THE FUTURE FARMING AND ENVIRONMENT EVIDENCE COMPENDIUM

Download F. The Future Farming and Environment Evidence Compendium. February 2018. Food Production. Farm Economics and Accounts. Environmental Land ...

0 downloads 573 Views 9MB Size
7KH)XWXUH)DUPLQJDQG(QYLURQPHQW(YLGHQFH&RPSHQGLXP )HEUXDU\

F

)DUP(FRQRPLFVDQG$FFRXQWV )RRG3URGXFWLRQ

(QYLURQPHQWDO/DQG0DQDJHPHQW

7KH)XWXUH)DUPLQJDQG(QYLURQPHQW(YLGHQFH&RPSHQGLXP SURYLGHVDGHWDLOHG DVVHVVPHQWRIWKHFXUUHQWVWDWHRIDJULFXOWXUHLQWKH8.WRXQGHUSLQWKHSURSRVDOVODLGRXWLQ t WKHFRQVXOWDWLRQSDSHU+HDOWKDQG+DUPRQ\WKH)XWXUHIRU)RRG)DUPLQJDQGWKH (QYLURQPHQWLQD*UHHQ%UH[LW &RQWHQWV 6XPPDU\ SDJHV SURYLGHDQHHGWRNQRZVXPPDU\RIDOOWKHHYLGHQFHLQWKHFRPSHQGLXPZKHUH VWDWHPHQWVDUHOLQNHGWRFRUUHVSRQGLQJGHWDLOHGSDJHVLQGLFDWHGE\DQDFFRPSDQ\LQJSDJHQXPEHU 7KHFRPSHQGLXPLVVWUXFWXUHGDURXQGWKUHHNH\WKHPHVWKDWVKDSHWKHLPSRUWDQFHRIDJULFXOWXUHWRGD\ )DUP(FRQRPLFV $FFRXQWVSDJHV )RRG3URGXFWLRQ SDJHV 3XEOLF*RRGVDQG(QYLURQPHQWDO/DQG0DQDJHPHQWSDJHV

'DWDVRXUFHVIRUHDFKSDJHFDQEHIRXQGRQSDJHV

7KLVLVWKHILUVWYHUVLRQRIWKHHYLGHQFHFRPSHQGLXPWKDWDLPVWREULQJWRJHWKHUDUDQJHRIVRXUFHVWRKHOSWKHUHDGHUXQGHUVWDQG8. DJULFXOWXUH5HYLVHGYHUVLRQVZLOOEHSXEOLVKHGVXEVHTXHQWO\ZLWKJUHDWHUGHWDLO

7KHUHVHDUFKDQGDQDO\VLVLQWKLVFRPSHQGLXPLVWDNHQIURPDYDULHW\RIGLVFLSOLQHV± VFLHQWLILFUHVHDUFKVWDWLVWLFVHFRQRPLFVVRFLDO t UHVHDUFKRURSHUDWLRQDOUHVHDUFKDQGJHRJUDSKLFDOLQIRUPDWLRQ)RUPRUHLQIRUPDWLRQRQ'HIUD¶VHYLGHQFHVWUDWHJ\SOHDVHYLVLW KWWSVZZZJRYXNJRYHUQPHQWRUJDQLVDWLRQVGHSDUWPHQWIRUHQYLURQPHQWIRRGUXUDODIIDLUVDERXWUHVHDUFK )RUDQ\HQTXLULHVSOHDVHFRQWDFWIDUPLQJVWDWLVWLFV#GHIUDJVLJRYXN

3OHDVHQRWHWKDWGXHWRURXQGLQJWKHVXPPDWLRQWKURXJKRXWWKHFRPSHQGLXPPD\QRWDSSHDUFRUUHFW

:K\LVDJULFXOWXUHLPSRUWDQW" $JULFXOWXUHFRQWULEXWHVOHVVWKDQWRWKH8QLWHG.LQJGRP¶VHFRQRP\EXWSURYLGHVKDOIRIWKHIRRGZH HDWHPSOR\VKDOIDPLOOLRQSHRSOHDQGLVDNH\SDUWRIWKHIRRGDQGGULQNVHFWRUZKLFKFRQWULEXWHG…EQWR WKHHFRQRP\LQ ,WLVIDUPHUVDQGODQGPDQDJHUVZKRPDQDJHRIWKH8. VODQGDQGWKURXJKWKHPZHFDQVDIHJXDUG RXUQDWXUDOHQYLURQPHQWDQGHQVXUHWKHKLJKHVWVWDQGDUGVRIDQLPDODQGSODQWKHDOWK



6XPPDU\

)DUP(FRQRPLFVDQG$FFRXQWV

)RRG3URGXFWLRQ

(QYLURQPHQWDO/DQG0DQDJHPHQW

6XSSRUWLQJ,QIRUPDWLRQ

+RZGRHVDJULFXOWXUHFRQWULEXWHWRWKH8.HFRQRP\" ,QDJULFXOWXUH JHQHUDWHG…EQZRUWK RISURGXFHZKLOH FRQVXPLQJ…EQZRUWK RIJRRGVDQGVHUYLFHV JLYLQJDQHWFRQWULEXWLRQ WRWKH8.HFRQRP\RI …EQ  ,QWKHWRWDOSURILW 7RWDO,QFRPHIURP )DUPLQJ ZDV …EQ  7KH7RWDO,QFRPHIURP )DUPLQJFDQYDU\ KXJHO\IURP\HDUWR \HDUDQGWKHUHIRUHLWLV LPSRUWDQWWRFRQVLGHU PRUHWKDQMXVWRQH \HDUZKHQLQWHUSUHWLQJ WKHSHUIRUPDQFHRI DJULFXOWXUH 

8.(FRQRP\ …WULOOLRQ 

)DUPLQJIRUHVWU\DQGILVKLQJ FRQWULEXWHGWRWKHUXUDO HFRQRP\LQKLJKHUWKDQWKHQDWLRQDODYHUDJHRI RIUXUDOEXVLQHVVHVDUHXQUHODWHGWRWKHVHVHFWRUV

$JULFXOWXUHFRQWULEXWHG RIWKH WRWDOQHW 8. HFRQRP\ LQ

$JULFXOWXUHHPSOR\VDOPRVW KDOIDPLOOLRQSHRSOH LQWKH8.RIWKHWRWDO8. ZRUNIRUFHZKR DUHPDLQO\LQYROYHGLQEXVLQHVVRZQHUVKLSRU PDQDJHPHQW  ,I\RXDUHYLHZLQJRQDQ HOHFWURQLFGHYLFHSUHVV WKLVQXPEHUWRWDNH\RX VWUDLJKWWRWKLVGHWDLOHG VOLGH

,I\RXDUHUHDGLQJD SDSHUYHUVLRQSOHDVH WXUQWRSDJH

,Q(QJODQGSURYLGHGDURXQGWKUHHTXDUWHUV RIWKH8.¶VQHWDJULFXOWXUDOFRQWULEXWLRQWRWKH8. HFRQRP\:DOHVFRQWULEXWHG6FRWODQG DQG1RUWKHUQ,UHODQG 

7KH)XWXUH)DUPLQJ DQG(QYLURQPHQW(YLGHQFH&RPSHQGLXP )HEUXDU\

$JULFXOWXUHLVDNH\SDUWRIWKHZLGHU IRRGDQGGULQNVHFWRUZKLFKKDGD QHWFRQWULEXWLRQRI…EQWRWKH HFRQRP\LQ 

6XPPDU\

)DUP(FRQRPLFVDQG$FFRXQWV

)RRG3URGXFWLRQ

(QYLURQPHQWDO/DQG0DQDJHPHQW

6XSSRUWLQJ,QIRUPDWLRQ

+RZLVWKHDJULFXOWXUHLQGXVWU\VWUXFWXUHG" ,QWKH8.WKHDJULFXOWXUHLQGXVWU\LVPDGHXS RIIDUPKROGLQJVXVLQJPLOOLRQ KHFWDUHVRIODQG RI8.ODQGWRWDO LQ    ,QWKH8.RIWKRVHHPSOR\HGE\DJULFXOWXUH DUHLQYROYHGLQWKHEXVLQHVVDVIDUPHUSDUWQHU GLUHFWRURUVSRXVHRIWKHIDUPHU

$FURVV(QJODQGPDQ\IDUPVXQGHUWDNH PRUHWKDQRQHW\SHRIIDUPLQJDQGVR IDUPVDUHFODVVLILHGDFFRUGLQJWRWKHLUPDLQ RXWSXWZLWKLQRQHRIQLQHPDLQIDUPW\SHV

 ,Q(QJODQGLQFHUHDOVIDUPVXVHGWKH ODUJHVWDPRXQWRIIDUPHGDUHD RIWRWDO  DQGJUD]LQJOLYHVWRFNLQORZODQGDUHDVKDGWKH JUHDWHVWQXPEHURIIDUPV RIWRWDO   ,Q(QJODQGLQDVPDOOQXPEHURI HFRQRPLFDOO\ODUJHIDUPV  SURGXFHGRYHU KDOI  WKHDJULFXOWXUDORXWSXWXVLQJMXVW RIWKHWRWDOIDUPHGODQGDUHD 

*HQHUDO&URSSLQJ

&HUHDOV

0L[HG

3RXOWU\

3LJV

*UD]LQJ /LYHVWRFN /RZODQG

'DLU\

*UD]LQJ/LYHVWRFN /HVV)DYRXUHG $UHDV /)$

7KH)XWXUH)DUPLQJ DQG(QYLURQPHQW(YLGHQFH&RPSHQGLXP )HEUXDU\

+RUWLFXOWXUH



6XPPDU\

)DUP(FRQRPLFVDQG$FFRXQWV

)RRG3URGXFWLRQ

(QYLURQPHQWDO/DQG0DQDJHPHQW

6XSSRUWLQJ,QIRUPDWLRQ

+RZGR)DUPHUV¶LQFRPHVYDU\DFURVV(QJODQGDQGZK\GRVRPH FRQWLQXHWRRSHUDWHZKLOHPDNLQJDORVV" %HWZHHQDQG RIIDUPVPDGHDSURILWRI PRUHWKDQ…NZKLOHRI IDUPVPDGHDORVVZLWKDQ DYHUDJHSURILWIRUDOOIDUPVRI … 

)DUP%XVLQHVV,QFRPHYDULHV DFURVVWKHGLIIHUHQWIDUP W\SHV DQGRYHUWKHSHULRG WRSRXOWU\ IDUPVZHUHPRVWSURILWDEOH DQGJUD]LQJOLYHVWRFNDQG PL[HGIDUPVWKHOHDVW

 ,QDOPRVWUGVRI IDUPVXVHGIDUPUHVRXUFHVWR GHOLYHUQRQDJULFXOWXUDO DFWLYLWLHVJHQHUDWLQJDURXQG …PLOOLRQDGGLWLRQDOSURILW …SHUIDUP   0DQ\IDUPHUVSXWWKHIDUPLQJOLIHVW\OHDVEHLQJPRUH LPSRUWDQWWRWKHPWKDQPD[LPLVLQJSURILWV0DQ\ IDUPV DUHDOVRDVVHWULFKZLWKRZQHURFFXSLHGIDUPV DYHUDJLQJDQHWZRUWKRI…P  )DUPHUVDUHSULFHWDNHUVDQGWKHGHWHUPLQDQWVRI WKHSULFHVWKH\UHFHLYHFDQEHRXWRIWKHLUFRQWURO 0DQ\IDUPHUVGRQRWPDQDJHIDUPSHUIRUPDQFH VXFKDVDQDO\VLQJSURILWVDQGORVVHV  7KH)XWXUH)DUPLQJ DQG(QYLURQPHQW(YLGHQFH&RPSHQGLXP )HEUXDU\

0DQ\IDUPVPDNHDORVV IURPWKHDJULFXOWXUDOVLGHRI WKHLUEXVLQHVV EXWEHQHILW IURP'LUHFW3D\PHQWVWDNLQJ SDUWLQDJULHQYLURQPHQW VFKHPHVRU GLYHUVLI\LQJWKHLU DFWLYLWLHVIRULQFRPH 

,Q WKHWRSRIIDUPSHUIRUPHUVZHUH WLPHVPRUHOLNHO\WRXQGHUWDNHEXVLQHVVPDQDJHPHQW SUDFWLFHVVXFKDVORRNLQJDWWKHLUSURILWDQGORVVDFFRXQW FRPSDUHGWRWKHERWWRPRISHUIRUPHUV 



