Australian Dairy Nutritionals Group 13 August 2019 ASX Code: AHF GENERAL MEETING – 13 AUGUST 2019 Please find attached a copy of the CEO’s presentation which will be given at today’s General Meeting commencing at 10.00am (Syd). Ends. AUSTRALIAN DAIRY NUTRITIONALS GROUP . AUSTRALIAN DAIRY NUTRITIONALS LIMITED AUSTRALIAN DAIRY FARMS TRUST 325 Manifold Street, Camperdown VIC 3260 | GPO Box 6, Brisbane Qld 4001 Phone: +61 07 3020 3020 | Fax: +61 07 3020 3080 l Email: shareholders@adfl.com.au
Australian Dairy ry Nutritionals Group Growing Local, Going Global CE CEO Pres esen entation Peter er Sken ene Extraordinary Gen eneral l Mee eeti ting 13 Augu gust 2019
Consistently delivering on Group Strategy AHF is is tr transit itionin ing fr from a a contracted pac acker to o a a verticall lly in integrated man anufacturer an and producer of of premiu ium or organic products an and brands, with ith a a lar large focus s on on or organic in infant formula la Key ach chie ievements Key Ach chievements ✓ All farms in process of conversion to organic ✓ Moving up the value chain – completed purchase of production Flahey’s Nutritionals (Dec 2018) ✓ Brought forward the organic milk timeline - “ Yaringa ” ✓ Trade marked Pure Organic and Tummy health infant farm will be fully certified organic in November 2019 formula brands in Australia and China ✓ 6 year exclusive contract with The Collective for a ✓ Development of new ranges of Infant formula well material volume of yoghurt and related products sold progressed including discussions with domestic and nationally international distributors ✓ Camperdown Dairy now producing organic dairy ✓ In Infant form ormula pla plant has has ar arriv ived in n Cam Camperdown and products across milk, yoghurt and butter categories planning and development phase progressing well 2
Why are we Transforming? AHF is is tr transit itionin ing fr from a a contracted pac acker to o a a verticall lly in integrated man anufacturer an and producer of of premiu ium or organic products an and brands, with ith a a lar large focus s on on or organic in infant formula la Why move e to o Organic? Why vert ertic ical in integ egrati tion and own branded ed products? ✓ In Australia, 9 billion litres of milk is produced annually, ✓ Higher value and margins across all speciality but only 60 million litres is organic products ✓ Domestic demand for organic products is projected to ✓ Brand equity in new and existing “own brands” continue to grow strongly due to awareness of clean, developed safe food. ✓ A diversified revenue stream ✓ In Australia organic milk achieves a price premium of ✓ Lower customer concentration 42% and organic yoghurt 32%, over conventional products ✓ Ultimate control and security over supply with ✓ By 2023, annual global demand for organic infant company owned cows, farms, factory, tinning and formula is expected to reach US$7.75B, CAGR of 14.1% brands 3 Source: KPMG – Global Organic Milk ; Citi – Infant formula reportet Report
Barriers to Entry ry ▪ A vertically integrated business model is difficult to replicate ▪ Converting a conventional farm to organic includes a 3 year transition ▪ Difficulty in securing a team with the requisite knowledge and experience 5 ▪ Security of supply with upstream owned farms ▪ Large asset footprint with substantial economies of scale ▪ Developing brand recognition and customer loyalty ▪ Requisite export licences and other permit requirements in place ▪ Supplier and distribution arrangements in place ▪ Substantial capital and time would be required to become effective competition 4
Organic Form rmula Market 10 yrs of of his istory showing in incr creased gr growth Forecast to o con ontin inue to o gr grow sign ignif ificantly ly – CAGR 1 CAGR 2 rates – 15.6 .6% CA 15.4 .4% CA Australia and New Zealand Global Organic Baby Formula Premium Organic Infant Formula Market Retail Sales Value 400 900 350 800 300 700 600 250 $US million $US million 500 200 400 150 300 100 200 50 100 Dairy Nutritionals Group 0 0 2017 2018 2019 2020 2021 2022 2023 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 1 Euromonitor 2 Market Research Future (MRFR) 5
