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NZ Farming Systems UruguayNZ Farming Systems Uruguay

Briefing on trading results

and operations

Six months to 31 December 2007

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ContentContent

• Overview 3

• Background 6

• Operations 16

• Outlook 20

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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

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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

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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

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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

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