6XPPDU\

)RRG3URGXFWLRQ

)DUP(FRQRPLFVDQG$FFRXQWV

(QYLURQPHQWDO/DQG0DQDJHPHQW

6XSSRUWLQJ,QIRUPDWLRQ

:KDWFRVWVDIIHFWIDUPSURILWDELOLW\DQGKRZFDQIDUPHUVEHFRPH PRUHSURILWDEOH"

$URXQGKDOIRIFRVWVWRIDUPHUVLQ (QJODQGDUHYDULDEOH FKDQJLQJ GHSHQGLQJRQWKHOHYHORI SURGXFWLRQDQGWKHRWKHUKDOIDUH IL[HGRIZKLFKPDFKLQHU\LVWKH ODUJHVW 

,QSXWV 2XWSXWV

8.DJULFXOWXUDOSURGXFWLYLW\KDV LQFUHDVHG RUSHU\HDU  VLQFHPDLQO\WKURXJK EHFRPLQJPRUHHIILFLHQWE\XVLQJ IHZHUZRUNHUV

$FURVVDOOIDUPVW\SHVLQ(QJODQGLQ WKHDYHUDJHSHUIRUPDQFHRI WKHWRSRIIDUPVZDVWLPHV EHWWHUWKDQWKHERWWRP7KH ODUJHVWJDS ZDVDPRQJKRUWLFXOWXUH DQGJUD]LQJOLYHVWRFNIDUPVDQG VPDOOHVWZLWKLQSRXOWU\DQGGDLU\ 

 3UHYHQWLQJGLVHDVHRXWEUHDNVDQG FRQWUROOLQJSHVWVWKDWWKUHDWHQSODQWVLQWKH 8.KHOSVSURWHFWWKHHQYLURQPHQWDODQG VRFLDOEHQHILWVRIFURSVDQGWUHHVDQG UHGXFHVSURGXFWLYLW\ORVVHV

5HGXFLQJWKHOHYHODQGLPSDFWRIHQGHPLF GLVHDVHDQGKHDOWKFRQGLWLRQVFDQQRW RQO\LPSURYHWKHKHDOWKDQGZHOIDUHRIRXU OLYHVWRFNEXWDOVRERRVWSURGXFWLYLW\ 



/LYHVWRFN 7KH)XWXUH)DUPLQJ DQG(QYLURQPHQW(YLGHQFH&RPSHQGLXP )HEUXDU\

&URSV 

6XPPDU\

)DUP(FRQRPLFVDQG$FFRXQWV

)RRG3URGXFWLRQ

(QYLURQPHQWDO/DQG0DQDJHPHQW

6XSSRUWLQJ,QIRUPDWLRQ

+RZDUH'LUHFW3D\PHQWVDOORFDWHGDQGZKDWKDVEHHQWKHLULPSDFW RQIDUPSURILWUHQWVODQGSULFHVLQYHVWPHQWVDQGWKHHQYLURQPHQW" $JULFXOWXUDOODQGSULFHV KDYHULVHQVLJQLILFDQWO\ IDVWHUWKDQRWKHUODQG SULFHVRYHU WKHODVW GHFDGHDOWKRXJKWKH\ KDYHIDOOHQEDFNLQWKHODVW FRXSOHRI\HDUV 

2YHUWKHSHULRGWR IDUPVLQWKH1RUWK(DVWRI (QJODQGDQGWKRVHRIWHQDQW IDUPHUVZHUHWKHPRVWUHOLDQWRQ 'LUHFW3D\PHQWVWRVXSSRUW)DUP %XVLQHVV,QFRPH 

$FURVVDOOIDUPW\SHVLQ(QJODQG RI)DUP %XVLQHVV,QFRPH FDPHIURP'LUHFW3D\PHQWVRYHUWKH SHULRGWR ZLWK *UD]LQJ/LYHVWRFNDQG0L[HGIDUPV PRVWGHSHQGHQW 

,QDIWHUH[FOXGLQJODQG YDOXHPRUHWKDQKDOIRIIDUPV  LQ(QJODQGVKRZHGD QHJDWLYHRYHUDOOUHWXUQWR FDSLWDO 

RIWKH'LUHFW 3D\PHQWLVPDGH WKURXJK*UHHQLQJ EXWWKHVHPHDVXUHV DUH FXUUHQWO\IDLOLQJWR PHHWHQYLURQPHQWDO REMHFWLYHV 

'LUHFW3D\PHQWVDUHODUJHO\DOORFDWHGEDVHGRQODQG DUHD,QWKHWRSRIUHFLSLHQWVLQ(QJODQG UHFHLYHGDOPRVWKDOI  RIWKH…EQWRWDO SD\PHQWVZKLOHWKHERWWRPUHFHLYHG 

7KH)XWXUH)DUPLQJ DQG(QYLURQPHQW(YLGHQFH&RPSHQGLXP )HEUXDU\

7KHUHLVHYLGHQFHWKDW'LUHFW 3D\PHQWVLQIODWHIDUPUHQW SULFHVPHDQLQJVRPHRIWKH SD\PHQWVXSSRUWVWKH LQFRPHRIWKHODQGRZQHUQRW WKHWHQDQWIDUPHU 



6XPPDU\

)DUP(FRQRPLFVDQG$FFRXQWV

)RRG3URGXFWLRQ

(QYLURQPHQWDO/DQG0DQDJHPHQW

6XSSRUWLQJ,QIRUPDWLRQ

:KDWLVWKHLPSDFWRIPRYLQJDZD\IURP'LUHFW3D\PHQWVDQGZKDW DUHWKHRSWLRQVIRUPRYLQJDZD\IURPWKHPLQ(QJODQG" 2YHUWR RIORZODQGJUD]LQJ OLYHVWRFNDQGRI PL[HGIDUPVPDGHDORVV ZLWK'LUHFW3D\PHQWV 7KLVULVHVWRDQG UHVSHFWLYHO\LI 'LUHFW3D\PHQWVDUH UHPRYHG 

5HPRYDORI'LUHFW 3D\PHQWVPD\EHRIIVHW LQDQXPEHURIZD\V LQFOXGLQJIDUPHIILFLHQF\ LPSURYHPHQWVDQG GLYHUVLILFDWLRQDOWKRXJK WKLVZLOOYDU\E\W\SHDQG ORFDWLRQRIIDUP  2QDYHUDJHIDUPVZRXOG KDYHQHHGHGWRUHGXFH WKHLUFRVWVE\LQ RUGHUWREUHDNHYHQ ZLWKRXW'LUHFW3D\PHQWV EXWWKLVYDULHVJUHDWO\ DFURVVGLIIHUHQWIDUP W\SHV 

5HGXFWLRQVLQ'LUHFW 3D\PHQWVFRXOGEH PDGHYLDPDQ\RSWLRQV DQGRYHUPDQ\WLPH SHULRGVEXWWKHVKRUWHU WKHWUDQVLWLRQWKHPRUH PRQH\LVUHPRYHGIURP IDUPHUVHDFK\HDU 

3URJUHVVLYH RUFDSSHGUHGXFWLRQVFRXOGEHDSSOLHG WR'LUHFW3D\PHQWVDIIHFWLQJDQLQFUHDVLQJQXPEHU RIIDUPHUVRYHUWKHµDJULFXOWXUDOWUDQVLWLRQ¶SHULRG 7KHUHDUHPDQ\SRVVLEOHYDULDQFHVRIWKHVH RSWLRQV 

2YHUWRRIIDUPVPDGHDORVVZLWK'LUHFW 3D\PHQWVDQGUHPRYLQJZRXOGKDYHPHDQWPDNLQJDORVVEXW DGMXVWPHQWVVXFKDVORZHULQYHVWPHQWV DQGUHQWVZRXOGEHH[SHFWHG WRRIIVHWVRPHRIWKHLPSDFW 

7KH)XWXUH)DUPLQJ DQG(QYLURQPHQW(YLGHQFH&RPSHQGLXP )HEUXDU\



6XPPDU\

)DUP(FRQRPLFVDQG$FFRXQWV

)RRG3URGXFWLRQ

(QYLURQPHQWDO/DQG0DQDJHPHQW

6XSSRUWLQJ,QIRUPDWLRQ

:KDWGR8.IDUPHUVSURGXFHDQGZKHUHGRHVIRRGFRQVXPHGLQWKH 8.FRPHIURP" 0RUHWKDQRIWKH8.¶V DJULFXOWXUDOSURGXFWLRQFRPHV IURPWKHOLYHVWRFNVHFWRUV …EQLQ RIZKLFKGDLU\ DQG EHHIDUHWKHODUJHVW 

7KH 8.¶VIRRGSURGXFWLRQ WRVXSSO\ UDWLRDQLQGLFDWRU RIWKHDELOLW\RI 8. DJULFXOWXUHWRPHHWGRPHVWLF FRQVXPHUGHPDQGVVWRRGDW IRU LQGLJHQRXVIRRGVLQ 

7KH:HVWRI(QJODQGLV GRPLQDWHGE\OLYHVWRFN SURGXFWLRQRIZKLFKGDLU\KDVWKH KLJKHVWYDOXH 7KH(DVWLV JHQHUDOO\GRPLQDWHGE\SLJV SRXOWU\DQGFURSV 

:HLPSRUWPRUHDJULFXOWXUDO RU OLJKWO\SURFHVVHGIRRGSURGXFWV WKDQZHH[SRUWZLWKWKHH[FHSWLRQ RIODPEPXWWRQRIIDOPLONDQG FUHDPDQGPLONSRZGHU

$YHUDJHKRXVHKROGH[SHQGLWXUH RQIRRGDQGGULQNKDVIDOOHQIURP LQWKHVWROHVVWKDQ  WRGD\EXWWKLVWKLVLVVWLOO IRUWKHORZHVWLQFRPH KRXVHKROGV 



:KHQDVNHGWKHSXEOLFVD\WKH\WU\WREX\ %ULWLVKIRRGDQGEHOLHYHLWLVLPSRUWDQWWR VXSSRUW%ULWLVKIDUPHUV EXWWKDWLVQ¶WZKROO\ UHIOHFWHG LQFRQVXPHUEHKDYLRXU 

7KH)XWXUH)DUPLQJ DQG(QYLURQPHQW(YLGHQFH&RPSHQGLXP )HEUXDU\

7KHSULFHVIDUPHUVUHFHLYHIRUWKHLU SURGXFHIOXFWXDWHVDQGWKHIDFWRUV EHKLQGWKLVDUHRIWHQRXWVLGHRIWKHLU FRQWURO 



6XPPDU\

)DUP(FRQRPLFVDQG$FFRXQWV

)RRG3URGXFWLRQ

(QYLURQPHQWDO/DQG0DQDJHPHQW

6XSSRUWLQJ,QIRUPDWLRQ

:KDWLVWKHEHQHILWLQLQYHVWLQJSXEOLFPRQH\LQWRHQYLURQPHQWDO ODQGPDQDJHPHQWVFKHPHV" )DUPLQJLVLPSRUWDQWWRWKHVWHZDUGVKLSRIRXUGLYHUVH DQGGLVWLQFWLYHODQGVFDSHVLQFOXGLQJWKHKLVWRULF HQYLURQPHQWDQGDUFKDHRORJLFDOIHDWXUHV 

(QYLURQPHQWDO/DQG0DQDJHPHQW VFKHPHVHQFRXUDJHSRVLWLYHIDUPLQJ SUDFWLFHVWKURXJKLQFRPHIRUHJRQH SD\PHQWVWKDWLQFHQWLYLVHWKHGHOLYHU\RI SXEOLFJRRGV

:KLOHIDUPLQJFDQKDYHDQHJDWLYHLPSDFWRQWKHHQYLURQPHQW DQXPEHURISXEOLFJRRGVDULVHIURPDZHOOIDUPHGODQGVFDSH LQFOXGLQJUHFUHDWLRQDODQGHQYLURQPHQWDOEHQHILWV 

&RXQWU\VLGH6WHZDUGVKLSLVRSHQWRDOO IDUPHUVDQGODQGPDQDJHUVDQGDOORZV WKHPWRVHOHFWIURPDUDQJHRIRSWLRQVWKDW FDQEHWDLORUHGWRGLIIHUHQWIDUPW\SHVDQG GHVLUHGRXWFRPHV



