NZ Farming Systems Uruguay Limited An introduction June 2008
Disclaimer for NZ Farming Systems Introduction Presentation This presentation contains not only a review of operations, but also some forward looking statements about NZ Farming Systems Limited and the environment in which the company operates. Because these statements are forward looking, NZ Farming Systems Limited's actual results could differ materially. Although management and directors may indicate and believe that the assumptions underlying the forward looking statements are reasonable, any of the assumptions could prove inaccurate or incorrect and, therefore, there can be no assurance that the results contemplated in the forward looking statements will be realised. Media releases, management commentary and investor presentations are all available on the company's website and contain additional information about matters which could cause NZ Farming Systems Limited's performance to differ from any forward looking statements in this presentation. Please read this presentation in the wider context of material previously published by NZ Farming Systems Limited. 2
Table of contents 1 - Overview of NZ Farming Systems Uruguay 2 - Current Soft Commodity Market Dynamics Appendix A – Background Information on Uruguay and Brazil 3
1 - Overview of NZ Farming Systems Uruguay 2 - Current Soft Commodity Market Dynamics Appendix A – Background Information on Uruguay and Brazil 4
Investment case Uruguayan milk price increased from US18 cents to US40 cents per litre between Dec 06 and May 08 � Soft commodity Record prices are due to changes in underlying demand and supply constraints � theme Prices may ease over time but a fundamental change is apparent in the supply/demand balance � Significant land price differential between New Zealand and Uruguay � Land value Uruguayan land highly responsive to New Zealand farming practices � arbitrage Increase dairy yield per hectare expected to result in land appreciation (yield 1 of 30% possible vs New � Zealand 8%) Groundwork since 1999 to establish track record � 36,300 hectares acquired, 22,000 regrassed, 5,500 milking cows and 10 cowsheds � Proven concept For 2008/2009 expect 12,000 hectares in dairy with 13,000 milking cows and 20 cowsheds � Original model evolving as assumptions are proven � Solid platform for expansion has been laid � Highly Multiple options for extending the business model � scaleable No significant constraints on land and development labour � Management agreements with New Zealand leading farm services company, PGG Wrightson (PGW) � Management expertise Management fee structure aligns objectives of manager and NZFSU shareholders � 1 Yield calculated as dairy farm EBITDA per hectare 5
Milestones to date PGW enters Uruguay with seed business � 1999 PGW operates demonstration farm in Uruguay � 2000- 2003 PGW buys 3 farms with a total area of 2,686 hectares � Nov 2005 Public offering of NZFSU raises NZ$105m Dec 2006 � Institutional placement of NZ$39m � Apr 2007 Call of remaining NZ50 cents per share and listing on � Dec 2007 the NZX (New Zealand Exchange) Institutional placement and rights issue raises an Dec 2007 � additional NZ$110m Current NZFSU Ownership Interests of directors of NZFSU 9% Shares on issue now 244.2 million with market � Today PGG Wrightson 11% capitalisation of NZ$476.3 million Other Shareholders 80% 6
Commercial structure Management Agreements Management agreements Management Agreement and Farm Management • PGW NZFSU Agreement between NZFSU and PGW Base fee of 1.5% of gross assets reducing to 1% • from 1 July 2008 Farm Owning Subsidiaries 1 Performance fee of 20% of total investor returns • above a 10% compounding hurdle rate from inception of the company Performance aligned with investors via PGW • Inputs cornerstone stake and performance fees Farm management costs recovered at cost • PGW Other Suppliers Management Agreement has term of five years • with an additional three year termination notice Farm Management Agreement has term of three • years with an additional one year termination notice Notes: 1 There are 5 farm owning subsidiaries at present 7
