Professional Documents
Culture Documents
1. 2. 3. 4. 5.
Executive summary Strategy and execution Business environment Fund and management company information Financial information
Wheat 2011
Harvest: Hectares planted: Average yield: Estimated sale price: Estimated value: 310,000 tons 103,000 ha 3 tons / ha $US 160 / ton $US 49 million
The Kshensky elevator complex, an AVGAVG RUSSIAN CROP PRODUCTION FUND asset
The opportunity:
Co-invest with one of Russias leading agribusinesses
Strategy:
Specialize in high-margin grain, sugar-beet, and oilseed production Focus on top-quality farm management talent, Russian and international Leading government companies as equity investors 20 40 % is realistic within 1-3 years at steep discount to cash flow value Essential to achieve good crop prices
People
Not a start-up. Existing assets and management Highly profitable investment opportunities of having the Russian government as co-investor and partner
Access
Security
Value acquisitions
Proven team
Micro:
Expertise in land purchase Inexpensive asset acquisition Strong management
Macro:
Strong ag commodity fundamentals Strong Russian economic growth (5%) Government subsidies Large scale public and private sector investment in ag sector and infrastructure
Strengths
Financial Proven fund management team Access to inexpensive debt Operational Existing operations and assets Synergies with existing investorcontrolled operations Large, quick, and realistic productivity and yield gains High-margin business segments Risk Management Federal govt support Excellent local govt relations
Geographic diversification
High-value acquisition opportunities Strong fundamentals for ag commodities Forward contracts on sugarbeets and grains $50 million already under management
1. 2. 3. 4. 5.
Executive summary Strategy and execution Business environment Fund and management company information Financial information
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AVG RUSSIAN CROP PRODUCTION FUND
Geographic diversity
Region
Expansion plans
Currently controlled by AVG. Could be contributed. 40,000 20,000 20,000 80,000 Expansion
Total
A hedge against weather risk Allows for more efficient use of machinery
Land
Fair real value estimate for Black Earth Russian farmland: $4000 - $5000 / ha
2012 AVG Capital Partners
AVG RUSSIAN CROP PRODUCTION FUND 9
Legal
Technology (GPS)
Supply purchase
Produce sales
Field equipment
Land acquisition 12,000 ha $400 / month 10
Security
Farm Director
Farm Director
Farm Director
Average farm size: Average worker salary: Average # of workers per 1000 ha:
The Razgulay Group is in the process of implementing GPS and related precision-agriculture techniques on its farms.
2012 AVG Capital Partners
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Work with leading global farm management consultants to improve technique and source talent
Focus on achieving high quality management, and intensive farming per 3000 ha block. Major strategic focus on retaining top talent Embrace new technologies (i.e. GPS control systems) to improve yield and productivity
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Yield improvements
Improved technique GPS technologies Precision agriculture Better fertilizer use New machinery No-till technique Better seeds Herbicides and pesticides Wheat (Black Earth Sugar Beet (Black Earth) Soy (Southern region)
Crop
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Sugar Manufacturing
11 operating units: 10 processing plants 1 milk bottling plant Annual capacity: 4 mm tons sugar beet and 1.4 mm tons sugar in bulk. 2010 sales: 475,000 tons (14% of Russian market)
Crop cultivation
23 operating units: Total land: 460,000 ha. Cultivating 332,000 ha. 2010 harvest figures: Sugar beet: 926,000 tons Grain and oil seeds: 400,000 tons Bulk rice - 130,000 tons
% of sales
33% 23% 44%
2012 AVG Capital Partners
AVG RUSSIAN CROP PRODUCTION FUND
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Storage
A key strategic requirement
Important to achieving maximal grain prices in Russia A major operational and financial advantage
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Exit strategy
IPO, sale, or further round financing Eligible for IPO in 3 years Convincing precedent for FSU ag IPOs in London, Warsaw, Frankfurt, Stockholm, Moscow As Russian farming becomes more productive, and more fully invested, possible selective asset sales at steep premium to acquisition cost AVG will be proactive in maximizing shareholder valuation in future years
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1. 2. 3. 4. 5.