7KH)XWXUH)DUPLQJ DQG(QYLURQPHQW(YLGHQFH&RPSHQGLXP )HEUXDU\

(QYLURQPHQWDO/DQG0DQDJHPHQWKDV EHHQEHQHILFLDOWRKDELWDWVDQGVSHFLHV ODQGVFDSHFKDUDFWHUDQGZDWHUTXDOLW\ZLWK DWOHDVW…RISXEOLFJRRGVUHWXUQHG IRU HYHU\…SXWLQ







6XPPDU\

)DUP(FRQRPLFVDQG$FFRXQWV

)RRG3URGXFWLRQ

(QYLURQPHQWDO/DQG0DQDJHPHQW

6XSSRUWLQJ,QIRUPDWLRQ

+RZGRHVIDUPLQJLPSDFWWKHHQYLURQPHQW" )DUPLQJ SUDFWLFHVFDQUHVXOWLQ KDELWDWORVVUHGXFLQJ ELRGLYHUVLW\ 7KH8.IDUPODQG ELUGLQGH[ RQHLQGLFDWRURIWKH JHQHUDOVWDWHRIZLOGOLIHKDV IDOOHQWROHVVWKDQKDOILWV YDOXH 

$JULFXOWXUH LVUHVSRQVLEOHIRU RI8.DPPRQLD HPLVVLRQVPDLQO\ IURP OLYHVWRFN IDUPLQJDQG IHUWLOLVHUXVH 

6RLO LVDQHVVHQWLDOQDWXUDO UHVRXUFHZLWKSRRU PDQDJHPHQWFDXVLQJHURVLRQ FRPSDFWLRQGHSOHWLRQRI QXWULHQWVRUJDQLFPDWWHU DQGELRGLYHUVLW\

$OPRVWDWKLUGRIWKHPLOOLRQ KHFWDUHVRIWKH8.¶VIRUHVWV DQGZRRGODQGV DUHRQ IDUPODQGKRZHYHUDJULFXOWXUDO ODQGXVHFKDQJHVFDQUHVXOWLQ WUHHVEHLQJUHPRYHG





:DWHUTXDOLW\ LVDGYHUVHO\ DIIHFWHGE\IDUPLQJWKURXJK UXQRIIRIIHUWLOLVHUVSHVWLFLGHV DQGVOXUU\DQGWKURXJKHURVLRQ RIVRLOZKLFKLVZDVKHGRII IDUPODQG



$JULFXOWXUH LVUHVSRQVLEOHIRURIWKH8.¶V*UHHQKRXVH*DV(PLVVLRQV PDLQO\WKURXJKHPLVVLRQVRIPHWKDQHDQGQLWURXVR[LGHIURPJUD]LQJ OLYHVWRFNDQGIHUWLOLVHU 

)ORRGLQJFDQEHH[DFHUEDWHG E\FURSSLQJSUDFWLFHVDQGWUHH UHPRYDOEXWPDQ\ODQG PDQDJHPHQWSUDFWLFHVFDQ UHGXFHIORRGULVNDQGZLGHU HQYLURQPHQWDORXWFRPHV



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



6XPPDU\

)DUP(FRQRPLFVDQG$FFRXQWV

)RRG3URGXFWLRQ

(QYLURQPHQWDO/DQG0DQDJHPHQW

6XSSRUWLQJ,QIRUPDWLRQ

)DUP(FRQRPLFVDQG$FFRXQWV SDJHV

7KH)XWXUH)DUPLQJ DQG(QYLURQPHQW(YLGHQFH&RPSHQGLXP )HEUXDU\



%DFNWR6XPPDU\

)RRG3URGXFWLRQ

)DUP(FRQRPLFVDQG$FFRXQWV

(QYLURQPHQWDO/DQG0DQDJHPHQW

6XSSRUWLQJ,QIRUPDWLRQ

+RZLVWKH8.DJULFXOWXUHLQGXVWU\VWUXFWXUHGDQGKRZLVDJULFXOWXUDOODQGXVHG"

7KH8.DJULFXOWXUHLQGXVWU\LVPDGHXSRIIDUPKROGLQJVXVLQJPLOOLRQKHFWDUHVRI ODQG RIWKH8.ODQGWRWDOLQ  7KHXWLOLVHGDJULFXOWXUDODUHD 8$$  LQFOXGHVDUDEOHDQGKRUWLFXOWXUDOFURSV XQFURSSHGDUDEOHODQGODQGIRURXWGRRU SLJVWHPSRUDU\DQGSHUPDQHQW JUDVVODQGDQGFRPPRQURXJKJUD]LQJ 3LJV PLOOLRQ

:RRGODQGV PLOOLRQKHFWDUHV RQIDUPODQG

7KHDYHUDJH8.IDUPVL]HLV KHFWDUHVKRZHYHUDOPRVWKDOIRIDOO IDUPVDUHOHVVWKDQKHFWDUHVLQVL]H 3RXOWU\ PLOOLRQ

'DLU\+HUG PLOOLRQ

7RWDOFURSSDEOHDUHDFRQVLVWVRI FHUHDOVRLOVHHGSRWDWRHVRWKHUDUDEOH FURSVKRUWLFXOWXUDOFURSVXQFURSSHG DUDEOHODQGDQGWHPSRUDU\JUDVV 2WKHUDUDEOHFURSV WKRXVDQGKD 8$$

2LOVHHGV WKRXVDQGKD 8$$ +RUWLFXOWXUH WKRXVDQGKD 8$$

&DWWOH PLOOLRQ

3RWDWRHV WKRXVDQGKD 8$$

6KHHS PLOOLRQ

3HUPDQHQWJUDVVODQG PLOOLRQKD 8$$

&HUHDOV PLOOLRQKD 8$$ 7HPSRUDU\JUDVVODQG &RPPRQURXJKJUD]LQJ PLOOLRQKD PLOOLRQKD 8$$ 8$$

7KH)XWXUH)DUPLQJ DQG(QYLURQPHQW(YLGHQFH&RPSHQGLXP )HEUXDU\

8QFURSSHGDUDEOHODQG WKRXVDQGKD 8$$



%DFNWR6XPPDU\

)DUP(FRQRPLFVDQG$FFRXQWV

)RRG3URGXFWLRQ

(QYLURQPHQWDO/DQG0DQDJHPHQW

6XSSRUWLQJ,QIRUPDWLRQ

+RZPXFKGRHVDJULFXOWXUHFRQWULEXWHWRWKH8.HFRQRP\"

,QDJULFXOWXUHJHQHUDWHG…EQZRUWKRISURGXFHZKLOHFRQVXPLQJ…EQZRUWKRI JRRGVDQGVHUYLFHVJLYLQJDQHWFRQWULEXWLRQWRWKH8.HFRQRP\RI…EQ

…EQ

…EQ

7RWDOHFRQRPLFDFWLYLW\LQWKHSURGXFWLRQ RI QHZDJULFXOWXUDOJRRGVDQGVHUYLFHV

,QWHUPHGLDWHFRQVXPSWLRQ RIJRRGVDQG VHUYLFHVWRSURGXFHDJULFXOWXUDORXWSXW $QLPDO)HHG …EQ

/LYHVWRFN

&URSV

2WKHU  …EQ …EQ

7RWDOPDLQWHQDQFH …EQ …EQ

)HUWLOLVHUV …EQ (QHUJ\ …EQ $JULFXOWXUDOVHUYLFHV …EQ

…EQ

2WKHU

3ODQWSURWHFWLRQSURGXFWV …EQ 6HHGV …EQ

,QFOXGHVLQVHSDUDEOH QRQDJULFXOWXUDO DFWLYLWLHV

9HWHULQDU\H[SHQVHV …EQ )LQDQFLDOLQWHUPHGLDWHVHUYLFHVLQGLUHFWO\PHDVXUHG …EQ 











9DOXH …EQ

2WKHULQFOXGHVZDWHUFRVWVLQVXUDQFHEDQNFKDUJHVDQGRWKHUIDUPLQJFRVWV

RIOLYHVWRFNRXWSXWLVLQWKHIRUPRIPHDW WKURXJKPLONWKRXJKDFTXLULQJ IDUPLQJVWRFNDQGWKURXJKHJJV

3URGXFLQJDJULFXOWXUDOSURGXFWVJHQHUDWHVD GHPDQGIRUJRRGVDQGVHUYLFHVIURPRWKHU LQGXVWULHVLQWKHZLGHUHFRQRP\

*URVV2XWSXW …EQ OHVVLQWHUPHGLDWH&RQVXPSWLRQ …EQ  *URVV9DOXH$GGHG …EQ 7KH)XWXUH)DUPLQJ DQG(QYLURQPHQW(YLGHQFH&RPSHQGLXP )HEUXDU\



%DFNWR6XPPDU\

)RRG3URGXFWLRQ

)DUP(FRQRPLFVDQG$FFRXQWV

(QYLURQPHQWDO/DQG0DQDJHPHQW

6XSSRUWLQJ,QIRUPDWLRQ

+RZPDQ\SHRSOHDUHHPSOR\HGZLWKLQDJULFXOWXUH"

$JULFXOWXUHHPSOR\VDOPRVWKDOIDPLOOLRQSHRSOHLQWKH8.RIWKHWRWDO8.ZRUNIRUFH ZKRDUHPDLQO\LQYROYHGLQEXVLQHVVRZQHUVKLSRUPDQDJHPHQW )RFXVLQJRQWKH8.«

)RFXVLQJRQ(QJODQG«



RIWKRVHZRUNHUVDUHLQYROYHGLQWKH EXVLQHVVDVWKHIDUPHUSDUWQHU GLUHFWRURUVSRXVHRIWKHIDUPHU 7KHSURSRUWLRQRIWKHZRUNLQJSRSXODWLRQ HPSOR\HGLQDJULFXOWXUHYDULHVIRUHDFKFRXQWU\ 7KHPRVWDUHHPSOR\HGLQ1RUWKHUQ,UHODQGDQG WKHOHDVWLQ(QJODQG

 

LQ1RUWKHUQ ,UHODQG

 LQ(QJODQG

7KHVL]HRIWKH8.DJULFXOWXUDO ODERXUIRUFHKDVUHPDLQHGODUJHO\ VWDEOHRYHUWKHSDVWGHFDGH UDQJLQJEHWZHHQWKRXVDQG DQGWKRXVDQGSHRSOH

$JULFXOWXUHW\SLFDOO\KDVDQDJHLQJZRUNIRUFH ,QDURXQGDWKLUGRIDOOIDUPKROGHUVLQWKH 8.ZHUHRYHUWKHDJHRI\HDUVDOWKRXJKLW VKRXOGEHQRWHGWKDWWKHKROGHULVQRW QHFHVVDULO\WKHPDQDJHURUDFWLYHIDUPHU-XVW RISHRSOHZHUHDJHGOHVVWKDQ\HDUV

 $YHUDJHQXPEHURIZRUNHUVSHUIDUP

SHRSOHDUHHPSOR\HGLQ WKHDJULFXOWXUDOVHFWRULQ WKH8.LQ

SHRSOHZHUHHPSOR\HGLQWKHDJULFXOWXUDOVHFWRULQ (QJODQGLQ7KHPDMRULW\  ZDVPDGHXSE\ IDUPHUVSDUWQHUGLUHFWRUV VSRXVHV



+RUWLFXOWXUHLVWKHPRVWODERXULQWHQVLYH IDUPW\SHZLWKSHRSOHSHUKROGLQJLQ FRPSDUHGWRRQO\SHRSOHSHU KROGLQJIRU*UD]LQJ/LYHVWRFN&HUHDOV 0L[HGDQG*HQHUDO&URSSLQJ

     

   

3HUFHQWDJH RIDJULFXOWXUDO HPSOR\PHQW LQ(QJODQG

+RUWLFXOWXUH

'DLU\

3LJVDQG SRXOWU\

*HQHUDO &URSSLQJ

0L[HG

&HUHDOV

*UD]LQJ /LYHVWRFN















7KH)XWXUH)DUPLQJ DQG(QYLURQPHQW(YLGHQFH&RPSHQGLXP )HEUXDU\

*UD]LQJ/LYHVWRFNLVWKHVHFWRUZKLFK HPSOR\VWKHODUJHVWQXPEHURISHRSOHLQ (QJOLVKDJULFXOWXUH RIWRWDO(QJOLVK DJULFXOWXUDOHPSOR\PHQW 7KLVVHFWRUPDNHV XSRIWRWDOIDUPV VHHSDJH  

