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| 8-K - AgFeed Industries, Inc. | v180978_8k.htm |
| EX-99.2 - AgFeed Industries, Inc. | v180978_ex99-2.htm |
EXHIBIT 99.1
Press
Conference Script
Thank you
for joining us here today. My name is Gerry Daignault COO of AgFeed
and President of our Hog Division. Van Gothner our Lead Director
joins me today. We are very excited about the prospects for AgFeed
and sharing our news with you.
However,
before we begin I do have to make the customary Safe Harbor Disclosure
Notice.
This
presentation contains “forward-looking statements” within the meaning of the
“safe-harbor” provisions of the Securities Litigation Reform Act of
1995. Such statements involve known and unknown risks, uncertainties
and other factors that could cause the actual results of the Company to differ
materially from the results expressed or implied by such statements, including
changes from anticipated levels of sales, future national or regional economic
and competitive conditions, changes in relationships with customers, access to
capital, difficulties in developing and marketing new products, marketing
existing products, customer acceptance of existing and new products, and other
factors. Accordingly, although the Company believes that the
expectations reflected in such forward-looking statements are reasonable, there
can be no assurance that such expectations will prove to be
correct. The Company has no obligation to update the forward-looking
information contained in this presentation.
Today we
are very pleased to have the opportunity to announce our next steps in
developing a fully integrated hog production business as well as our agreement
with Xinyu City for establishing a substantial center for hog
production. Clearly illustrating the success of our core
strategic concept: “AgFeed, Government & Farmer”.
These
milestones represent the culmination of the dreams of our 5 founders when they
first came together in 1995 and established what is today AgFeed’s animal
nutrition business.
Before
detailing these business developments for you here today, I would like to take a
few moments to review and describe the strategic drivers and market dynamics
that are important in creating the AgFeed opportunity. A dramatic
opportunity in a country that is experiencing growth and development well beyond
what is readily appreciated by most Americans. An opportunity that we
are in the process of capturing.
At the
most basic level the AgFeed opportunity is about being the leading market
participant in the largest pork market in the world.
Pork
represents approximately 63% of the protein in the Chinese diet and the total
market size is expected to reach 68 million metric tons by
2015. Today it is 47 million metric tons or approximately 600 million
animals. This dwarfs the American market which is 1/6th the
size of the Chinese market and is stagnant.
While the
size of the market itself can be seen as an exciting opportunity, China’s
economic development and policies combine with the size of the market to make
for what we see as an unprecedented opportunity.
There are
two fundamental themes of Chinese food and agricultural policy, national
self-sufficiency and strict food safety. These effectively translate
into a national security issue for the Chinese government. From the
point of view of AgFeed these policy imperatives are the base for our operating
plan of introducing modern western production standards and methods to bring
efficient and safe food production to the Chinese hog industry.
The
Chinese government’s broader economic policies are driving rapid urbanization
and are fundamentally changing the food distribution systems within
China. Illustrating the rapid urbanization and economic growth of
China for example there are now 51 Chinese cities of over 1 million compared to
only 9 in the US. The Chinese middle class has already reached at
least 250 million people and is expected to be in excess of 600 million by
2015.
Both the
Chinese Ministries of Commerce and Agriculture have announced programs in order
to enhance the efficiencies and delivery of agricultural products directly from
the farmers to the food markets. These programs have already resulted
in the opening of over a quarter of a million food markets, smaller stores,
which provide direct access for the producers of food products to the retail
distribution chain.
The
policy and regulatory focus on food safety and the security of the food chain –
together with growing consumer demand for high quality and reliably safe food
products and rapid urbanization - has resulted in an evolution of the
agricultural business in China. The business is changing from its
traditional modes and methods to one that is led by modern, industrial scale and
highly professional enterprises. The government is increasingly
holding companies and their management strictly accountable for the safety of
their products.
“AgFeed,
Government & Farmer”. Once again this is our core strategic
concept. As we execute our business plan and continue to introduce modern
western standards and methods to improve the efficiency and yields of our
operations we need the ongoing cooperation of local governments and farmers. We
work to continually educate each of these constituencies and demonstrate the
benefits of our methods and standards for food safety, yields, returns and
employment. Chinese government policy is to raise the economic
standards for the Chinese farmer. Our core strategic concept is
designed to assist local governments in meeting these policy goals.
We have
introduced and are continuing the development of a pork production system that
is verifiable & auditable in all aspects of food safety. This includes
adhering to strict animal feeding programs, bio-security protocols, a genetics
program designed for continuous improvement and management systems that allow us
to monitor feed conversion ratios and other metrics important to for achieving
our targeted yields.
Illustrating
the success of our core strategy today we are announcing a signed agreement with
Xinyu City in Jiangxi province. The local government has granted
AgFeed a favorable long-term lease on 2 square miles of land and is providing
the necessary infrastructure of roads, power and water so that we can establish
a hog industrial park. In order to assure bio-security there
will be no other animal husbandry operations in this zone. The
development of this site will occur in two phases to be completed in 2011 and
2012 respectively and will result in annual hog production capacity of 500,000 –
600,000. The site will include five, 5,000 head sow farms, a 200 head
boar stud farm, and a 2,600 head multiplier farm. AgFeed will be
making a $35 million investment in this project.
As part
of our work in cooperation with Xinyu City we will be rolling out an innovative
finishing strategy. Finishing is the part of the hog production
process where the young hogs have been weaned but are being grown to market
size. Finishing is done some distance away from breeding farms as
part of our bio-security procedures.
