presentation contains certain statements which constitute forward-looking statements or information (''forward-looking statements"), including statements regarding the use of proceeds of any funds available to the Group. These forward-looking statements are based on certain key expectations and assumptions, including assumptions regarding the general economic conditions in Australia and globally, industry conditions in Australia and the intended operations of the Group. These factors and assumptions are based upon currently available information and the forward-looking statements contained herein speak only as of the date hereof. Although the Group believes the expectations and assumptions reflected in the forward-looking statements are reasonable, reliance should not be placed on the forward-looking statements as the Group gives no assurances that they will prove correct and because forward-looking statements are subject to known and unknown risks, uncertainties and other factors that could influence actual results or events and cause actual results or events to differ materially from those stated, anticipated or implied in the forward-looking statements. These risks include, but are not limited to: uncertainties and other factors that are beyond the control of the Group ; global economic conditions; risks associated with the global dairy industry; commodity prices, exchange rate changes; operational and seasonal risks associated with farming; delays or changes in plans; specific risks associated with the ability to execute production contracts, ability to meet work commitments and capital expenditures; and risk associated with securities market volatility. The Group assumes no obligation to update any forward-looking statements or to update the reasons why actual results could differ from those reflected in the forward-looking statements, except as required by Australian securities laws and ASX Listing Rules. 1Associates of Australian Dairy Farms Group include any of its directors, employees, contractors, advisers, brokers, consultants and their respective employees and representatives. References to "Australian Dairy Farms”, the "Group" Australian Dairy Farms Limited, Australian Dairy Farms Trust and its trustee are references to Australian Dairy Farms Group or its constituent entities.
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Introduction
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At the Start Australian Dairy Farms Group (“AHF” or “Group”) listed on ASX in October 2014 to be an owner and operator of Australian dairy farms
undertaking farm consolidation in Australia’s fragmented dairy supply industry – focussed initially on South Western Victoria one of the country’s premier dairy regions.
Market capitalisation increased from $14.4m at listing to approximately $50.0m as at 5 February 2016.
In the Interim Since listing with two farms, AHF has acquired four additional farms of which two adjoining properties have been consolidated into a single
operational unit with one farm manager. AHF intends to continue to expand its farm portfolio by steadily acquiring additional farms which satisfy the size and quality parameters set by
the board. Farms are being identified in separate geographical hubs or clusters where eventually each 6 – 10 farms cluster supports an Operations
Manager supervising individual farm managers. Currently two clusters: Brucknell (4 farms) and Heyward / Drumborg (1 farm) Extensive drainage, water preservation, paddock and laneway development as well as herd management and records improvements
undertaken to position for increased milk supply efficiency in the years ahead.
In 2016 and going forward On 28 December 2015 AHF announced a contract to acquire milk specialist processor and dairy manufacturer, Camperdown Dairy Company
(“CDC”) for $11m located 30 minutes by milk tanker from the Brucknell farm cluster. Completion Q1 2016. AHF will become ASX’s first vertically integrated dairy entity as a milk farmer, processor, manufacturer and exporter from existing operations of
the combined business activities.
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Location – Camperdown Dairy Company & AHF farms
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CDC is approximately 30 minutes drive from AHF’s existing Brucknell farm hub. All farms are within a transportable distance via milk tanker. Camperdown is a picturesque town with natural lakes on the inland section of the Great Ocean Road tourist circuit
SW VIC DAIRY REGION
Heywood Brucknell 1,2,3 & 4 Camperdown Dairy Company (CDC)
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Corporate Profile and Statistics
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Corporate Statistics @ 5 February 20161
ASX Code AHF
Security price (5 February 2016) $0.30
12 month security price range $0.125 - 0.59
Stapled Securities on issue (3 February 2016) 166,184,8282
Options (A$0.25 exercised by 31 March 2016) 14,755,502
Number of Security-holders 4,855
Convertible Notes (A$10k face value, A$0.20 conversion price, repayment by 23 October 2016) $2.35m
Market capitalisation excluding options and notes $49.8m
Average daily trade volume during January 2016 5.1 million
Cash $3.34m
Bank and Lease Debt $0.995m
1 All statistics are pre settlement of CDC and conversion of remaining options 2Australian Dairy Farms Group is listed as a stapled security comprising one fully paid share in Australian Dairy Farms Limited (the Company) and one fully paid unit in Australian Dairy Farms Trust (the Trust). Within the structure, the Company is the operator and manager of the dairy farm properties which are leased from the Trust as the registered owner.