%DFNWR6XPPDU\

)DUP(FRQRPLFVDQG$FFRXQWV

)RRG3URGXFWLRQ

(QYLURQPHQWDO/DQG0DQDJHPHQW

6XSSRUWLQJ,QIRUPDWLRQ

+RZPXFKRIWKHQHWFRQWULEXWLRQRIDJULFXOWXUHWRWKH8.HFRQRP\FRPHVIURPHDFKFRXQWU\"

,Q(QJODQGSURYLGHGDURXQGWKUHHTXDUWHUVRIWKH8.¶VQHWDJULFXOWXUDOFRQWULEXWLRQWR WKH8.HFRQRP\:DOHVFRQWULEXWHG6FRWODQGDQG1RUWKHUQ,UHODQG 1RUWKHUQ,UHODQG 

6FRWODQG 

:DOHV



…EQ



(QJODQG

$JULFXOWXUH¶VFRQWULEXWLRQWR WKH8.¶VHFRQRP\LQ

7KH)XWXUH)DUPLQJ DQG(QYLURQPHQW(YLGHQFH&RPSHQGLXP )HEUXDU\



%DFNWR6XPPDU\

)RRG3URGXFWLRQ

)DUP(FRQRPLFVDQG$FFRXQWV

(QYLURQPHQWDO/DQG0DQDJHPHQW

6XSSRUWLQJ,QIRUPDWLRQ

+RZPDQ\RIHDFKIDUPW\SHDUHWKHUHLQWKH(QJODQGDQGKRZPXFKODQGGRWKH\XVH"

,Q(QJODQGLQFHUHDOVIDUPVXVHGWKHODUJHVWDPRXQWRIIDUPHGDUHD RIWRWDO  DQGJUD]LQJOLYHVWRFNLQORZODQGDUHDVKDGWKHJUHDWHVWQXPEHURIIDUPV RIWRWDO  $UHDRIODQGXVHGE\VHFWRUW\SH 7RWDO)DUPHG$UHDPLOOLRQKHFWDUHV KD

1XPEHURIIDUPVE\VHFWRUW\SH 7RWDO)DUP+ROGLQJV

 &HUHDOV PLOOLRQKD



*UD]LQJ /LYHVWRFN /HVV )DYRXUHG$UHDV PLOOLRQKD 'DLU\ NKD



*UD]LQJ /LYHVWRFN /RZODQG PLOOLRQKD

&HUHDOV )DUPV

 0L[HG NKD





3LJV NKD



 +RUWLFXOWXUH NKD



3RXOWU\ NKD

7KH)XWXUH)DUPLQJ DQG(QYLURQPHQW(YLGHQFH&RPSHQGLXP )HEUXDU\

*UD]LQJ/LYHVWRFN /RZODQG )DUPV

 *UD]LQJ/LYHVWRFN /)$ )DUPV



*HQHUDO &URSSLQJ )DUPV

 0L[HG )DUPV 3RXOWU\ )DUPV

'DLU\  )DUPV



+RUWLFXOWXUH  )DUPV

 



8QFODVVLILHG )DUPV



*HQHUDO &URSSLQJ PLOOLRQKD



8QFODVVLILHG NKD





3LJV )DUPV



%DFNWR6XPPDU\

)DUP(FRQRPLFVDQG$FFRXQWV

)RRG3URGXFWLRQ

(QYLURQPHQWDO/DQG0DQDJHPHQW

6XSSRUWLQJ,QIRUPDWLRQ

,Q(QJODQGKRZLVWKHHFRQRPLFRXWSXWGLVWULEXWHGDFURVVWKHQXPEHURIIDUPV"

,Q(QJODQGLQDVPDOOQXPEHURIHFRQRPLFDOO\ODUJHIDUPV  SURGXFHGRYHUKDOI  WKHDJULFXOWXUDORXWSXWXVLQJMXVWRIWKHWRWDOIDUPHGODQGDUHD (FRQRPLF6L]H &ODVVLILFDWLRQ

9HU\6PDOO

6PDOO

6WDQGDUG2XWSXW

8QGHU¼.

¼.WR¼.

0HGLXP ¼.WR¼.

/DUJH ¼.WR¼.

9HU\/DUJH $WOHDVW¼.

7RWDO WRWDO)DUP %XVLQHVVHV

1XPEHURIIDUP EXVLQHVVHV





















 )DUP %XVLQHVVHV

¼ PLOOLRQ HVWLPDWHG RXWSXW

WRWDO 2XWSXW ¼ PLOOLRQ











WRWDO)DUPHG$UHD WKRXVDQG+HFWDUHV











 0LOOLRQ KHFWDUHV

6WDQGDUG2XWSXWPHDVXUHVWKHWRWDOYDOXHRIRXWSXWRIDQ\RQHHQWHUSULVH SHUKHDGIRUOLYHVWRFNDQGSHUKHFWDUHIRUFURSV)RUFURSV WKLVZLOOEHWKHPDLQSURGXFW HJZKHDWEDUOH\SHDV SOXVDQ\E\SURGXFWWKDWLVVROGIRUH[DPSOHVWUDZ)RUOLYHVWRFNLWZLOOEHWKH YDOXHRIWKHPDLQSURGXFW PLONHJJVODPESRUN SOXVWKHYDOXHRIDQ\VHFRQGDU\SURGXFW FDOIZRRO PLQXVWKHFRVWRIUHSODFHPHQW 1RWH WKHFKDUWH[FOXGHVEXVLQHVVHVFODVVLILHGDVµVSHFLDOLVWKRUVH¶ 7KH)XWXUH)DUPLQJ DQG(QYLURQPHQW(YLGHQFH&RPSHQGLXP )HEUXDU\



%DFNWR6XPPDU\

)RRG3URGXFWLRQ

)DUP(FRQRPLFVDQG$FFRXQWV

(QYLURQPHQWDO/DQG0DQDJHPHQW

6XSSRUWLQJ,QIRUPDWLRQ

:KDWLVWKHWRWDOLQFRPHRUSURILWRIIDUPVLQWKH8."

,QWKH8.LQWKHWRWDOSURILW 7RWDO,QFRPHIURP)DUPLQJ ZDV…EQ7KLVLVWKHWRWDOQHW FRQWULEXWLRQ …EQ PLQXVGHSUHFLDWLRQRIIDUPDVVHWV …EQ SD\PHQWRIZDJHVUHQW LQWHUHVWDQGWD[HV …EQ DQGDGGLWLRQRIIDUPVXEVLGLHV …EQ  +RZLV7RWDO ,QFRPHIURP )DUPLQJ FDOFXODWHG"

%

£

7RWDO,QFRPH IURP)DUPLQJ

7$; £

,QWHUHVW :DJHV *URVV9DOXH$GGHG

$VVHW 'HSUHFLDWLRQ

RENT

6XEVLG\

,QWKHVHYDOXHVZHUH

:DJHVUHQWLQWHUHVW WD[DWLRQ

$VVHW'HSUHFLDWLRQ

6XEVLGLHVRQSURGXFWLRQE

7RWDOYDOXH…EQ

7RWDOYDOXH…EQ

7RWDOYDOXH…EQ

%UHDNGRZQE\W\SH

%UHDNGRZQE\W\SH :DJHV LQFOXGLQJSHQVLRQV 5HQW ,QWHUHVW 7D[HVRQSURGXFWLRQ

%UHDNGRZQE\W\SH …EQ …EQ

…EQ

(TXLSPHQW

…EQ

/LYHVWRFND

…EQ

%XLOGLQJV …EQ

…EQ

…EQ

6FKHPH

…EQ

%DVLF3D\PHQW6FKHPH

…

$JULHQYLURQPHQWSD\PHQWV

…

/HVVIDYRXUHGDUHDVVXSSRUWVFKHPH

…

2WKHUDJULHQYLURQPHQWVFKHPHV

…

$QLPDOGLVHDVHFRPSHQVDWLRQ

…

D

LQFOXGHVWKRVHKHOGIRUGUDIWEUHHGLQJRU GDLU\SXUSRVHV

7KHWRWDOLQFRPHIURPIDUPLQJLQLVIRUHFDVWWRKDYHULVHQWR…EQ DOWKRXJKWKLVLVDSURYLVLRQDOILJXUH SXEOLVKHG)HE DQGZLOOEH XSGDWHGLQ$SULO 7KH)XWXUH)DUPLQJ DQG(QYLURQPHQW(YLGHQFH&RPSHQGLXP )HEUXDU\

E

7KHWHUP³6XEVLGLHVRQSURGXFWLRQ´FRPHVIURPWKHEUHDNGRZQRI8. DJULFXOWXUDODFFRXQWVDQGGRHVQRWUHIOHFWWKHQDWXUHRISD\PHQWVEXWLVXVHG KHUHIRUFRQVLVWHQF\ZLWKRWKHUSXEOLFDWLRQVUHODWLQJWR7RWDO ,QFRPHIURP )DUPLQJIRUH[DPSOHDJULHQYLURQPHQWDOVFKHPHVDUHQRWDVXEVLG\DQGDUH EDVHGRQLQFRPHIRUJRQH



%DFNWR6XPPDU\

)RRG3URGXFWLRQ

)DUP(FRQRPLFVDQG$FFRXQWV

(QYLURQPHQWDO/DQG0DQDJHPHQW

6XSSRUWLQJ,QIRUPDWLRQ

+RZGRHVWKHWRWDOLQFRPHRUSURILWRIIDUPHUVYDU\IURP\HDUWR\HDU"

7KH7RWDO,QFRPHIURP)DUPLQJFDQYDU\KXJHO\IURP\HDUWR\HDUDQGWKHUHIRUHLWLVLPSRUWDQW WRFRQVLGHUPRUHWKDQMXVWRQH\HDUZKHQLQWHUSUHWLQJWKHSHUIRUPDQFHRIDJULFXOWXUH ([FKDQJH5DWHV )DUPLQFRPHLVH[SRVHGWR YDULDWLRQVLQH[FKDQJHUDWHV $ ZHDNSRXQGLVJHQHUDOO\ JRRGIRUIDUPLQJDVH[SRUWV RIJRRGVEHFRPHPRUH FRPSHWLWLYHRQWKHZRUOG PDUNHWDQGLPSRUWSULFHV ULVH

'LUHFW3D\PHQWV …¼ H[FKDQJHUDWHDIIHFWV LQFRPHIURP'LUHFW 3D\PHQWVZKLFKLV FDOFXODWHGLQ(XURV$ ZHDNHQLQJRIWKHSRXQG DJDLQVWWKH(XURLQFUHDVHV WKHVXEVLG\SD\PHQWLISDLG LQSRXQGVVWHUOLQJ

9RODWLOLW\ ,QFRPH IURP\HDUWR\HDU FDQEHTXLWHYRODWLOHZLWK ULVHVDQGIDOOVRIRYHU RYHUWKHODVW\HDUV

:HDN3RXQG± 3RVLWLYHLPSDFWRQIDUPLQFRPH 3RXQGWR(XUR([FKDQJH5DWH ULJKWVFDOH

7RWDO,QFRPHIURP)DUPLQJ…PLOOLRQV OHIWVFDOH 

 











     









 

  



 













([WHUQDOVKRFNV 0DQ\SURGXFWVDUHWUDGHG JOREDOO\DQGGURXJKWVRU GLVHDVHLQRWKHUFRXQWULHV FDXVHVKRUWDJHVLQ SURGXFWLRQWKDWFDQ LQIOXHQFHZRUOGFRPPRGLW\ SULFHVLPSDFWLQJRQWKH GRPHVWLFPDUNHW

3URGXFWLRQ
:HDN6WHUOLQJ 5HGXFHVWKHSUHVVXUHRQ IDUPVWRILQGHIILFLHQF\JDLQV ZKLFKLPSDFWRQJURZWK

6WURQJ3RXQG± 1HJDWLYHLPSDFWRQIDUPLQFRPH

7KH)XWXUH)DUPLQJ DQG(QYLURQPHQW(YLGHQFH&RPSHQGLXP )HEUXDU\



%DFNWR6XPPDU\

)RRG3URGXFWLRQ

)DUP(FRQRPLFVDQG$FFRXQWV

(QYLURQPHQWDO/DQG0DQDJHPHQW

6XSSRUWLQJ,QIRUPDWLRQ

:KDWLVWKHSHUFHQWDJHRIIDUPVLQGLIIHUHQWLQFRPH RUSURILW EDQGVLQ(QJODQG"

%HWZHHQDQGRIIDUPVPDGHDSURILWRIPRUHWKDQ…NZKLOHRI IDUPVPDGHDORVVZLWKDQDYHUDJHSURILWIRUDOOIDUPVRI… RIIDUPVZLWKLQGLIIHUHQW)DUP%XVLQHVV,QFRPHEDQGVWR .H\ $YHUDJHLQEUDFNHWV

$OOIDUPV …

3RXOWU\ …

'DLU\ …

0RUHWKDQ…N …NWROHVVWKDQ…N …NWROHVVWKDQ…N

 

…NWROHVVWKDQ…N …NWROHVVWKDQ…N





/RZODQG*UD]LQJ /LYHVWRFN …

 



 

 





 



/HVVWKDQ… PDNHDORVV

/)$*UD]LQJ /LYHVWRFN …



3RXOWU\DQG'DLU\ZHUHWKH IDUPW\SHVZLWKWKHJUHDWHVW SHUFHQWDJHRIIDUPVZLWK SURILWVRYHU….