AHF at a Gla lance Focused on Well positioned A vertically developing higher to capitalise on integrated margin owned the growing business model brands and products shortfall of guarantees ability including organic organic milk to supply versus Australi lian Dair iry infant formula supply competitors Nutrit itio ionals ls Group is is 2 years in ye into th the jou journey of f bec ecomin ing th the sec second Export permits, Board and Strong domestic largest premiu lar ium organic ic certification and management distribution with customer have the track major brand owner and milk ilk relationships are record and supermarket all in place experience to chain producer in in Australi lia take the business forward 6
Transformation to a hig igh valu lue producer EN END D GA GAME TRANSFORMING NOW Non-Organic A A vert vertically y inte tegrated ed port rtfolio 5 farms producing and Organic certified of high marg margin organic mi milk processing milk mainly for third Organic brands parties accreditation Dairy Far Dair arms 2021 Brucknell 2 3m lt/yr 5 Dairy Farms 4m lt/yr Brucknell 1 1500 ha Missens Rd 3m lt/yr Milk: 17m Organic litres/year Drumborg 5m lt/yr accreditation Yaringa Nov19 3m lt/yr Manufacturing 100% capacity utilisation on <50% Processing capacity used manufacturing facilities 7m lt/yr Certified to process organic inputs Production Acquisition Stage 1 Formula Plant: ~$5m Stage 1 Formula Plant 3m lt/yr Aug19 Production Build Stage 2 Formula Plant: ~$45m Jul20 Stage 2 Formula Plant 12m lt/yr Majority of Own 80% of revenues relating to 20% own brand Products/ / Production and revenues from yoghurt, production and packing for “Camperdown packing for third own brand infant butter, milk Revenues third party brands Dairy” party brands brands formula 7 Note: Stage 2 plant subject to due diligence, equipment selection, planning approvals and funding
Product Div iversification Product 2018 2018 2017 2017 Tar arget gross ss pr prod oduct Mar Margin ins s FY FY20 2021 ▪ ▪ Milk Milk Form ormula 35% - 45% ▪ ▪ Butter Butter ▪ ▪ Yoghurt Yoghurt But utter 10% - 15% New Ad Additions Yog oghurt / Kefi fir 15% - 30% ▪ Kefir ▪ Premium Mil ilk Rang Range Bot ottled Mil ilk 10% - 25% ▪ Paed aediatric Form ormula 2019 2019 2020 & 21 2020 21 Target Category Value Splits Forecast Category Value Splits ▪ ▪ Milk Milk ▪ 100% ▪ Butter Premium Milk Range ▪ 90% ▪ Yoghurt Butter ▪ ▪ 80% Kefir Yoghurt ▪ ▪ 70% Paediatric Formula Kefir ▪ ▪ 60% Smoothies Paediatric Formula ▪ 50% Cream New Ad Additions 40% New Ad Additions ▪ Organic Pouc ouches s ▪ 30% Cul ultured Dr Drinks ▪ Probiotic Yog oghurts ▪ Flavoured Fr Fla Fres esh 20% ▪ Organic Mil ilk ▪ Infant Form ormula 10% ▪ Organic Cr Cream 0% 2015 2016 2017 2018 2019f 2020f 2021f ▪ Organic Sk Skim Mil ilk Powders ▪ Who hole Mil ilk Powders Formula Butter Yoghurt / Kefir Bottled Milk 8
Form rmula Pla lan STAGE E 1 1 – INTRODUCTORY FORM RMULA PLA LANT STAGE E 2 2 – LAR LARGE FORM RMULA PLAN LANT & CAN ANNING CAPEX ~$45.0m CAPEX ~$5.0 m Inpu nputs Milk plus IF ingredients Inpu nputs Milk plus IF ingredients Cap apacity ity Dryer 12,000 – 20,000 Kg/ day Cap apacity ity 2,000 Kg – 2,800 Kg/ day Blendin ing and d tinn nnin ing >10,000,000 + cans/ tines/ capacit ity year Prod oducts Organic Skim Milk Powder, Prod oducts Organic Skim Milk Powder, Organic Infant Formula, Organic Infant Formula, Organic Butter Organic Butter Tar arget t Build uild Date Aug 2019 – Mar 2020 Tar arget t Build uild Date 2020/21 (TBC) AHF has acquired an EXPANSION PLAN TARGETS introductory formula Stage 1 1 FY2 Y21F FY2 Y22F FY2 Y23F Stage 2 Year ar 1 Year ar 2 Year ar 3 contrib ibutio tion contrib ibutio tion plant to fast-track Revenues $5m >$10m >$12m Revenue >$5m >$30m >$50m production, build own brand equity and stage EBITDA $0.5m >$1.5m >$2.5m EBITDA >$0.5m >$8m >$15m CAPEX over a 2 step Note tes • The formula plan does not include current earnings • strategy Stage 2 formula targets are in addition to Stage 1 formula targets • Stage 2 large formula plant and canning facilities are subject to board approval, final due diligence, planning approvals and funding • Expansion plan targets are estimates based on information currently available to the Group and assume: • building and construction timelines are achieved for both plants (revenues for stage 1 FY21F are estimated on a slow ramp-up) • product and brand development and launch timelines achieved • the Group achieves domestic retail listings and other channel distribution opportunities (dependent on product) 9
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