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CDC Transaction Highlights
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AHF has entered into a binding agreement to acquire 100% of the shares in the Camperdown Dairy Company Pty Ltd (“Camperdown” or “CDC”) for a total consideration of A$11.0m
CDC is an established boutique dairy processor located in SW Victorian dairy country. Key attributes include: Located within 30 minutes of the Group’s primary Brucknell farms Capable of processing up to 36m litres pa – current utilisation of 50% provides capacity for growth Commissioned in 2009 and currently producing milk, butter, cream, yoghurts and organic dairy products Established customer base including Woolworths and Aussie Farmers Direct Experienced management and operations team remains in place Currently exporting fresh milk and yoghurt into China One of only a few companies with rapid clearance China Inspection Quarantine Certification (CIQ) for milk and
yoghurt Seven days or less from farm to retail in mainland China via air freight Higher margin than domestic sales and expected to grow rapidly
CDC established the “Camperdown Dairy” brand – being rolled out in Vic Woolworths stores and independent retailers
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CDC Transaction Highlights
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Highly accretive acquisition – full year benefit to flow through in FY 2017 Acquisition to be fully funded by existing cash and debt - settlement/completion expected in Feb 2016
AHF to become the ASX’s only vertically integrated dairy company with: Security of milk supply from owned farms adding to existing supply contracts Modern dairy processing facility - milk, butter, yoghurt, cream Established brand “Camperdown Dairy” Established domestic distribution channels Established Export business operations – including mainland China
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Financial Position – post CDC acquisition and option conversion
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ADFG 31.12.15 Options Debt CDC Pro-forma
$'000 $'000 $'000 $'000 $'000 ASSETS Current Assets Cash and Equivalents 1,434 5,929 5,000 (10,150) 2,213 Trade and Other Receivables 484 484 Inventories 209 209 Other Current Assets 181 181
2,307 5,929 5,000 (10,150) 3,086 Non-Current Assets Biological Assets (i) 3,985 3,985 CDC Acquisition - 11,000 11,000 Land and Buildings 21,334 (1,000) 20,334 Plant and Equipment 2,367 2,367
27,686 - - 10,000 37,686 TOTAL ASSETS 29,993 5,929 5,000 (150) 40,772
LIABILITIES Current Liabilities Trade and Other Payables (947) (947) Provisions (32) (32) Borrowings (ii) (2,520) (2,520)
(3,498) - - - (3,498) Non-Current Liabilities Borrowings (985) (5,000) (5,985)
(985) - (5,000) - (5,985) TOTAL LIABILITIES (4,483) - (5,000) - (9,483) NET ASSETS 25,510 5,929 - (150) 31,289
TOTAL EQUITY (ii) 25,510 5,929 - (150) 31,289
Total Liabilities to Total Assets Ratio 23.25% (includes Convertible Notes) Net debt to Total Assets 14.7% (includes Convertible Notes) Net bank debt to Total Assets 9.25% (excludes Convertible Notes) Pro-Forma Statement of Financial Position This table shows a pro-forma summary of the assets and liabilities of the ADF Group assuming completion of the CDC acquisition and full Loyalty Option conversion. The pro-forma financial position is based on the management (unaudited) accounts of ADFG at 31 December 2015 and adjusted for main capital structure and borrowings changes. • Column “ADFG 31.12.15” refers to unaudited Management Accounts for the
consolidated Australian Dairy Farms Group at that date
• Options - $5,929m refers to Loyalty Options not exercised at 31 December 2015. Approximately $2.95m of additional exercise capital was received by 3 February 2016 and has been or is in the process of being converted to Stapled Securities.