*UD]LQJOLYHVWRFNIDUPVKDG WKHORZHVWSHUFHQWDJHVZLWK SURILWVRYHU….





  









$WKLUGRISRXOWU\DQGGDLU\IDUPHUVPDGHD SURILWRIRYHU…NEXWHYHQZLWKLQWKHVH VHFWRUVMXVWRYHULQIDUPHUVPDGHDORVV

7KH)XWXUH)DUPLQJ DQG(QYLURQPHQW(YLGHQFH&RPSHQGLXP )HEUXDU\







RI*UD]LQJ/LYHVWRFNIDUPVLQWKH/HVV)DYRXUHG $UHDVDQGRI/RZODQG*UD]LQJ/LYHVWRFNIDUPV KDGDSURILWRIOHVVWKDQ…NSHU\HDU



%DFNWR6XPPDU\

)RRG3URGXFWLRQ

)DUP(FRQRPLFVDQG$FFRXQWV

(QYLURQPHQWDO/DQG0DQDJHPHQW

6XSSRUWLQJ,QIRUPDWLRQ

+RZGRHVDJULFXOWXUHFRQWULEXWHWRWKHLQFRPHV RUSURILW RIIDUPHUVLQ(QJODQG"

0DQ\IDUPVPDNHORVVHVIURPWKHDJULFXOWXUDOVLGHRIWKHLUEXVLQHVVEXWEHQHILWIURP'LUHFW 3D\PHQWVWDNLQJSDUWLQDJULHQYLURQPHQWVFKHPHVRUGLYHUVLI\LQJWKHLUDFWLYLWLHVIRULQFRPH $JULFXOWXUH 2QDYHUDJHDFURVVDOOIDUPW\SHVWKHDJULFXOWXUDO SDUWRIWKHEXVLQHVVPDGHDPDUJLQDOORVV RI… EHWZHHQDQG7KHVH QXPEHUVDUHLPSDFWHGE\FRVWVDVVRFLDWHGZLWK 'LUHFW3D\PHQWVDQGDJULHQYLURQPHQWVFKHPHV 5DQNLQJIDUPVIURPWKHORZHVWWRKLJKHVWLQFRPH DQGSXWWLQJLQWRIRXUHTXDOJURXSVVKRZVWKDW RQO\WKHWRSRQDYHUDJHPDNHDSURILWIURP WKHDJULFXOWXUDOSDUWRIWKHEXVLQHVV …  7KHERWWRPPDGHDORVVRI…IURP DJULFXOWXUH 'LYHUVLILFDWLRQ VHHSDJH 7KLVFRPSRQHQWFDSWXUHVQRQDJULFXOWXUDOZRUNRI DQHQWUHSUHQHXULDOQDWXUHRQRURIIIDUPEXW XWLOLVLQJIDUPUHVRXUFHV

,QFDVKWHUPVLWFRQWULEXWHGPRVW … WR WKHWRSRIIDUPHUVEXWSURYLGHGSURILWVWR IDUPVLQDOOJURXSV%RWWRP …   … DQG …  'LUHFW3D\PHQWV 'LUHFW3D\PHQWVFDQLPSDFWRQFRVWVZKLFK LPSDFWRQSURILWVIURPDJULFXOWXUH'HWDLOHG DQDO\VLVRIWKHLPSDFWRI'LUHFW3D\PHQWVFDQEH IRXQGRQSDJHV

$YHUDJH)DUP%XVLQHVV,QFRPH …SHUIDUP &RQWULEXWLRQVWR)DUP %XVLQHVV,QFRPH RUSURILW   .H\



'LUHFW3D\PHQWV



'LYHUVLILFDWLRQ



$JULHQYLURQPHQW



$JULFXOWXUH

    2YHUDOO DYHUDJH

$OOIDUPV …

%RWWRP RIIDUPV

)DUPV 

)DUPV 

7RS  RIIDUPV

…

…

…

…

$JULHQYLURQPHQW $JULHQYLURQPHQWSD\PHQWVDUHWKRVHZKHUHDIDUPLVSDLGWRGHOLYHUHQYLURQPHQWDO RXWFRPHV7KH\DUHSDLGRQDQLQFRPHIRUHJRQHEDVLVVXFKWKDWDIDUPHUPD\JHW SDLGWRGHOLYHUDQRXWFRPHZKLFKLPSDFWVRQWKHLUSURILWVIURPDJULFXOWXUH

7KH)XWXUH)DUPLQJ DQG(QYLURQPHQW(YLGHQFH&RPSHQGLXP )HEUXDU\



%DFNWR6XPPDU\

)RRG3URGXFWLRQ

)DUP(FRQRPLFVDQG$FFRXQWV

(QYLURQPHQWDO/DQG0DQDJHPHQW

6XSSRUWLQJ,QIRUPDWLRQ

+RZGRHVSURILWYDU\DFURVVWKHGLIIHUHQWIDUPW\SHVLQ(QJODQG"

)DUP%XVLQHVV,QFRPHYDULHVDFURVVWKHGLIIHUHQWIDUPW\SHV DQGRYHUWKHSHULRGWR SRXOWU\IDUPVZHUHPRVWSURILWDEOHDQGJUD]LQJOLYHVWRFNDQGPL[HGIDUPVWKHOHDVW )DUP7\SH

$JULFXOWXUH

$JULHQYLURQPHQW

+RUWLFXOWXUH

'LYHUVLILFDWLRQ

'LUHFW3D\PHQWV

…

0L[HG

… …

3RXOWU\ 3LJV

…

/RZODQG*UD]LQJ/LYHVWRFN

…

/)$*UD]LQJ/LYHVWRFN

…

'DLU\

… …

*HQHUDOFURSSLQJ &HUHDOV

… …

$OOIDUPW\SHV 















$YHUDJH)DUP%XVLQHVV,QFRPH … 0L[HGJUD]LQJOLYHVWRFNDQGFHUHDOVIDUPV PDGHDORVVIURPWKHDJULFXOWXUHVLGHRIWKH EXVLQHVVDVWKHLUFRVWVRISURGXFWLRQ RXWZHLJKHGWKHYDOXHRIWKHLURXWSXW

$URXQGWZRWKLUGVRI)DUP%XVLQHVV ,QFRPHFDPHIURPWKHDJULFXOWXUDOVLGH RIWKHEXVLQHVVIRUSLJDQGSRXOWU\IDUPV

7KH)XWXUH)DUPLQJ DQG(QYLURQPHQW(YLGHQFH&RPSHQGLXP )HEUXDU\

2YHURI)DUP%XVLQHVV,QFRPH FDPHIURP'LUHFW3D\PHQWVIRUFHUHDO JUD]LQJOLYHVWRFNDQGPL[HGIDUPV 

%DFNWR6XPPDU\

)DUP(FRQRPLFVDQG$FFRXQWV

)RRG3URGXFWLRQ

(QYLURQPHQWDO/DQG0DQDJHPHQW

6XSSRUWLQJ,QIRUPDWLRQ

:KDWIDFWRUVDUHFRQWULEXWLQJWRVRPHIDUPHUVLQ(QJODQGFRQWLQXLQJWRIDUPZKLOHPDNLQJDORVV"

0DQ\IDUPHUVSXWWKHIDUPLQJOLIHVW\OHDVEHLQJPRUH LPSRUWDQWWRWKHPWKDQPD[LPLVLQJSURILWV 0DQ\IDUPVDUHDOVRDVVHWULFKZLWKRZQHURFFXSLHGIDUPVDYHUDJLQJDQHWZRUWKRI…P 0DQ\IDUPHUVDUHDVVHWULFK RIIDUPKROGLQJVLQ(QJODQGDUHRZQHU RFFXSLHGDQGWKHDYHUDJHQHWZRUWKRIWKLVJURXS ZDVDURXQG…PLOOLRQSRXQGVLQ7KH DYHUDJHIRUWKLVJURXSKDVDOVRLQFUHDVHGE\ RU…VLQFH $IXUWKHURIIDUPKROGLQJVDUHPL[HGWHQXUH EXWPDLQO\RZQHURFFXSLHGDQGWKHQHWZRUWKRI WKHVHIDUPVZDVDOPRVW…PLOOLRQLQ XSVLQFH +RZHYHUWHQDQWHGIDUPV RIIDUPKROGLQJV  KDYHIHZHUDVVHWV HJPDFKLQHU\DQGOLYHVWRFN  7KHLUDYHUDJHQHWZRUWKZDV…LQ VLPLODUWR

$YHUDJHQHW ZRUWK …PLOOLRQ 

$YHUDJHWRWDO DUHD KHFWDUHV

$YHUDJHRZQHU RFFXSLHGDUHD KHFWDUHV

 RZQHG

























7HQDQWHG









$OOIDUPV



2ZQHU RFFXSLHG 0L[HG PDLQO\ RZQHU RFFXSLHG 0L[HG PDLQO\ WHQDQWHG

1RWHWKHGDWDRQQHWZRUWKLVWDNHQIURPWKH)DUP%XVLQHVV6XUYH\ZKLFKRQO\ VDPSOHVIURPIDUPVLQ(QJODQGZLWKDVWDQGDUGRXWSXWRIRYHU(XURV DQGWKHUHIRUHZLOOH[FOXGHVPDOOHUIDUPV

)RUPDQ\IDUPHUVSURILWVDUHQRWWKHLUPDLQPRWLYDWLRQDQGPDQ\IDUPKRXVHKROGVDUHVXSSRUWHGE\RIIIDUPLQFRPH $SSURDFKHVWRIDUPLQJYDU\± VRPHIRFXVRQWKHEXVLQHVVRWKHUVRQWKHOLIHVW\OH LQGLYLGXDODQGIDPLO\KHULWDJH ,QDVXUYH\FRQGXFWHGIRU 'HIUD LQ WRXQGHUVWDQGGLIIHUHQWDWWLWXGHVWRIDUPLQJDJUHHGWKDWWKHIDUPLQJOLIHVW\OHLVZKDWWKH\UHDOO\HQMR\ DQGDJUHHG WKDWPDLQWDLQLQJHQYLURQPHQWDODVVHWVLVDSULRULW\7KLVFRPSDUHVWRVD\LQJIDUPLQJLVDERXWPD[LPLVLQJSURILW 0DQ\IDUPVDUHVXSSRUWHGE\LQFRPHJHQHUDWHGRIIIDUPHLWKHUIURPRWKHUIDPLO\PHPEHUVRUDVHFRQGMRE DQGIRURISULQFLSDOIDUPHU KRXVHKROGVWKHLQFRPHUHFHLYHGIURPQRQIDUPLQJVRXUFHVH[FHHGHGWKHLQFRPHUHFHLYHGIURPWKHIDUPEXVLQHVV 7KH)XWXUH)DUPLQJ DQG(QYLURQPHQW(YLGHQFH&RPSHQGLXP )HEUXDU\



