2012 Russia Baltic Pork Invest ASA RBPI Group has established modern and vertically integrated pig farm in Kaliningrad Region. The production chain includes agricultural fields with own grain, fodder factory, boars and sows units for small piglets and weaner and fatterners units for 30 to 109 kg. slaughter pigs.
CONTENTS HIGHLIGHTS AND KEY FIGURES OF 2012... 2 RBPI CEO, THOMAS NOERGAARD, COMMENTS... 4 HISTORY... 5 EXISTING OPERATIONS... 8 Grain production... 8 Feed production... 9 Pig production... 9 ENVIRONMENTAL ASPECTS... 12 CORPORATE SOCIAL RESPONSIBILITY... 13 EXPANSION PLANS... 14 Russia Baltic Pork Invest 2012 1
HIGHLIGHTS AND KEY FIGURES OF 2012 Total revenue, other income and net changes in inventory for 2012 amounted to NOK 265,409 thousand (NOK 143,579 thousand in 2011). Total operating expenses amounted to NOK 149,235 thousand in 2012 (NOK 69,084 thousand in 2011). EBITDA in 2012 amounted to NOK 116,174 thousand (NOK 74,495 thousand in 2011). EBIT in 2012 amounted to NOK 89,291 thousand (NOK 52,946 thousand in 2011). The Net profit of the Group in 2012 amounted to a profit of NOK 65,437 thousand (profit of NOK 28,048 thousand in 2011). The consolidated assets of the Group as of December 31, 2012 amounted to NOK 786,385 thousand (NOK 750,180 thousand at December 31, 2011). 150.000 EBITDA AND NET PROFIT DEVELOPMENT (NOK 1.000) 125.000 100.000 75.000 50.000 25.000 0-25.000-50.000-75.000-100.000 2008 2009 2010 2011 2012 EBITDA Net profit Russia Baltic Pork Invest 2012 2
Income statement, NOK thousand 2011 2012 Total revenues 143.579 265.409 Operating expenses -69.084-149.235 EBITDA 74.495 51,9% 116.174 43,8% EBIT 52.946 89.291 Net financial items -24.898-23.854 Net profit 28.048 19,5% 65.437 24,7% Balance sheet, NOK thousand 31.12.2011 31.12.2012 Total assets 750.180 786.385 Net debt 530.183 506.418 Total equity 219.997 279.967 Cash flow statement, NOK thousand 2011 2012 Cash flows from operating activities 36.247 44.444 Cash flows from investing activities -168.360-61.010 Cash flows from financing activities 139.878 2.581 Effects of exchange rate changes -3.749 5.621 Cash and cash equivalents at beginning of period 164.598 168.614 Cash and cash equivalents at end of period 168.614 160.250 Key figures 31.12.2011 31.12.2012 Number of shares 2.759.144 2.759.144 Total number of employees 295 249 Average number of sows 3.330 5.550 Total number of pigs sold 93.303 160.846 Sold pigs per yearsow 28,0 29,0 Land, hectares 7.645 7.645 Ratios 2011 2012 Earnings per share (EPS), NOK 10,17 23,72 Return on assets (ROA) 7,1% 11,4% Return on equity (ROE) 14,8% 29,7% Russia Baltic Pork Invest 2012 3
RBPI CEO, THOMAS NOERGAARD, COMMENTS The year 2012 saw quite a few challenges. The first half of the year developed very positively. The final phase of the construction was completed and pig production reached fully production. Full sales were reached from March 2012. In the beginning of the year the board of directors adopted a growth strategy that requires new capital to the Group. In third quarter, we completed work with finding possible investors for developing the Group and actual negotiation with one selected investor is started. Concurrently with the final phase of the construction was completed, Farm Construction began developing farm 2. Chairman of Board, Anders Jakobsen, finished an agreement on new land so we were ready to build farm 2 by the end of the year 2012. The construction of farm 2 is slowed down until result of negotiations with investor has completed. Pork prices were peaking in third quarter. In the fourth quarter pork prices constantly dropped, which means that our net profit for 2012 is approximately NOK 25 million less than if the prices had been as budgeted. Generally the production facilities in Kaliningrad are running fine, with a high efficiency, low cost of plant production, which all makes us one of the most effective in Kaliningrad. We believe we are probably the most effective large scale pig producer in Russia. Based on this year s development I am very satisfied with the profit of 2012. Russia Baltic Pork Invest 2012 4