• The balance of Loyalty Option funds outstanding has been either fully underwritten of under firm commitment
(i) Biological Assets refers to dairy livestock (ii) The Convertible Note including accrued interest, comprises a debt allocation of $2,239m under Borrowings and an equity allocation of $0.308m included in Total Equity as required under accounting standards
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Dairy farm production and price estimates1
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FY 2016 FY2017
Assumes no additional farm acquisitions
Farm Hectares 1,391 1,391
Farm Acres 2,841 2,841
Herd Size Capacity Actual
1,800 1,600
2,100 2,100
Est. Annual Production
12,500,000 litres 912,500 kgMS
16,500,000 litres 1,204,500 kgMS
Est. Price $6.00 per kgMS $6.00 per kgMS
Est. Revenue (milk & livestock)
$5,600,000
$7,600,000
The above figures are estimates made at the time of publication. Estimates are subject to seasonal , market and other changes as detailed on Page 1
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AHF & CDC chronology
• CDC was originally established as a supplier of milk to Aussie Farmers Direct, and within 5 years CDC has evolved into a business producing a range of consumer dairy products for multiple customers
• AHF listed in October 2014 as ASX’s first listed dairy farmer with 2 farms, has grown to 6 farms and a market capitalisation of $50m plus and moved into processing and export with the acquisition of CDC announced December 2015
Feb 2014 Jun 2014 Dec 2014
CDC Joint venture with Organic Dairy Farmers
Australia (ODFA)
CDC Commences butter
production
CDC - Commences yoghurt
production
CDC commences export
of fresh milk
CDC - Farmers Ow n milk products for Woolworths
contract
CDC Begins operations, processing milk for
Aussie Farmers Direct
April 2010
CDC Factory commissioning
commences
Feb - May 2011
Single Customer Multi Customer
CDC Commences cream
production
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Feb 2011 May 2011 July 2013 Dec 2015
Feb 2013
ADFT acquires Brucknell No 1
Farm
Aug 2014
AHF issues initial capital raise Offer with Brucknell No
2 Farm
Oct 2014
AHF list as ASX’s first dairy farmer
after raising $9.3m
AHF issues initial capital
raise Offer with Brucknell No 2
Farm
AHF acquires Ignatios
Farm
Jan 2015
Apr 2015
AHF acquires Brucknell No 3 Farm
May 2015
AHF acquires Brucknell No 4 Farm
AHF secures $17.7m
placement and SPP
July 2015
Sept 2015
AHF acquires Heywood / Drumborg
Farm
AHF announces
CDC Acquisition
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Why Camperdown Dairy Company (CDC)?
Victoria is Australia’s largest dairy state with a rich heritage of producing some of the best quality and most coveted consumer dairy products globally.
Continuing solid growth in market demand is projected, underpinned by the strong emerging demand from China and government trade policy support (e.g. ChAFTA and the elimination of trade barriers generally).
Well established and profitable
business
Attractive market with strong growth fundamentals
Unique capability for the export of fresh dairy products into China
Experienced management
team
Scalable platform for continuing
growth
Established in 2010 in Victoria’s historical dairy heartland, Camperdown, CDC has a successful history of business growth and profits, producing quality consumer dairy products including fresh milk, yoghurt, butter and cream.
At the core of CDC’s business is a customer first mantra that enables it to flexibly scale according to customer demand for national supply and equally for short run, bespoke supply.
CDC has well established milk supply via contracted arrangements with a number of quality suppliers.
CDC is one of only two dairy companies1 in Australia with China Inspection Quarantine Certification (CIQ) for the rapid clearance of fresh milk into China (7 or less days from farm to shop).
Underpinning this capability is CDC’s quality system that is industry best practice.
The CDC team, led by Peter Skene and Chris Melville, has deep dairy manufacturing expertise and over 100 years’ in combined experience.
Peter and Chris are both committed to delivering strong growth of the Business.
CDC has a number of attractive growth opportunities available to the Business.
The Business has ample available plant capacity to capture growth without the need for significant capital expenditure (current plant utilisation at c. 50%).
Note: To the best of managements knowledge
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CDC has a growing blue chip customer base
• Aussie Farmers Direct (“AFD”) represents 44.6% of total sales1 from 100% two years ago. As the composition of the customer base continues to evolve, the opportunity to grow sales w ith these customers becomes increasingly attractive
Largest and only national direct to consumer e-tailer of fresh food products in Australia
Over 60,000 active customers
Owner of AFD branded dairy products and distributor of CDC branded products
CDC has a two year supply agreement with AFD
Customer Relationship Comments
A cooperative of 16 dairy farmers in Victoria
Produces over 70% of Australia’s organic milk
Distributes ‘Organic Dairy Farmers’ and ‘True Organic’ brands
CDC has a ten year joint venture agreement beginning in 2013 with ODFA
Growing export business with government approval to export milk and yoghurt to China
Currently sold via two distributors
Significant opportunity to add further customers in Asia
3 years
Australia’s largest supermarket retailer
Operates circa 952 retail stores and has 14.6m customers per week1
Owner and distributor of Farmers Own brand of fresh milk
CDC has a two year supply agreement with Woolworths
1 year
5 years
1 year Export
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Growth opportunities
Continue to grow China and Asian export business
CDC is one of two players exporting to China with rapid clearance accreditation for fresh milk. The Business is in discussions with a number of potential customers to grow export sales in Asia. 01 02
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Expand Farmers Own product offering
CDC has proven itself as a safe and reliable manufacturer of Farmers Own milk (a brand owned by Woolworths). CDC is working with Woolworths to expand the Farmers Own product range into other consumer dairy products.