%DFNWR6XPPDU\

)RRG3URGXFWLRQ

)DUP(FRQRPLFVDQG$FFRXQWV

(QYLURQPHQWDO/DQG0DQDJHPHQW

6XSSRUWLQJ,QIRUPDWLRQ

:KDWIDFWRUVDUHFRQWULEXWLQJWRVRPHIDUPHUVLQ(QJODQGFRQWLQXLQJWRIDUPZKLOHPDNLQJDORVV"

)DUPHUVDUHSULFHWDNHUVDQGWKHGHWHUPLQDQWVRIWKHSULFHVWKH\UHFHLYHFDQEHRXWRIWKHLU FRQWURO0DQ\IDUPHUVGRQRWPDQDJHIDUPSHUIRUPDQFHVXFKDVDQDO\VLQJSURILWVDQGORVVHV )DUPHUVDUHSULFHWDNHUV

$YHUDJHLQFRPH … IURPDJULFXOWXUHRQO\IRUFHUHDOIDUPHUVWR

0DQ\RIWKHGHWHUPLQDQWVRIWKHSULFHVIDUPHUV UHFHLYHDUHRXWRIWKHLUFRQWURO)DUPHUVSODQW FURSVDQGUDLVHDQLPDOVEXWE\WKHWLPHWKHLU SURGXFHLVDYDLODEOHIRUPDUNHWWKHDFWXDOSULFH WKH\UHFHLYHPD\KDYHIDOOHQ0DQ\DJULFXOWXUDO SURGXFWVDUHSHULVKDEOHDQGFDQQRWEHVWRUHGRQ IDUPVRKDYHWREHPRYHGLQWRWKHVXSSO\FKDLQ TXLFNO\PHDQLQJIDUPHUVFDQQRWZDLWIRUEHWWHU SULFHV:HDWKHUSDWWHUQVFDQDOVRLPSDFWERWK GRPHVWLFDQGJOREDOVXSSO\

    1RWHWKHUHDUHVOLJKWGLVFRQWLQXLWLHV LQWKHGDWDLQDQG  













7KHVHIDFWRUVPHDQWKDWLQVRPH\HDUVIDUPHUV PDNHSURILWVDQGLQRWKHUVORVVHV 0DQDJLQJIDUPSHUIRUPDQFH 2QO\LQIDUPVUHJXODUO\SURGXFHEXGJHWV JURVVPDUJLQVDQGFDVKIORZVRUFDUU\RXWLQ GHSWKDQDO\VLVRIWKHLUSURILWVDQGORVVHV

,IIDUPHUVGRQRWPRQLWRUDQGDQDO\VHFRVWV \LHOGVDQGUHYHQXHVIURPGLIIHUHQWSDUWVRIWKHLU EXVLQHVVLWPDNHVLWPRUHGLIILFXOWWREHVXUH ZKHWKHUWKH\DUHPDNLQJDSURILWRUORVVDQGWR XQGHUVWDQGZKDWGULYHVWKHLUEXVLQHVV SHUIRUPDQFHRUZKDWFDQEHGRQHWRLPSURYHLW

RIIDUPVFDUU\LQJRXWYDULRXVIDUPPDQDJHPHQWSUDFWLFHV(QJODQG 3URGXFHVEXGJHWJURVVPDUJLQVFDVK IORZVRULQGHSWKSURILWDQGORVVDFFRXQWV



$WWHQGVGLVFXVVLRQJURXSVUHJXODUO\



(QWHUSULVHOHYHOEDODQFHVKHHW LQWHUQDWLRQDOEHQFKPDUNLQJ

7KH)XWXUH)DUPLQJ DQG(QYLURQPHQW(YLGHQFH&RPSHQGLXP )HEUXDU\



)RUPDOSODQ 

 









%DFNWR6XPPDU\

)RRG3URGXFWLRQ

)DUP(FRQRPLFVDQG$FFRXQWV

(QYLURQPHQWDO/DQG0DQDJHPHQW

6XSSRUWLQJ,QIRUPDWLRQ

+RZ GRIDUPPDQDJHPHQWSUDFWLFHVYDU\ EHWZHHQWKHWRSDQGERWWRPSHUIRUPLQJIDUPV"

,QWKHWRSRIIDUPSHUIRUPHUVZHUHWLPHVPRUHOLNHO\WRHQJDJHLQSUDFWLFHV VXFKDVORRNLQJDWWKHLUSURILWDQGORVVDFFRXQWFRPSDUHGWRWKHERWWRPRISHUIRUPHUV )DUPVZLWKKLJKHUHFRQRPLF SHUIRUPDQFHDUHPRUHOLNHO\WR HQJDJHLQIDUPPDQDJHPHQW SUDFWLFHVVXFKDVEXVLQHVV SODQQLQJDQGEHQFKPDUNLQJ +RZHYHUHYHQIRUWKHPRVW SURILWDEOHIDUPVWKHPDMRULW\VWLOOGR QRWHQJDJHLQIDUPPDQDJHPHQW SUDFWLFHVVXJJHVWLQJURRPIRU PRUHLPSURYHPHQWDFURVVWKH VHFWRUV

RIIDUPVFDUU\LQJRXWYDULRXVIDUPPDQDJHPHQWSUDFWLFHVLQ(QJODQGE\IDUPHFRQRPLF SHUIRUPDQFH (QWHUSULVHOHYHOEDODQFHVKHHW LQWHUQDWLRQDOEHQFKPDUNLQJ 

7RSRIIDUPV %RWWRPRIIDUPV





3URGXFHVEXGJHWJURVVPDUJLQVFDVK IORZVRULQGHSWKSURILWDQGORVVDFFRXQWV  

)RUPDOSODQ  $WWHQGVGLVFXVVLRQJURXSVUHJXODUO\

 













RIIDUPVWKDWSURGXFHVEXGJHWVJURVVPDUJLQVFDVKIORZVRULQGHSWKSURILWDQGORVVDFFRXQWV E\IDUPW\SH *UD]LQJOLYHVWRFNIDUPVZHUHWKH OHDVWOLNHO\ WRSURGXFHEXGJHWVDQG ORRNDWWKHLUSURILWDQGORVV DFFRXQWV7KHVHIDUPVDOVRWHQGHG WRKDYHWKHORZHVW)DUP%XVLQHVV ,QFRPH



    

  &HUHDOV

 

        

*HQHUDO FURSSLQJ

7KH)XWXUH)DUPLQJ DQG(QYLURQPHQW(YLGHQFH&RPSHQGLXP )HEUXDU\

'DLU\

/RZODQG *UD]LQJ /LYHVWRFN

/)$ *UD]LQJ /LYHVWRFN

3LJV

3RXOWU\

 0L[HG

 +RUWLFXOWXUH



%DFNWR6XPPDU\

)DUP(FRQRPLFVDQG$FFRXQWV

)RRG3URGXFWLRQ

(QYLURQPHQWDO/DQG0DQDJHPHQW

6XSSRUWLQJ,QIRUPDWLRQ

+RZPXFKLQFRPHGRIDUPHUVJHQHUDWHIURPSURYLGLQJQRQDJULFXOWXUDOSURGXFWVXVLQJWKHLUIDUPUHVRXUFHV"

,QDOPRVWUGVRIIDUPVXVHGIDUPUHVRXUFHVWRGHOLYHUQRQDJULFXOWXUDODFWLYLWLHV JHQHUDWLQJDURXQG…PLOOLRQDGGLWLRQDOSURILW …SHUIDUP  'LYHUVLILHGHQWHUSULVHV

QRQDJULFXOWXUDOZRUNRIDQHQWUHSUHQHXULDOQDWXUHRQRURIIIDUPEXWZKLFKXWLOLVHV IDUPUHVRXUFHV

2YHUWKHODVW\HDUV XSWDNHRIGLYHUVLILHG DFWLYLWLHVKDVLQFUHDVHGIURPRIIDUP EXVLQHVVLQWRLQ )RU WKRVHIDUPVZLWKDGLYHUVLILHGDFWLYLW\ WKHLU LQFRPHIURPWKDWDFWLYLW\DFFRXQWHGIRU DOPRVWDWKLUGRISURILWLQ-XVWRYHUD TXDUWHU  RIWKHVHEXVLQHVVHVKDGD JUHDWHULQFRPHIURPGLYHUVLILFDWLRQWKDQIURP WKHUHVWRIWKHIDUPEXVLQHVV

/HWWLQJRXWEXLOGLQJVIRUQRQDJULFXOWXUDOXVH ZDVWKHPRVWFRPPRQGLYHUVLILHGDFWLYLW\ RQ DYHUDJHJHQHUDWLQJDURXQG…IRU WKRVHFDUU\LQJRXWWKLVDFWLYLW\LQ 3URFHVVLQJDQGUHWDLOLQJRIIDUPSURGXFHLV WKHVHFRQGKLJKHVWDYHUDJHLQFRPHVWUHDP DPRQJWKHGLYHUVLILHGDFWLYLWLHVEXWRQO\ RIIDUPVFDUULHGWKLVRXWLQ

RIIDUPV FDUU\LQJRXW

$YHUDJHDPRXQWIRUWKRVHFDUU\LQJRXW

'LYHUVLILHGHQWHUSULVHV DOONLQGV /HWWLQJEXLOGLQJVIRU QRQIDUPLQJXVH 3URFHVVLQJUHWDLOLQJRIIDUP SURGXFH



…



…



…

6SRUWDQGUHFUHDWLRQ



…

7RXULVWDFFRPPRGDWLRQ DQGFDWHULQJ



…

6RODUHQHUJ\



…

2WKHUVRXUFHVRI UHQHZDEOHHQHUJ\



…

2WKHUGLYHUVLILHGDFWLYLWLHV



…

7KH)XWXUH)DUPLQJ DQG(QYLURQPHQW(YLGHQFH&RPSHQGLXP )HEUXDU\

     $YHUDJHHQWHUSULVHLQFRPH …IDUP 

%DFNWR6XPPDU\

)DUP(FRQRPLFVDQG$FFRXQWV

)RRG3URGXFWLRQ

(QYLURQPHQWDO/DQG0DQDJHPHQW

6XSSRUWLQJ,QIRUPDWLRQ

)DUPVFDQEHFRPHPRUHSURILWDEOHE\UHGXFLQJFRVWVEXWZKDWDUHWKHFRVWVRISURGXFWLRQIRUIDUPHUV"

$URXQGKDOIRIFRVWVWRIDUPHUVDUHYDULDEOH FKDQJLQJGHSHQGLQJRQWKHOHYHORISURGXFWLRQ DQGWKHRWKHUKDOIDUHIL[HG RIZKLFKPDFKLQHU\LVWKHLUODUJHVW 9DULDEOHFRVWVFKDQJHDVWKHOHYHORIRXWSXWYDULHV)RU H[DPSOHLIDIDUPHUSODQWVPRUHFURSVWKH\QHHGWRSXUFKDVH PRUHVHHGRUZRXOGQHHGPRUHFDVXDOODERXUIRUKDUYHVWLQJ

&URSV …

)L[HGFRVWVDUHFRQVWDQWLQWKHVKRUWWHUPPHDQLQJWKH\DUHWKH VDPHUHJDUGOHVVRIKRZPXFKWKHIDUPHUSURGXFHV ,QWKHORQJHUWHUPWKHVHFDQYDU\IRUH[DPSOHWKURXJKQHJRWLDWLRQ RIORZHUUHQWRUSXUFKDVLQJRIFKHDSHUPDFKLQHU\

7RWDOYDULDEOHFRVWV

7RWDOIL[HGFRVWV

…

…

/LYHVWRFN …

2WKHUYDULDEOHFRVWV 7KLVFRQWDLQVPDLQO\FRQWUDFWRUFRVWV DQGFDVXDOODERXUZKLFKLQFUHDVHRU GHFUHDVHGHSHQGLQJRQWKHDPRXQW SURGXFHG E\WKHIDUP

2WKHU …

3URSHUW\ …

0DFKLQHU\ …

5HJXODU ODERXU …

*HQHUDO IDUPLQJFRVWV …

5HQWV 2Q DYHUDJHIRUDOOIDUPW\SHVUHQW FRQWULEXWHG RU… WRWRWDO SURSHUW\FRVWV RURIDOOLQSXW FRVWVEHWZHHQDQG

*HQHUDOFRVWV 7KLVJURXSLQFOXGHVLWHPVVXFKDV EDQNFKDUJHVSURIHVVLRQDOIHHV ZDWHUHOHFWULFLW\QHWLQWHUHVW SD\PHQWVEDGGHEWZULWHRII