HISTORY RBPI is a Norwegian company owned by Nordic investors. RBPI was founded in 2004 for the purpose of initiating agricultural production in the Baltic region. RBPI has since established operations in Kaliningrad through its subsidiaries ZAO Pravdinsk Pig Production, the operating company, and ZAO MIR, the landowning company. The purpose RBPI was to serve as a vehicle for bringing the best pig producers in the world into Russia and leverage western know-how and experience within the Russian agricultural system. The Group operates a state of the art pig farm located in Pravdinsk, about 70 km from Kaliningrad, and also controls approximately 7,700 hectares of agricultural land where feed crops are grown to supply the pig farm with necessary fodder. The Group started its cropping operations in the spring of 2006 and in 2007 the Group produced approximately 5,000 tons of grain. The first phase of construction of the pig farm was initiated in July 2007 and the final phase has been completed in 2012. Breeding pigs from Denmark were imported in May 2008 and the first piglets were born in January 2009. The first sale took place by the end of June 2009 and a total 22,000 pigs were sold during the year. Russia Baltic Pork Invest 2012 5
Timeline: 2004 Russia Baltic Pork Invest ASA was founded 2004-2006 Acquisition and consolidation of land plots in the Pravdinsk area 2006 ZAO Pravdinsk Pig Production was founded in Kaliningrad as a wholly owned subsidiary of RBPI. The Company also started its cropping operations 2007 ZAO Pravdinsk Pig Production initiated the construction of a pig farm with capacity of 3,100 sows and annual sales of 90,000 slaughter pigs. The Company harvested 5,000 tons of grain 2008 Production of livestock started as the Company imported its first breeding sows from Denmark. The Company harvested 7,000 tons of grain 2009 The first piglets were born in January and sales of slaughter pigs reached total of 22,000. The Company harvested 15,000 tons of grain. The first phase of the farm construction process was completed 2010 Sales reached 60,000 slaughter pigs and the Group took the decision to initiate the second construction phase which will increase the production capacity to 190,000 pigs in 2013 2011 Sales reached 90,000 slaughter pigs and construction of the second phase of the farm was 85 percent completed with operations up and running in the new facilities 2012 Sales reached 160,000 slaughter pigs. The final phase of the construction was completed and the establishment of a new farm in Nizhny Novgorod is initiated Russia Baltic Pork Invest 2012 6
Mission To be the most efficient and profitable producer of high quality and healthy pork in Russia. Vision To combine modern technology and best-practice from agricultural operations in Western Europe with the possibilities in the Russian market and to control the whole chain from feed to the live animal in order to secure product quality while remaining independent of suppliers. Outlook and objectives The Group aims to expand its operations to the Nizhny Novgorod and Penza regions in mainland Russia over the coming years. The Group has a strong position in Kaliningrad but the local market is too small for the Group to offset its entire production and large parts of its output are currently sold to Moscow, St. Petersburg and Tver. As we are selling fresh meat, we can see advantages in placing farms closer to the end-market. The Group therefore sees an expansion in mainland Russia as a natural next step and both Nizhny Novgorod and Penza are attractive business-friendly regions located relatively close to Moscow. The successful establishment of the Kaliningrad operation is to be used as a blueprint for further expansion with regards to the design and construction of new farms and also of on-site management of the operation. The Group s operational headquarters will remain in Kaliningrad. In the nearest future the Group will explore the possibilities of establishment of own slaughterhouse to control and get highest possible output of the high-quality pigs the Group produces for today. Russia Baltic Pork Invest 2012 7
EXISTING OPERATIONS The pig farm in Kaliningrad is a multi-site farm with state of the art equipment and first-rate pig population secured by importing breeding pigs from the best breeders in Denmark. The site employs approximately 160 people and has production capacity of 190,000 pigs. The farm comprises five different facilities: boar site, sow site, piglet site, fattener site and fodder factory site. The production flow starts in the sow site where the pigs are bred, continues with the piglet site where pigs mature and concludes at the fattener site where pigs gain weight prior to being sold. 5 km Piglet site Fattener site Fodder factory Boar site (Quarantine) Sow site Grain production The Group currently has 7,645 hectares of land under control, of which 5,860 hectares are owned by the Company and the remaining hectares are leased. Of the leased land, approximately 50 percent is leased from the municipal and regional governments and the remainder from private land owners. Our goal is to produce a minimum 50 per cent of the grain required for feed production annually. The Danish crop management system Næsgaard with crop rotation plans, spraying plans etc. has been adopted by RBPI and is the main management software system used for managing the fields. Russia Baltic Pork Invest 2012 8