Expand ”Camperdown Dairy” brand into independent channels
CDC has a strategy to better service the independent retail channel under the Camperdown Dairy banner.
Rollout of “Camperdown Dairy” brand into Woolworths
Management are working to expand the distribution of Camperdown Dairy branded milk, yoghurt and butter in Woolworth’s stores. This will initially focus on Woolworth’s Western Victorian regional stores and then Victoria wide.
New product development CDC is focused on producing exciting new and innovative products - pouch yoghurt, drinking yoghurt, and buttermilk to meet customer demand, grow brand recognition and drive sales of Camperdown Dairy branded products.
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Farm Optimisation Focus on building farm value through risk minimisation through improved drainage, water storage and possible conversion of wetter farms to smaller Jersey breeds
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06
07
Investigating Farming Initiatives AHF is actively investigating opportunities for acquisition of existing organic farming acquisitions or conversions and acquisition and rental of in transferrable water licences
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CDC has developed and commenced distribution of “Camperdown Dairy” branded dairy and yoghurt products through both independent and major retailers.
Camperdown Dairy branded products include milk, yoghurt, butter and cream. A key focus of management and a driver of future growth is the further development of “Camperdown Dairy”
products for both domestic and export markets.
Growth Opportunities - “Camperdown Dairy” brand
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Woolworths developed the Farmers’ Own brand as an end-to-end link between the farmer and the customer.
As an existing supplier of contract manufacturing solutions to Woolworths CDC is well placed to broaden and grow the volume its market size.
Arrangements progressively being negotiated with several Independent distributors and Retail chains
Concentration is on premium milk and milk product brands not house brands Value added products already building volumes include Yoghurt pouches
Growth Opportunities – Domestic Markets
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China and Asian export strategy is a key focus of management and is expected to be a key driver of future growth
The initial focus is on the export of fresh milk and yoghurt via importers and distributors, and then moving to a direct importation model once critical mass achieved.
CDC has commenced the export of fresh milk by air freight via a Chinese based importer
CDC management is currently in advanced discussions with an established Chinese distributor with a view to exporting and selling fresh milk on a co-branded basis
Growth Opportunities - Asian export
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CDC is one of only two dairy companies in Australia with China Inspection Quarantine Certification (CIQ) for the rapid customs clearance of fresh milk and yoghurt into China
Certification is a material barrier to entry for other producers Management have been building relationships in China for the last 3 years Currently selling fresh milk and yoghurt into China via air freight to Shanghai – customer numbers increased to 4 representing large retail
chains Fresh milk and yoghurt is sold for export at substantially higher margins than fresh milk sold into the domestic market CDC is in advanced discussions with various importers and distributors in China that could lead to substantially larger volumes in FY17 AHF has the milk supply, production capacity and access to capital to service this potential demand
China exports and certification
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Raw materials Transport
(to Melbourne airport) Distribution
(China) Arrival
(in Shanghai) Manufacturing (Camperdown)
Customer 1
Customer 2
Importer or CDC sources raw CDC manufacture Third party transports Customs cleared Local distribution distributor orders materials product to product to Tullamarine, and goods sent to company engaged from CDC formulation and
volume specifications
typically overnight free trade zone in Shanghai (via international air- freight)
to pick, pack and distribute
From Victorian dairy farm gate to Shanghai supermarket shelves in 7 days
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CDC’s continued expansion into Asia is well supported by strong growth fundamentals
A number of trends underpin growing demand in the Asian market for Australian consumer dairy products
Note: 1. FAO
Reflecting people’s growing health awareness (e.g. a minimum daily intake of calcium and protein), per capita consumption of milk products in China has risen from 7.8 litres in 2008 to 16.8 litres in 20141