0DQ\IDUPVKDYHQRUHQWDOFRVWVDV WKH\RZQHURFFXSLHG)RUZKROO\ WHQDQWHGIDUPVUHQWDOFRVWVPDGH XS RU… RIWKHLUWRWDO FRVWV

:DWHUDQGHOHFWULFLW\FRPSULVH DURXQGDKDOIRIWKHVHFRVWV

7KH)XWXUH)DUPLQJ DQG(QYLURQPHQW(YLGHQFH&RPSHQGLXP )HEUXDU\



%DFNWR6XPPDU\

)RRG3URGXFWLRQ

)DUP(FRQRPLFVDQG$FFRXQWV

(QYLURQPHQWDO/DQG0DQDJHPHQW

6XSSRUWLQJ,QIRUPDWLRQ

+RZKDV8. DJULFXOWXUDOSURGXFWLYLW\FKDQJHGRYHUWKHSDVW\HDUV"

8.DJULFXOWXUDOSURGXFWLYLW\KDVLQFUHDVHG RUSHU\HDU VLQFHPDLQO\WKURXJK EHFRPLQJPRUHHIILFLHQWE\XVLQJIHZHUZRUNHUV 3URGXFWLYLW\ $PHDVXUHRIKRZZHOO LQSXWVDUHFRQYHUWHGLQWR RXWSXWVJLYLQJDQLQGLFDWLRQ RIWKHHIILFLHQF\DQG FRPSHWLWLYHQHVVRIWKH DJULFXOWXUHLQGXVWU\ ,PSURYHPHQWV LQDJULFXOWXUDO SURGXFWLYLW\KDYHUHPDLQHG UHODWLYHO\XQFKDQJHGRYHU WKHSDVWGHFDGH

FKDQJHLQDJULFXOWXUDOLQSXWVDQGRXWSXWVDQGWRWDOIDFWRUSURGXFWLYLW\VLQFH 

7RWDOIDFWRUSURGXFWLYLW\



VLQFH

7RWDORXWSXWV



VLQFH

 

7RWDOLQSXWV



VLQFH

2XWSXWIODWVLQFH 7KHLPSURYHPHQWLQWKH DPRXQWRIFURSVDQG OLYHVWRFNRXWSXWVKDV UHPDLQHGIODWVLQFHDURXQG EXWIDUPVKDYHXVHG IHZHUZRUNHUVZKLFKKDV LPSURYHGWKHRYHUDOO SURGXFWLYLW\RIWKHVHFWRU

 















7RWDOIDFWRUSURGXFWLYLW\

7RWDOYROXPHRIDJULFXOWXUDORXWSXWV

$PHDVXUHRIKRZZHOODJULFXOWXUHWXUQVLQSXWVLQWRRXWSXWV

7RWDOYROXPHRIDJULFXOWXUDOLQSXWV

3URGXFWLYLW\LQFUHDVHVZKHQ  IDUPRXWSXWLQFUHDVHVXVLQJVDPHLQSXWVRU  RXWSXWVUHPDLQVDPHZLWKOHVVLQSXWVRU  DFRPELQDWLRQ RI ERWK

,QSXWV

2XWSXWV

&URSV

/LYHVWRFN

/DERXU

)L[HG&DSLWDO HJPDFKLQHU\

7KH)XWXUH)DUPLQJ DQG(QYLURQPHQW(YLGHQFH&RPSHQGLXP )HEUXDU\

,QWHUPHGLDWHFRQVXPSWLRQ HJDQLPDOIHHG

/DQG



%DFNWR6XPPDU\

)RRG3URGXFWLRQ

)DUP(FRQRPLFVDQG$FFRXQWV

(QYLURQPHQWDO/DQG0DQDJHPHQW

6XSSRUWLQJ,QIRUPDWLRQ

+RZGRHVHFRQRPLFSHUIRUPDQFHYDU\EHWZHHQWKHKLJKHVWDQGORZHVWSHUIRUPLQJIDUPVLQ(QJODQG"

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

5DWLRRIWKHDYHUDJHRXWSXWFRVWVDQGDYHUDJHLQSXWFRVWVIRUZKROHIDUPEXVLQHVVIRUWKHWRS RIIDUPVPLGGOH  DQGERWWRPRIIDUPV 

$UDWLRRIPHDQVWKHRXWSXWV LQSXWV

7RS

0LGGOH

%RWWRP



 'DLU\

&HUHDOV

/)$ JUD]LQJ OLYHVWRFN

/RZODQG JUD]LQJ OLYHVWRFN









*HQHUDO +RUWLFXOWXUH FURSSLQJ





0L[HG

3LJV

3RXOWU\

$OOIDUP W\SHV









)DUP%XVLQHVV,QFRPH )%, LVFDOFXODWHGDVWKHGLIIHUHQFH EHWZHHQ)DUP%XVLQHVV2XWSXWVDQG)DUP%XVLQHVV,QSXWV,WGRHVQRW GHGXFWWKHFRVWRIXQSDLGODERXU:KHQFDOFXODWLQJIDUPHFRQRPLFSHUIRUPDQFHXQSDLGODERXULVLQFOXGHGDVDFRVW7KLVDOORZVDIDLUHU FRPSDULVRQEHWZHHQIDUPVZLWKHPSOR\HHVDQGWKRVHWKDWXVHXQSDLG RIWHQIDPLO\ ODERXU

7KH)XWXUH)DUPLQJ DQG(QYLURQPHQW(YLGHQFH&RPSHQGLXP )HEUXDU\



%DFNWR6XPPDU\

)DUP(FRQRPLFVDQG$FFRXQWV

)RRG3URGXFWLRQ

(QYLURQPHQWDO/DQG0DQDJHPHQW

6XSSRUWLQJ,QIRUPDWLRQ

+RZGRHVDQLPDOKHDOWKLPSDFWRQWKHSURGXFWLYLW\SHUIRUPDQFHRIIDUPV"

5HGXFLQJWKHOHYHODQGLPSDFWRIHQGHPLFGLVHDVHDQGKHDOWKFRQGLWLRQVFDQQRWRQO\LPSURYH WKHKHDOWKDQGZHOIDUHRIRXUOLYHVWRFNEXWDOVRERRVWSURGXFWLYLW\ 3RRUDQLPDOKHDOWKKDVDGLUHFW LPSDFWRQIDUPLQFRPHV ,PSDFWDWIDUPOHYHO ‡ ,QFUHDVHGPRUWDOLW\DERUWLRQUDWHV ‡ +LJKHULQSXWFRVWVVXFKDVPRUH IHHGDQGPHGLFLQHUHTXLUHGSHU DQLPDO ‡ ,QFUHDVHGOHYHOVRIIDUPHUVWUHVV ‡ 5HGXFHGOLYHVWRFNSURGXFWLYLW\ HJORZHUDQLPDOZHLJKWJDLQ

3RRUDQLPDOKHDOWKLPSDFWV WKH UXUDO HFRQRP\DQGZLGHUVRFLHW\

3RRU PXVFOH JURZWK

+LJKHUXVH RI DQWLELRWLFV

/RZHU :HOIDUH

$QLPDO GLVHDVH

+LJKHU JUHHQKRXVH HPLVVLRQV

5HGXFHG PLON\LHOG

7KHGLVHDVHVEHORZKDYHDQDQQXDO QDWLRQDOLPSDFWLQH[FHVVRI ‡ %RYLQH9LUDO'LDUUKRHD FRZV …P ‡ ,QWHVWLQDOSDUDVLWHV VKHHS …P ‡ 0DVWLWLV FRZV …P $QWLPLFURELDOUHVLVWDQFH $05  LQFUHDVHGXVHRIDQWLPLFURELDOV UHGXFHV WKHHIIHFWLYHQHVVRIPHGLFLQHVIRUERWK DQLPDODQGKXPDQXVHDQGWKXVSODFHV DEXUGHQRQWKH1DWLRQDO+HDOWK6HUYLFH 1+6 

7KHEHQHILWVRISUHYHQWLQJDQGWUHDWLQJDQLPDOGLVHDVHVLQFOXGH 5HGXFHGOHYHOV RIHQGHPLF GLVHDVH

3URGXFWLYLW\ VDYLQJVIRU IDUPHUV

6XSSRUWVD VXVWDLQDEOH DQG FRPSHWLWLYH OLYHVWRFNVHFWRU

7KH)XWXUH)DUPLQJ DQG(QYLURQPHQW(YLGHQFH&RPSHQGLXP )HEUXDU\

+LJKHU:HOIDUH

5HGXFHG $QWLELRWLF8VH



%DFNWR6XPPDU\

)RRG3URGXFWLRQ

)DUP(FRQRPLFVDQG$FFRXQWV

(QYLURQPHQWDO/DQG0DQDJHPHQW

6XSSRUWLQJ,QIRUPDWLRQ

+RZGRHVSODQWKHDOWKLPSDFWRQWKHSURGXFWLYLW\SHUIRUPDQFHRIIDUPV"

3UHYHQWLQJGLVHDVHRXWEUHDNVDQGFRQWUROOLQJSHVWVWKDWWKUHDWHQSODQWVLQWKH8.KHOSVSURWHFW WKHHQYLURQPHQWDODQGVRFLDOEHQHILWVRIFURSVDQGWUHHVDQGUHGXFHVSURGXFWLYLW\ORVVHV :K\LVLWLPSRUWDQWWRSURWHFWSODQWVIURP SHVWVDQGGLVHDVHV"

(FRQRPLFVRFLDODQGHQYLURQPHQWDO YDOXHRIFURSVIRUHVWVDQGKRUWLFXOWXUH HVWLPDWHGWREHDURXQG…EQSHU\HDU

‡ 2XWEUHDNV UHVXOWLQDORVVRIFRPPHUFLDO YDOXHDQGFRVWVWRODQGRZQHUV ‡ )DUPHUVDQGIRUHVWHUVPD\VXIIHU SURGXFWLYLW\ORVVHVIRUH[DPSOH



&URSVDQG KRUWLFXOWXUH HFRQRPLF

)RUHVWU\ HFRQRPLF

)RUHVWU\ VRFLDO DQGHQYLURQPHQWDO

DQQXDOORVVRI8.FHUHDO SURGXFWLYLW\FDXVHGE\ SHVWVDQGSDWKRJHQV

‡ 7KHSXEOLFZLOOJHWOHVVYDOXHIURPWKH FRXQWU\VLGHDVSODQWVSURYLGHDZLGH UDQJHRIEHQHILWVLQFOXGLQJHFRQRPLF HQYLURQPHQWDODQGVRFLDOEHQHILWV ‡ 3HVWVDQGGLVHDVHVPD\FRVWPRUHWRWKH WD[SD\HULIQRWGHDOWZLWKSURPSWO\













7KLVSDUWLDOHVWLPDWHRIWKH EHQHILWVWR8.VRFLHW\ LQFRUSRUDWHVHFRQRPLFYDOXH ZLWKFDUERQVHTXHVWUDWLRQDLU SROOXWLRQDEVRUSWLRQUHFUHDWLRQ ELRGLYHUVLW\DQGODQGVFDSH YDOXH ,WH[FOXGHVPDQ\HOHPHQWV FDQQRWHDVLO\EHPRQHWLVHGVR ZLOOXQGHUHVWLPDWHWKHWRWDO YDOXH

…ELOOLRQ

+RZFDQGLVHDVHVEHSUHYHQWHG" *RYHUQPHQWDQGLQGXVWU\KHOSSURWHFWWKLVYDOXHE\SUHYHQWLQJGLVHDVH RXWEUHDNVDQGDGGUHVVLQJWKHPDVTXLFNO\DQGHIIHFWLYHO\DVSRVVLEOHLIWKH\ DUULYH ‡ 7KHUHDUHV\VWHPVLQSODFHWRSUHYHQWSHVWVDQGGLVHDVHVEHIRUHSODQWV UHDFKWKHERUGHU HJWKURXJKVKDULQJLQIRUPDWLRQDFURVVFRXQWULHVRQ GLVHDVHULVNV  DWERUGHU HJGRFXPHQWSK\VLFDOFKHFNV DQGWKURXJK VXUYHLOODQFHLQODQG LQFOXGLQJLQVSHFWLRQV  ‡ :H ZRUNFROODERUDWLYHO\ZLWKODQGRZQHUVWRUHPRYHGLVHDVHGWUHHVSHVW UHVHUYRLUVWROLPLWWKHGDPDJHDQGFRVWVWKH\H[SHULHQFHZKHQDQRXWEUHDN RFFXUV