Feed production There is different feed for every unit to maximize the breeding process. In total there are seven different recipes produced from the grains harvested by the Group and purchased from external suppliers. The Group has developed a complete quality control system for feed quality as feed is the main cost component in pork production. Poor quality in feed might have detrimental effects on production and maintaining a high quality is therefore of outmost importance. The quality of raw materials varies and many test labs in Eastern Europe are still using outdated techniques and methodologies. The Group has, therefore, constructed its own lab for making analyses of each batch of raw materials followed by individual optimization of final recipes for feeds for each category of pig. Pig production The breeding stock on the farm is originally imported Danish pigs with first-rate genetics comprising Large White and Landrace hybrid females from herds rated SPFX, the highest health grade by regulatory standards established by SPF-Sunhedsstyringen in Denmark. The sows are inseminated with semen from Duroc boars housed in the boar unit. New imported pigs are housed in a quarantine unit for testing before being moved to the sow unit to avoid infection of the existing herd. Security and hygiene The production is based on a multi-site system, implying that each category of pigs is located separately in different facilities on the production unit. The multi-site system is recognized for its high level of biological security. As the production system is split up in separate locations it is possible to isolate infections and reduce risk of transfer of disease between pigs in different facilities. Each pig housing facility has perimeter fences to prevent intruding animals and humans. There is only one entrance for staff at each facility, sealed by an electronic locking system, which only authorized staff can access. Staff and visitors must shower and change into farm clothing before entering any facility housing pigs. An external security company has been hired to guard all facilities with personnel on each site operating 24 hours a day. Visitors and external personnel are required to respect a quarantine period of at least 72 hours before being allowed to access a pig facility. The staff is not allowed to raise pigs or have any contact with other pigs outside RBPI production sites. Russia Baltic Pork Invest 2012 9
The production facilities are constructed with the highest possible biological security in mind. This also applies to handling and transportation of pigs, entailing that incoming and leaving animals are handled via separate ramps at each site. Trucks are used for the transport of pigs between different facilities and the Company uses separate trucks for transportation within the farm and for transportation to external facilities such as slaughterhouses. All trucks are washed and disinfected before entering the pig sites to minimize the risk of spreading infections. A closed and heated garage at the feed mill site is designed exclusively for washing and disinfection of trucks. All incoming consumable goods are delivered to the farm and quarantined in a central storage unit. Subsequently, it is disinfected and delivered to the production facilities. Handling of goods and biological security measures are carried out and monitored by the staff. Transport of feed from the feed mill to the production facilities is provided by closed trucks and delivery of feed is made directly from the trucks to storage silos without coming in contact with the inside production facility. At present the boar unit is used as a quarantine unit for new breeding stock, while boars temporarily are housed at the sow site. The different production units are designed to produce new pigs in a systematic way and on a weekly basis, which means that all sites are split up in sections designed for one week s production of pigs. After emptying individual pig sections when pigs reach their desired weight the section is subsequently washed and disinfected before a new group of pigs are allocated to the section, an all in - all out system. The system is utilized for farrowing, weaning and finishing sections, but it is not relevant for mating and gestation facilities. The Company has established routines for vaccination of the sow herd, which is planned and implemented to protect the herd from airborne infections and outbreak of common pig diseases. Russia Baltic Pork Invest 2012 10