Our
finishing will be done on a “co-op” basis with local farmers. AgFeed
will be working with local; farmers, banks and government to arranging financing
for them to establish modern finishing facilities of AgFeed’s design. We will
also provide training, nutritional and other technical support. Under
our direction, training and guidance local farmers will contract to finish the
hogs to our high standards and as a result earn a consistent and fair profit for
their work.
Our Xinyu
facilities will complement our western style hog farms in Dahua, Guangxi
province where we broke ground in November 2009 on two, 5,000 head sow farms and
a 200 head boar stud farm. The Dahua complex, which was formerly a
sugar cane farm, will have annual production capacity of 200,000 -250,000
hogs.
Our
experience in Dahua reinforces the power of our core strategic concept of;
“AgFeed, Government & Farmer”. In Dahua the government was
instrumental in our negotiations to acquire the needed land and are providing
the necessary infrastructure to our facilities. In fact they have
even re-routed local roads to assist us in assuring bio-security.
The
modern hog production centers that we are establishing in Dahua and Xinyu
together with their finishing systems will have such scale as to be what we term
enterprise level of operations. For example, once it is completed our
western style operations in Xinyu alone will have annual production capacity in
excess of all of our existing farms combined. The total production
capacity of Xinyu and Dahua will far exceed our 31 existing farms.
Again, in
each of these locations our team worked very closely with the local governments
and farmers to assemble the land parcels, develop the necessary infrastructure,
assure long-term bio-security and to devise a finishing strategy to benefit both
the local farmers and AgFeed.
In
addition to these pure western style farms we also own 31 other hog farms. After
the culling in 2009 of some older sows we have approximately 25,000 producing
sows on these farms. Through the introduction of our modern, science
based, western methods annual capacity on these farms will be grown by 10% - 15%
and we expect that the total capacity of our legacy farm system to reach
600,000. When added to the sow base of our new Dahua and Xinyu
systems we will have 60,000 to 65,000 sows by 2012. AgFeed will be in
the top 1% of producers in the industry.
Our
development of large-scale, enterprise level, hog production centers will not
cease with Xinyu and Dahua. We will collaboratively pursue
opportunities with local governments as we continue to develop and expand our
production capacity.
AgFeed’s
roots stem from our founders’ initial establishment of an animal nutrition
business focusing on pre-mix for hog farmers 15 years ago. Today that
animal nutrition business has grown to 5 feed mills that produced 117,000 tons
of feed products in 2009. As an example our average Chinese feed mill
competitor has production capacity of only 10,000 tons. This
business has grown 8 fold since 2005. We serve over 780 commercial farms in
southeastern China and have over 1,300 independently owned retail
stores.
There has
been much emphasis on hog production and the benefits of western methods ranging
from bio-security and genetics to the design and construction of the facilities
themselves. The quality and consistency of the feed provided to the
hogs is equally important. While for centuries hogs have literally
been fed “slop”, scraps – garbage - proper animal nutrition - feeding to the
animal’s capability - is a vital component of establishing a safe food
chain. Our animal nutrition business is an essential link in
establishing a reliably safe food supply chain, this has been recognized by the
Ministry of Agriculture and our “Best” feed products have been “Green Certified”
by the Ministry.
We will
be building new feed mills to serve our pork production pods in both Dahua and
Xinyu. These feed mills will introduce western style bulk delivery
methods that will reduce costs and further improve bio-security, animal health
and food safety. Our, direct to the customer, bulk delivery system
will be the first of its kind in China.
As you
are no doubt aware, in February we announced that we are planning an IPO for our
feed division.
Animal
Nutrition and Hog Production are two well-established legs or our
business. During 2009 we successfully executed a 5-step plan targeted
at positioning the company for the future.
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1)
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We
established a strong financial position,
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2)
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We
implemented a program to bring western improvements to our 31 existing
farms.
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3)
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We
implemented a genetics program with Hypor Genetics a division of Hendrix’s
that has further lead to a joint venture on a nucleus farm near Wuning
China.
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4)
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We
launched an expansion of our farms by developing green-field sites such as
Dahua and Xinyu, through our Joint Venture AgFeed International Protein
Technologies with our US partners
M2P2.
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5)
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Branding
AgFeed animal nutrition products to develop a brand
identity.
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Having
established a strong base in our existing businesses we would like to briefly
review our next step in the strategic integration of our business across the hog
supply chain. During the coming months we will be launching the third
leg of our integrated production model where we will grow and deliver verifiably
safe pork to the food distribution system. We believe that to be a
successful integrator and to assure safe products to the market that it is vital
to control our production base.
As our
Chairman announced concurrently with the announcement our European listing,
AgFeed will establish harvest facilities that enable us to deliver, verifiably
safe, pork products into the food distribution channel. This
initiative merely extends our operating strategy of rolling out our standards
and food safety and highly efficient western methods in response to the core
tenants of China’s food and agricultural policy, national self-sufficiency and
food safety.
This
represents the logical next step in our effort to establish a chain of value
through efficiently providing a high quality product through the assurance of
safety and quality from the feed provided to animals all the way through the
meat entering the food distribution system.
AgFeed’s
policies, procedures and methods are setting the standard for food safety in
China. The efficiencies and yields derived from our systems will make a
continuing impact on China’s drive toward establishing self-sufficiency in this
vital sector of the food and agriculture industry.
Thank you
very much for joining us today and we would be happy to take some of your
questions.