Australian Dairying

Franklin Group has spent quite some time over the past 12 months looking at opportunities in the dairy industry in Victoria and the areas immediately adjacent in New South Wales and in Tasmania.

The Opportunities
We believe there are some excellent opportunities for investment in the Australian dairy industry.

In summary, we believe it offers the following advantages as compared to investment in New Zealand:

• Land prices are cheaper than New Zealand.
• The return on capital is significantly higher than dairy farms and most other investments in New Zealand.
• There is no requirement for dairy company share capital to accompany increased production.
• There are opportunities to significantly improve performance through better management.
• There are plenty of opportunities to establish large scale operations, either through a new conversion or through expanding an existing operation.
• The local market underpins milk prices making it less reliant on global commodity prices.
• The value of water rights is likely to increase significantly over the next 2-3 years.
• Land values are also increasing, after some years of minimal appreciation.

Franklin Group is interested in discussing with experienced investors the opportunities to invest in dairy farms in Victoria in the near future. We are interested in hearing from investors who wish to invest NZ$100,000 to NZ$5,000,000 in a company which will own and operate a dairy farm in Victoria.

Typically each farm will be owned by a company that will own the land and the stock and will manage the farm. Normally the farm manager will have an equity stake in the farm. Farms will typically range in size from 800-1200 cows.

The total value of a typical enterprise will be NZ$5-8 million, funded approximately 50/50 from equity and debt. We would normally expect farms to show a return on capital of 12-17% on total capital invested, excluding any increase in capital values.

A proposal will be prepared for each farm and will be sent to those who have registered their interest. The first proposal will be ready shortly, so if you are interested, please contact us as soon as possible. Please feel free to pass this synopsis to others who may be interested.

For these opportunities, we only work with experienced investors who understand the benefits and risks of direct private investment and have a reasonable understanding of the dairy industry.

The Australian Industry

• The Australian dairy industry is 78% the size of the New Zealand industry.
• 55% of Australian milk is processed for export, 15% consumed fresh and 30% processed for local consumption.
• Australia is the third largest global exporter of dairy products. (New Zealand is the largest).
• Victoria produces 66% of the total Australian milk production.
• Milk production has increased 4-5% per annum on average over the last 10 years.

The industry has become much more export focused in the last five years since it was deregulated and growth has been centred around the key dairy areas in South West Victoria, the northern areas around the Murray and Goulburn Valleys and in Tasmania.

Return on Capital
A typical range may be 12-17% before tax at current milk prices on a fully developed farm. The comparable returns in New Zealand could be 5-9%

Restrictions on Investment
There are no particular restrictions on investment for New Zealanders in either the purchase of land or of shares in an Australian company. Investors do need to meet the requirements of the Foreign Investment Review Board, but they are not onerous.

Tax
Company tax rates in Australia are currently 30%.

There is GST of 10%. The GST system operates in a similar manner to New Zealand.

Capital gains on the sale of assets are counted as assessable income for tax purposes. There are a number of discounts and exemptions which need to be considered.

Because of the differences between individual’s circumstances, we recommend that you seek advice from a financial adviser who has a good knowledge of the rules governing New Zealand investment in Australia and how it can affect you.

Private Investment

This information on the Australian Dairy Industry should not be construed as an offer of securities to the public. It is provided as general background for experienced investors who we may be able to assist in achieving their objectives in the Australian market.

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