Executive summary Strategy and execution Business environment Fund and management company information Financial information
Sunflower 2011
Harvest: Hectares planted: Average yield: Estimated sale price: Estimated value: 38,000 tons 24,000 ha 1.6 tons / ha $US350 / ton $US 13 million
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Climate
Flax
Carrots
The climate in this region is similar to the northern American Midwest (North Dakota), but delivers better yields due to the richer soil.
Yields
Without fertilizer, Chernozem yields an average of 3 metric tons of wheat per hectare, and with fertilizer, reliable yields are as high as 6 tons.
The soil is so rich it is actually black, like potting soil from a garden shop. Hence its name, Black Earth
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A typical local road in the central black earth region: Local roads connecting farms in a typical Central Black Earth well-maintained and not crowded. region. Small circles are usually farms 3 4 km distant from each Compare to Brazil: almost no rail and far other. fewer roads which are badly over-crowded.
The black sea port of Novorossisk. It, and other Russian ports are being rapidly expanded.
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Subsidies
RUR bn
300 250 200 150 100 50 0 83 19 7 8 28 11 2008 3 18 19 11 37 10 2009 5 159 99 25 25 11 45 9 2010 22 30 12 48 9 2011E Interest rate subsidies Plant grow ing subsidies Other from federal budget 23 31 13 48 9 2012E 228 199 108 121 132 246 262
92%
85% 75%
90%
Grain
Sugar
Vegetables
Animal breeding subsidies Subsidies on fertilizers Construction capex Subsidies from regional budgets
Potatoes
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Russia
2008-2012 Federal Program for Agriculture Development
% of GDP
PSE as % of GDP
0.39%
0.51%
0.51%
0.49%
0.47%
Japan
47%
0.9% 5.3 3.7% 2008 2009 2010 2011 6.6 7.6 8.2
8.7
Turkey
34%
2012
EU27
23%
0.7%
OECD
22%
0.6%
Program for Development of sugar beet complex in Russia for over USD
2 bn of government spending in 2010 2012
Russia
14%
0.6%
Floating import tariff on raw sugar and prohibitive tariff on white sugar
allow for stable domestic sugar price and profitability of domestic producers
United States
9%
0.2%
China
9%
1.4%
Brazil
6%
Access to long-term loans at subsidized interest rates 0% income tax for agricultural producers until 2013 Despite Russias strong intentions of entering WTO in 2011, the
government is planning to continue general industry support, i.e.: Ministry of Agriculture insists on maintaining overall government agricultural spending at the current level until 2017 Ongoing negotiations with WTO members on keeping meat import quotas and raw sugar tariffs at the previously agreed level
0.4%
Source: OECD, PSE database, 2009 and 2010 (1) PSE is an indicator of the annual monetary value of gross transfers from consumers and taxpayers to agricultural producers, arising from policy measure. It measures support arising from policies targeted to agriculture relative to a situation without such policies (2) 2007-09 average for Japan, EU27, OECD, Turkey, Canada and United States (latest available). 2005-07 average for Russia, China and Brazil (latest available) (3) 2009 data for Japan, EU27, OECD, Turkey, Canada and United States (latest available). 2007 data for Russia, China and Brazil (latest available)
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Arable land
USA Russia Europe Brazil Other LA countries Indonesia Ukraine 0 38 33 50 100 150
ha mm
#1 #2 #3
Sugar beets
Potatoes
#4
Wheat
200
Source: FAOSTAT
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Robust markets
Fastest growing export markets
Pork
Poultry
Dairy
Food Processing
Import substitution
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AVG RUSSIAN CROP PRODUCTION FUND 23
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Food consumption in Russia has strong growth potential (CAGR of 13.3% in 2011E-2014E) Obsolete and inefficient production infrastructure Highly fragmented and unconsolidated market
2005A 2006A 2007A 2008A 2009A 2010E 2011E 2012E 2013E 2014E Food consumption, US$ bn Food consumption per capita, US$
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1. 2. 3. 4. 5.