GRAIN FEED PIGS Approx. 7,645 ha of agricultural land and the relevant required equipment. In-house fodder factory ensures highest possible feed quality and tailor made feed mixes. Grain for feed is both sourced internally and purchases from local producers. A multi-site farm with four remote production areas with a total production capacity of 180-190,000 slaughter pigs per year. 6,200 sows and 80 boars are housed on the farm. PRODUCTION OF GRAIN (tons) PRODUCTION OF PIGS 20.000 200.000 15.000 150.000 10.000 5.000 Grain 100.000 50.000 Pigs 0 0 The healthy pig - Quality meat produced in Russia through Danish technology Russia Baltic Pork Invest 2012 11
ENVIRONMENTAL ASPECTS In 2008/2009 RBPI engaged Danish Farm Design A/S, a Danish consultancy company specialized in livestock production to conduct an environmental and social impact due diligence of the farm in Kaliningrad. This was done in order to assess the operational risks of the business as well as to ensure the farm s compliance with current environmental, health and safety regulations. Hence, the Group has adopted European standards for pig production and continuously monitors regulatory changes in order to ensure full compliance at all times. Thus, it is actively ensured that there are no major environmental liabilities associated with the crop and livestock production within the Group. The following are examples of operational and environmental risk areas that have been addressed: - Location: The farm has been constructed in an area with strong focus on agriculture. Hence there are few residential buildings in the vicinity which decreases the risk of complaints from neighbors, - Crop management: RBPI employs the latest Danish agricultural techniques, including in terms of fertilizers and pesticides, to ensure compliance with environmental regulation. Only pesticides that are allowed in Europe are utilized, - Water supply: The Group has constructed new wells and purification equipment on the property in order to supply fresh water to the pig production units. Russia Baltic Pork Invest 2012 12
CORPORATE SOCIAL RESPONSIBILITY The Group has a policy for corporate social responsibility and the main elements are: - The Healthy Pig concept, which includes a focus on animal welfare through safe and healthy feed and minimal use of antibiotics, - To create an attractive working environment for its employees by providing education and personal development opportunities as well as through offering competitive salaries and benefits The Group has also constructed housing within the vicinity of the farm proximity in order to provide housing to some of its key personnel, - Build strong relationships to the local society by offering job opportunities, sponsoring social and infrastructure projects and paying local taxes. The Group has an annual RUB 1.0 million budget for investments in projects to benefit the local community, - Support local suppliers with know-how and help them to improve their operations in order to strengthen the mutual relationship, - Strive to be an operational, environmental and social role model for other operators in the Russian pork production industry. Russia Baltic Pork Invest 2012 13
EXPANSION PLANS The Group has been evaluating expansion opportunities on an ongoing basis since early 2010. As the Kaliningrad facility is now on full capacity, establishing operations in new regions is necessary to maintain growth and also an opportunity to leverage the Group s experience from Kaliningrad in a new setting. Going forward, the Group has initially decided to expand operations into the Nizhny Novgorod region and later into the Penza region. RBPI plans to initially establish a new pig farm in Nizhny Novgorod modeled after the Kaliningrad facility and with similar production capacity. Plans for establishing two additional farms in Nizhny Novgorod or Penza are currently being pursued by the Group with late stage discussions being held with both regions governments. Should it be possible to establish new farms in close proximity to one another, economies of scale will be achievable. The farms would be able to share certain functions such as quarantine stables and feed mills, further strengthening the business case for expanding into the region. Russia Baltic Pork Invest 2012 14