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1
NZ Farming Systems UruguayNZ Farming Systems Uruguay
Briefing on trading results
and operations
Six months to 31 December 2007
3
OverviewOverview
• Second six months in the establishment year
• Strong foundation laid for success
• Impact of boom in dairy prices
– Accelerated land purchases
– Expanded capital base
• Farm development program accelerated
• Listing within NZX50
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Capital base expanded
• IPO in December 2006 raised NZ$105m
• Institutional placement of NZ$39m in April 2007
• Call of remaining 50c per share in December 2007
• Institutional placement and rights issue in December 2007 raise additional NZ$110m
• Shares on issue now 244.2m
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Key financialsSix months to Dec 2007US$m
Revenue 3.3
Performance Fee expense 9.2
NPAT1 (6.8)
Assets 297
Liabilities 105
Equity 192
1Net profit from operations are expected to be in line with plan of $1 million excluding performance fee
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BackgroundBackground
NZS formed in 2006 to capitalise on:
• High international prices for milk commodity products
• Potential to boost productivity
• High quality, low cost farm land and conversion to NZ-style pasture-based dairy farms
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Substantial increase in milk prices
• Uruguayan milk price increased from US18c to US31c per litre between Dec 06 and Dec 07
• Record prices are due to supply constraints and changes in underlying demand
• Prices may ease over time but a change is apparent in the supply/demand balance
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Growing international demand
• Rising incomes in non-OECD countries
• Urbanisation, and changes in diets and tastes, in Asia
• Increasing presence of western retail chains in Asian countries
• Population growth
SOURCE: FAO
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Supply constraints – the main cause of recent high prices
• Likely to continue in short/medium term
• Only 7% of worldwide production is traded internationally
• South America well positioned to expand production
EU Stocks of butter and skim powder(2002-2007)
SOURCE: USDA
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Development model taking shape on the ground
• Purchase and conversion costs about US$5,500/ha
• Profitability increases over four years
• Business model assumes milking on 60% of farm area and half this area is irrigated
• Current land holdings will be fully productive by 2012
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Rapid progress on establishment
• Accelerated land acquisition
• 30,980 hectares at 31 December
• 3 regional hubs
• Average price US$2,400 per hectare
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Development plans on track
• Development plans prepared for all properties and under way
• New Zealand GM of Farm Operations appointed
• 4 Managers employed from NZ, with more to follow as dairy farming increases
• Accelerated pasture development
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Milking 3,850 cows through 6 sheds today
El Caburé1,100 cows
El Caburé1,100 cows
Menafra570 cows780 cows
Menafra570 cows780 cows
La Laticia570 cows
La Laticia570 cows
San Pedro350 cows480 cows
San Pedro350 cows480 cows
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With five further cowsheds to come online in March
El Caburé2nd Shed
El Caburé2nd Shed
El Monasterio
4 Sheds
El Monasterio
4 Sheds
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Rapid increase in Dairy livestock purchased
38,75723,568Total
1,403496Other stock
12,14713,401Beef cattle
2,3421,832Dairy calves
15,1513,890Dairy heifers
7,7143,949Dairy cows
31 Dec 0730 June 07Quantity
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Operations on trackOperations on track
• Local staff are performing well
• Good condition of animals despite dry summer
• Expenses managed tightly
• Some cost inflation
• Rising demand for dairy cows increased prices
17
Climate – has been dry but rained in early February
Source: INIA
Accumulated Rainfall (Nov 07 – Jan 08) Soil Moisture (Jan 08, % Field Capacity)
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Farm productivity meeting expectations
• Farm productivity confirms that levels comparable with NZ can be achieved
• Daily pasture growth rates similar to NZ
• All milk supplied to Conaprole
19
Our current focus – June half-year 08
• Focus on dairy development
• 22,000 hectares being regrassed
• Continued focus on acquisition of land & dairy stock
• 5 new milking sheds to be commissioned
• Local manager recruitment and training
• Expected production of 1.5 million kg milk solids for FY08
20
OutlookOutlook
• Milk price likely to increase to at least US35c/litre (NZ$6.86/kg milk solids) for the next 6 months
• Net profit from operations are expected to be in line with plan of $1 million excluding performance fee
• Drought in NZ & Australia should extend the current high milk prices
• Longer-term demand for dairy products likely to outstrip supply
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• Inaugural Fonterra Chairman
• Grew up on a dairy farm north of Auckland
• Moved to South Island, (Ashburton) in 1980
• One of the pioneers of large scale dairying in the South Island
Additional Independent Director –John Roadley