Executive summary Strategy and execution Business environment Fund and management company information Financial information
Rice: 2011
Harvest: Hectares planted: Average yield: Estimated sale price: Estimated value: 112,000 tons 19,000 ha 6 tons / ha $US 380 / ton $US 43 million
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AVG RUSSIAN CROP PRODUCTION FUND 25
Razgulay Group is one of the largest players in the Russian agricultural market: 460 ha land bank under management
Financial Indicators
RUR bn
40 30.2 30 25.9
thousand ha 570
500 460 460 450
20
10%
200
5%
100 0
0% 2009 2010
Prodimex
Holding
Ivolga-
Razgulay
NAPKO
Zolotoy Kolos
Sales
2012 AVG Capital Partners
EBITDA
EBITDA margin
Source: Razgulay Group
Source: Ministry of Agriculture, IKAR
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AVG RUSSIAN CROP PRODUCTION FUND 26
Since 2010 and March 2011: Chairman of the Board (also CEO of the Razgulay from 2010 till March 2011) Since 2007 and currently: Managing Partner of AVG Capital Partners 2006-2008: Member of Supervisory Board of the Russian National Association of Securities Markets Participants Prior to AVG, Senior Executive and from 2004 Deputy Chairman of AK BARS Bank, a Top-20 Russian universal bank Prior to AK BARS Bank, Mr. Mirgalimov was the CEO of Art-Finance, an investment company MBA 2005 Chicago Business School Degree in finance from Kazan State Financial and Economic Institute (1995) and in law from Kazan State University (1997)
From 2010 and currently: Board member of Razgulay Group Since 2009 and currently: Managing Partner at AVG Capital Partners 2006-2008: Member of Supervisory Board of the Russian National Association of Securities Markets Participants 2005 -2007: Member of the board of RTS, the leading Russian securities exchange. Prior to AVG, led the investment division of AK BARS Bank, and was CEO of AK BARS Finance. Prior to AK BARS, CEO of the Prospekt Brokerage, one of Russias first brokerages Prior to Prospekt, senior management positions at Russian branches of ING Barings and ABN Amro MBA 2005 Chicago Business School MBA 1996 Moscow International Business School Registered CPA (2006)
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Since 2010: Partner at AVG Capital Partners Prior to AVG, co-head of legal department of New Russia Growth, a Russian growth strategy private equity fund Prior to NRG, head of legal at Sputnik Group, a leading Russian private equity fund Prior to Sputnik, Deputy CEO at the Prospekt Brokerage, one of Russias first brokerages Extensive experience in M&A in financial services, IT, telecoms, and retail 2002 Degree in international law from MGIMO, Russias leading university of international relations. Certified tax consultant
Managing Director of AVG Capital Partners since 2011 Since 2010 and currently: Chairman of the Board of MC Vegetable Factory and Board member of LLP Novgorod Greenhouses 2010-2011: Deputy CEO and Board member of Avangard Asset Management 2006-2010: Mr. Sabirov held the positions of the Leading Specialist to the Managing Director at VTB Group Degree from Financial University under the Government of the Russian Federation
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Risk management
Risk factor 1 2 3 4 5 6 7 8 9
Political country risk Legal conflict resolution risk Land title risk Government corruption risk Weather risk Government regulation risk (export restrictions) Commodity price risk Crop risk Decrease in asset prices
Response
Partnership with federal government Partnership with federal government
Expert experience in land acquisition, title due diligence. Partnership with federal government
Partnership with federal government Crop insurance. Crop diversity. Geographic diversity. Unlikely over long term Strong forward fundamentals Crop insurance. Crop diversity. Geographic diversity. Already deeply undervalued. Nowhere to go but up.