Who is PGG Wrightson? New Zealand’s leading farming services company � 170 year history • 2,700 staff • 90,000 farmer clients • more than 130 farm merchandise stores nationwide • turnover in excess of NZ$1 billion • A leading agricultural services company at the forefront of New Zealand’s farming technology � and systems Listed since 1993 with a current market capitalisation of NZ$660 million � Services across rural supplies, livestock, wool, banking, insurance, real estate, seeds, grain � and nutrition Business in Uruguay since 1999 with current staff of 50 1 and turnover of US$55 million � Market leader in dairy real estate in Victoria, Australia and Australasia’s largest seed business � with significant market share Notes: 1 Excludes 260 PGW staff employed directly in relation to NZFSU 8
PGW – New Zealand’s leading rural services company North Island 1,300 sales force South Island 1,200 sales force 9
New Zealand expertise a competitive advantage Significant productivity gains have been experienced in � New Zealand Farm Productivity Statistics New Zealand dairying over the last 15 years 1994/95 2005/06 11 year gain Key features of New Zealand farming systems: � Average kg milksolids per farm 53,300 116,589 119% Seasonal milk production • Average cows milked per farm 183 324 77% High genetic worth plants and animals • Good soil fertility • Average farm size (hectares) 76 111 46% Temperate climate favours pasture growth • Average milk production per cow 291 360 23% Intensive pasture management and animal nutrition • Paddock subdivision and water reticulation Milk production per hectare 701 1050 50% • High stocking rates • Source: Dexcel, Survey of NZ Dairy farms 2005-2006. Statistics exclude farms with Large scale, sophisticated operations less than 100 cows and business entities that own multiple herds • Good information systems • Limited opportunity to expand dairy farming in New � Zealand and higher milk prices get capitalised into land values Significant opportunity to expand the Uruguayan dairy � industry using NZ style farming systems and technology 10
Progress to date The Company’s portfolio currently � comprises of 36,366 ha of farmland across Uruguay in three regional hubs: • Western region – 4 farms: 3,749 ha Central region • – 9 farms: 13,406 ha Eastern region • – 7 farms: 19,211 ha Development plans have been � prepared for all of the Company's farms 11
Progress to date - illustrative Activities 1 July Year 1 Year 2 Year 3 Year 4 Steps commenced 2008 2009 2010 2011 2012 − Livestock purchases Acquire Land − Regrassing 8,600 (6 mths) − Water reticulation Develop − Fencing Infrastructure − Roading 22,000 8,600 − Staff housing (1 year) − Dairy conversion Dairy Conversion − Build milking sheds 3,000 22,000 8,600 (1 year) − Farm machinery − Fertiliser application Ramp Production − Increasing dairy 2,700 3,000 22,000 8,600 (1year) production − Maintenance Full Production − Productivity 0 2,700 5,700 27,700 36,300 (1 year) improvements 5,500 54,000 1 Dairy Cows 18.5 1 Milk Production (million KG/MS) 1.0 1 Estimate based on assuming: 60% of effective farm area is used for dairy, 30% for dairy replacements and 10% for beef. 10% of 12 dairy land is ineffective (dams etc) . By year 4, cows/ha of 2.75 and kg milk solids/cow of 343
Progress to date (cont) Development costs per hectare in line with original � projections to date � Progress of farm conversion on track and regrassing 5,000 hectares more than planned at 22,000 hectares Key operational management roles filled with high quality � individuals As scale grows, reliance on and support from key input � suppliers and Conaprole is growing Production levels below expectations with dry conditions but � conditions have benefited conversion progress 13
Economics of dairy farm development Uruguayan dairy farming is underdeveloped by New � USD New Zealand Uruguay Zealand standards Kg milk solids / cow 350 343 Cows / ha 2.9 2.75 Small herds – average 87 cows (NZ 324) Kg milk solids / ha 1,015 944 • Milk price $ / kg milk solids $5.93 $5.88 Grass based with supplements at shed • Operating expenses / ha $2,550 $1,625 EBITDA / ha $3,590 $3,000 Little or no reticulated water Dairy farm assets 1 / ha • $43,000 $10,000 EBITDA / Dairy farm assets 8% 30% Cows milked all year round • Source: NZFSU Estimates Farms can be acquired and developed for less than 25% � Notes of the cost of New Zealand dairy farms 1. Dairy farm assets excludes non-dairy producing land Productivity comparable to New Zealand is likely to be � achieved � Uruguay milk payout at US$5.88 is similar to New Zealand at NZ$7.90/kg (US$5.93) of milk solids Once developed the EBITDA on Uruguayan dairy farms is � expected to be about NZ$3,000/ha. This translates to a 30% pre-tax return on invested farming capital 14
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