In Asian markets in particular, food safety and source of origin are of critical concern. Australia is known for its safe, clean and high quality food products
Rising Chinese middle class
Health, wellbeing, and food safety
Government trade policy and support
Geographic proximity to Asia
With increasing wealth and affluence, the rising middle class of emerging countries are increasingly demanding fresh consumer dairy products
Most dairy volume growth is expected to come in particular from China, where the middle class is projected to grow from 25% of the population in 2015 (c.350m people) to 35% by 2026 (c.500m people)
Government trade policy support such as ChAFTA (China-Australia Free Trade Agreement) and the elimination of trade barriers generally is supporting the demand for Australian consumer dairy products in Asia
On full implementation of ChAFTA, all tariffs on Australian dairy imports to China will be abolished
Australia, with its close geographic proximity to Asia is uniquely positioned to capture a greater share of international fresh consumer dairy product sales
Sources: FAO, Euromonitor, DFAT
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There is a small number of boutique consumer dairy players of scale in Victoria
CDC is the only boutique player with capabilities across milk, yoghurt, butter and cream
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Sources: Mergermarket, Company360, S&P Capital IQ
Company Description FY14 revenue Milk Yoghurt Butter Cream
Established in 2010 Production facility in Camperdown, Western Victoria Distribution through AFD, Woolworths and export markets
$15m
Established in 2000 in New Zealand Specialty branded products that contain A2 beta-casein protein Products sold in Australia, Asia, North America and Europe
$100m
Established in 1922 in the Riverina region of NSW Manufacturing plant based in Northern Victoria Supplies food service channels
na
Melbourne based family owned company Milk processing plant in Melbourne Supplies branded and private label milk products
$60m
JV with Pactum Dairy in Northern Victoria (Goulburn Valley) Australia’s Own Organic and Blue Diamond Almond Breeze brands
$90m
Established in Melbourne Production facilities in Melbourne and Western Victoria (Colac) Distribution of branded and private label products
na
Manufacturer of organic yoghurt Manufacturing facility in Carrum Downs, Melbourne Recently purchased by PZ Cussons for 15.2x Historic EBITDA
$35m For
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Collects milk from local farmers and sells to CDC and other customers
Has supplied raw milk to CDC since formation
Yearly contract for the supply of raw milk
2010
Collects milk from farmers and sells to CDC and other customers
Supplier of raw milk to Woolworths for Farmers Own milk 2014
A cooperative of 16 dairy farmers based in Victoria1
Produces 70% of Australia’s organic milk1
CDC processes organic milk on behalf of ODFA that goes into the
production of organic butter via the JV arrangement between the two companies
2013
CDC has contract raw milk sourcing arrangements
CDC has strong relationships w i th dairy farmers thereby ensuring secure access to an abundant supply of quality milk. Fresh raw milk is quickly and efficiently transported to CDC from supplying farms (typically w i thin 24 hours from CDC order)
Commencement Background
Note: 1: Organic Dairy Farmers of Australia website
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HACCP Dairy Food Safety
China Inspection Services
Australian Quarantine and Inspection Service
Woolw orths Quality Accreditation
National Association for Sustainable Agriculture
CDC maintains high quality accreditations and compliance standards
CDC is committed to producing goods to the highest quality standards. The commitment extends to ensuring that all the necessary compliance and regulatory standards are met
Quality Assurance Industry Certifications Awards
Dairy Industry Association of Australia 2015
Dairy Industry Association of Australia 2014
Dairy Industry Association of Australia 2013
Dairy Industry Association of Australia 2012
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HACCP Dairy Food Safety
China Inspection Services
Australian Quarantine and Inspection Service
Woolw orths Quality Accreditation
National Association for Sustainable Agriculture
AHF Contacts
Dairy Industry Association of Australia 2015
Dairy Industry Association of Australia 2014
Dairy Industry Association of Australia 2013
Dairy Industry Association of Australia 2012
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For additional company information or media matters please contact: James Moses Managing Director Mandate Corporate Bus: +61 2 8211 0612 Mob: +61 420 991 574 Email: [email protected] Adrian Rowley Director Australian Dairy Farms Limited Bus: +61 3 9629-9900 Mob: +61 4 4880-3768 Email: [email protected]
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