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Soy 2011
Harvest: Hectares planted: Average yield: Estimated sale price: Estimated value: 37,000 tons 23,000 ha 1.6 tons / ha $US 530 / ton $US 20 million
1. 2. 3. 4. 5. Executive summary Strategy and execution Business environment Fund and management company information Financial information
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AVG RUSSIAN CROP PRODUCTION FUND
Investment Program
Item
Land acquisition Equipment purchase / lease, upgrades Working capital Senior management
Amount
$125 mil $165 mil $165 mil $3 mil
Comments
250,000 ha @$500 / ha $500 per ha for 330,000 ha $500 per ha for 330,000 ha For first three years @ $1 million per year.
Total
$458 mil
Over 3 years
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160
140 120
100
80
60
40 20 -
2003
2004
2005
2006
2007
2008
2009
2010
Average sugar beet price in Kursk region, Russia (producer price by Rosstat) Average wheat price in Kursk region, Russia (producer price by Rosstat)
Wheat and sugar price forecasts by OECD for next ten years
550 500 450 400 350 300 250 200 150 100
11/12 12/13 13/14
Note:
These OECD forecasts are conservatively low. There are compelling arguments that prices can go much higher. Forecast to remain historically high, (200% of historical) For the most authoritative presentation of these arguments, follow this link.
14/15 15/16 16/17 17/18 18/19 19/20 20/21
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Contact info
Charles Bausman Director for Investor Relations AVG Capital Partners c.bausman@avgfund.com www.avgfund.com Moscow office 109428, Moscow, Ryazansky prospect, 61/4 Phone: +7 (495) 232 5543 Mobile: +7 (985) 920 3076 Cayman office P/o box 1344 20 Genesis Close Grand Cayman KY1-1108, Cayman Islands
Disclaimer
THIS DOCUMENT IS CONFIDENTIAL AND IS AVAILABLE ONLY TO POTENTIAL INVESTORS WHO ARE ADDRESSEES OUTSIDE OF THE UNITED STATES, AUSTRALIA, CANADA OR JAPAN. IMPORTANT: In accessing the document, you agree to be bound by the following terms and conditions, including any modifications to them any time you receive any information from us as a result of such access. The document has been prepared solely in connection with the information purposes for certain institutional and professional investors of the securities described herein. This document is not being made available to the public. This document serves exclusively as background material introducing the AVG CIS Agricultural Opportunities Fund (the Fund). Any potential investor should be aware that the value of the investment is subject to a variety of risks and may fall, as well as rise, and investors may not get back the amount invested. This document is neither an offer to sell, nor a solicitation of any offer to buy shares in the Fund or interests in AVG Capital Partners in any jurisdiction. NOTHING IN THIS DOCUMENT CONSTITUTES AN OFFER OF SECURITIES FOR SALE IN ANY JURISDICTION WHERE IT IS UNLAWFUL TO DO SO. THE SECURITIES THAT MAY BE DESCRIBED HEREIN HAVE NOT BEEN, AND WILL NOT BE REGISTERED UNDER THE US SECURITIES ACT OF 1933, AS AMENDED (THESECURITIES ACT), OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR OTHER JURISDICTION AND THE SECURITIES MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES (AS DEFINED IN REGULATION S UNDER THE SECURITIES ACT), EXCEPT PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND APPLICABLE STATE OR LOCAL SECURITIES LAWS. THIS DOCUMENT IS NOT AN ADVERTISEMENT AND IT MAY NOT BE FORWARDED OR DISTRIBUTED TO ANY PERSON AND MAY NOT BE REPRODUCED IN ANY MANNER WHATSOEVER. ANY FORWARDING, DISTRIBUTION OR REPRODUCTION OF THIS DOCUMENT IN WHOLE OR IN PART IS UNAUTHORISED. FAILURE TO COMPLY WITH THIS DIRECTIVE MAY RESULT IN A VIOLATION OF THE SECURITIES ACT OR THE APPLICABLE LAWS OF OTHER JURISDICTIONS
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