7KH)XWXUH)DUPLQJ DQG(QYLURQPHQW(YLGHQFH&RPSHQGLXP )HEUXDU\



%DFNWR6XPPDU\

)DUP(FRQRPLFVDQG$FFRXQWV

)RRG3URGXFWLRQ

(QYLURQPHQWDO/DQG0DQDJHPHQW

6XSSRUWLQJ,QIRUPDWLRQ

+RZDUH'LUHFW3D\PHQWVPDGHXSDQGKRZDUHWKH\DOORFDWHGDFURVV(QJODQG"

'LUHFW3D\PHQWVDUHDOORFDWHGEDVHGRQODQGDUHD,QWKHWRSRIUHFLSLHQWVLQ(QJODQG UHFHLYHGDOPRVWKDOI  RIWKH…EQWRWDOSD\PHQWVZKLOHWKHERWWRPUHFHLYHG 7KHWRWDO'LUHFW3D\PHQWVSDLGLQ (QJODQG LQZDV…EQDQG WKHODUJHVWUHFLSLHQWVZHUHORFDWHG DFURVVWKHFRXQWU\ 2IWKHWRSUHFLSLHQWVLQ KDGPRVWO\DUDEOHFURSV HJ ZKHDWRLOVHHGUDSH RUOHJXPHV HJSHDVEHDQV DQGKDG PRVWO\SHUPDQHQWJUDVV 2QO\IDUPVRYHUKHFWDUHVFDQ DSSO\IRU'LUHFW3D\PHQWVVR PDQ\VPDOOIDUPVUHFHLYHQRWKLQJ

RIFODLPDQWVUHFHLYHGKDOI WKHWRWDOSDLGJHWWLQJPRUH WKDQ…HDFK

RIFODLPDQWVUHFHLYHG RISD\PHQWVJHWWLQJOHVVWKDQ …HDFK

'DWDDVDW1RY

'LUHFW3D\PHQW %DVLF3D\PHQW  *UHHQLQJ 
7KH%DVLF3D\PHQW LVQRQFRPSHWLWLYHDQG EDVHGRQODQGDUHD&HUWDLQPLQLPXPVWDQGDUGV RQDQLPDODQGSXEOLFKHDOWKDQGHQYLURQPHQWDO VWDQGDUGVPXVWEHPHW NQRZQDV&URVV &RPSOLDQFH 

7KH)XWXUH)DUPLQJ DQG(QYLURQPHQW(YLGHQFH&RPSHQGLXP )HEUXDU\

7KH*UHHQLQJ SD\PHQWLVDSRUWLRQRIWKH %DVLF3D\PHQWSDLGIRUPHHWLQJFHUWDLQ HQYLURQPHQWDOVWDQGDUGV VHHSDJH 7KHUHLV DOVRDSD\PHQWIRUFODLPDQWVTXDOLI\LQJDVD


%DFNWR6XPPDU\

)RRG3URGXFWLRQ

)DUP(FRQRPLFVDQG$FFRXQWV

(QYLURQPHQWDO/DQG0DQDJHPHQW

6XSSRUWLQJ,QIRUPDWLRQ

:KLFKIDUPW\SHVLQ(QJODQGDUHPRVWUHOLDQWRQ'LUHFW3D\PHQWVXEVLGLHVWRVXSSRUWWKHLURYHUDOOLQFRPH"

$FURVVDOOIDUPW\SHVRI)DUP%XVLQHVV,QFRPHFDPHIURP'LUHFW3D\PHQWVRYHUWKH SHULRGWRZLWK*UD]LQJ/LYHVWRFNDQG0L[HGIDUPVPRVWGHSHQGHQW 7KHDYHUDJHIDUP PDNHVWKHPDMRULW\  RILWVPRQH\ IURP'LUHFW 3D\PHQWV

$YHUDJH)DUP%XVLQHVV,QFRPH )%, DQGWKHSURSRUWLRQWKDWFRPHVIURP'LUHFW3D\PHQWVE\IDUPW\SH EDVHGRQ\HDUPDWFKHGGDWDVHWWR …SHUIDUP



… $YHUDJH)%,

 %

)HZHU3LJ3RXOWU\ DQG+RUWLFXOWXUH IDUPVFODLP'LUHFW 3D\PHQWVWKDQ RWKHUIDUPW\SHV 7KHVHIDUPVWHQGWR EHVPDOOHUDQGDUH PRUHOLNHO\WRKDYH ODQGWKDWLV LQHOLJLEOHIRU'LUHFW 3D\PHQWV

RIZKLFK'LUHFW 3D\PHQWV

 …

 

…

…

…

…

… …

 









… …



 $OOIDUP W\SHV

&HUHDOV

*HQHUDO FURSSLQJ

'DLU\

)RU*UD]LQJ/LYHVWRFNIDUPVDOPRVWDOO RIWKHLUDYHUDJH)DUP%XVLQHVV ,QFRPHFDPHIURP'LUHFW3D\PHQWV 7KH)XWXUH)DUPLQJ DQG(QYLURQPHQW(YLGHQFH&RPSHQGLXP )HEUXDU\

/RZODQG /)$ *UD]LQJ *UD]LQJ /LYHVWRFN /LYHVWRFN

 



3LJV

3RXOWU\

0L[HG

 +RUWLFXOWXUH

)RU0L[HGIDUPVLQFRPHIURP'LUHFW3D\PHQWV ZDVJUHDWHUWKDQWKHLUSURILWIURPDJULFXOWXUH GLYHUVLILFDWLRQDQGDJULHQYLURQPHQWFRPELQHG 

%DFNWR6XPPDU\

)DUP(FRQRPLFVDQG$FFRXQWV

)RRG3URGXFWLRQ

(QYLURQPHQWDO/DQG0DQDJHPHQW

6XSSRUWLQJ,QIRUPDWLRQ

+RZGRHVWKHUHOLDQFHRQ'LUHFW3D\PHQWVYDU\DFURVVWKHUHJLRQVRI(QJODQGDQGE\ODQGRZQHUVKLSVWDWXV"

2YHUWKHSHULRGWRIDUPVLQWKH1RUWK(DVWDQGWHQDQWIDUPHUVZHUHPRVW UHOLDQWRQ'LUHFW3D\PHQWVWRVXSSRUW)DUP%XVLQHVV,QFRPH $YHUDJH)DUP%XVLQHVV,QFRPH )%, DQGWKHSURSRUWLRQWKDWFRPHVIURP'LUHFW3D\PHQWVE\UHJLRQLQ (QJODQG PDS DQGWHQDQF\W\SH EDUFKDUW EDVHGRQ\HDUPDWFKHGGDWDVHWWR UHSUHVHQWVWKH DPRXQWRIDYHUDJH )DUP%XVLQHVV ,QFRPHFRPLQJIURP 'LUHFW3D\PHQWV

  

7KH1RUWK(DVWKDGDKLJKHU FRQFHQWUDWLRQRIERWK*UD]LQJ /LYHVWRFNDQGWHQDQWIDUPV EHWZHHQDQG ZKLFKDUHPRUHUHOLDQWRQ'LUHFW 3D\PHQWV )RUDOORWKHUUHJLRQVLQ(QJODQG WKHRILQFRPH FRPLQJIURP 'LUHFW3D\PHQWVYDULHGEHWZHHQ DQG



 



 

7HQDQWIDUPHUVZHUHPRVW OLNHO\WRUHO\RQ'LUHFW 3D\PHQWVRYHUWKHSHULRG WR7KLV JURXSRIIDUPHUVZLOOEH WKHPDLQEHQHILFLDULHVRI DQ\IDOOLQUHQWV VHHSDJH  

 7KH)XWXUH)DUPLQJ DQG(QYLURQPHQW(YLGHQFH&RPSHQGLXP )HEUXDU\

2ZQHURFFXSLHG



0L[HG PDLQO\ RZQHURFFXSLHG



0L[HG PDLQO\ WHQDQWHG



7HQDQWHG



$OOIDUPW\SHV



$YHUDJH)DUP %XVLQHVV,QFRPH

…

…

…

…

…

RIZKLFK'LUHFW 3D\PHQWV



%DFNWR6XPPDU\

)DUP(FRQRPLFVDQG$FFRXQWV

)RRG3URGXFWLRQ

(QYLURQPHQWDO/DQG0DQDJHPHQW

6XSSRUWLQJ,QIRUPDWLRQ

:KDWKDVEHHQWKHLPSDFWRI'LUHFW3D\PHQWVRQIDUP UHQWSULFHV"

7KHUHLVHYLGHQFHWKDW'LUHFW3D\PHQWVLQIODWHIDUPUHQWSULFHVPHDQLQJVRPHRIWKH SD\PHQWVXSSRUWVWKHLQFRPHRIWKHODQGRZQHUQRWWKHWHQDQWIDUPHU 3RVVLEOHFKDQJHLQDYHUDJH UHQWVIRUZKROO\WHQDQWHG IDUPHUVIROORZLQJ'LUHFW 3D\PHQWZLWKGUDZDO

'LUHFW 3D\PHQWVSOD\DUROHLQUDLVLQJDQGPDLQWDLQLQJKLJKHUIDUP UHQWOHYHOV 7KHSURYLVLRQRI'LUHFW 3D\PHQWVOLQNHGWRWKHPDQDJHPHQWRIDJULFXOWXUDOODQGLQFUHDVHV GHPDQGIRUVXFKODQGVLQFHIDUPLQJLWVHFXUHVWKHEHQHILWRIWKHVXEVLG\7KHLQFUHDVHG GHPDQGWKHQGULYHVXSUHQWV ZKLFKLQWXUQLQFUHDVHVWKHSULFHRIODQGLWVHOI

  FDSLWDOLVDWLRQ FDSLWDOLVDWLRQ

7KLVPHDQVWKDWZKLOHWKHLQWURGXFWLRQRI'LUHFW 3D\PHQWPD\KDYHLQLWLDOO\EHQHILWWHGH[LVWLQJ IDUPHUVWKHEHQHILWTXLFNO\VKLIWHGIURPWHQDQWVWRODQGRZQHUVDVUHQWVLQFUHDVHGLQUHVSRQVH 2ZQHURFFXSLHUIDUPHUVVHHERWKWKHGLUHFWEHQHILWRIWKH'LUHFW 3D\PHQWDQGDQLQFUHDVHLQ WKHLUDVVHWYDOXHV

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

 UHGXFWLRQLQUHQW

$UHFHQWDFDGHPLFOLWHUDWXUHUHYLHZRI(8ZLGHHPSLULFDOHYLGHQFHRQ'LUHFW 3D\PHQWVIRXQGD ZLGHUDQJHRIHVWLPDWHVIRUWKHVFDOHRIKRZPXFKWKH VXEVLG\LQIODWHVUHQWV7KH\UDQJHGIURP DVORZDVFHQWVJRLQJWRODQGORUGVIURPHDFKHXURSDLGWRWHQDQWV XSWRFHQWV ZLWK DPHGLDQHVWLPDWHRIDURXQGFHQWVSHUHXUR7KHVHUDWHVDUHNQRZQDVµFDSLWDOLVDWLRQ UDWHV¶



       7KHVHSHUFHQWDJHFKDQJHV FRUUHVSRQGWRIDOOVLQDYHUDJH UHQWVRI…DQG… SHU\HDUUHVSHFWLYHO\ 

%DFNWR6XPPDU\

)DUP(FRQRPLFVDQG$FFRXQWV

)RRG3URGXFWLRQ

(QYLURQPHQWDO/DQG0DQDJHPHQW

6XSSRUWLQJ,QIRUPDWLRQ

:KDWKDVEHHQWKHLPSDFWRI'LUHFW3D\PHQWVRQODQGYDOXHVDQGLQYHVWPHQW"

$JULFXOWXUDOODQGSULFHVKDYHULVHQVLJQLILFDQWO\IDVWHUWKDQRWKHUODQGSULFHVRYHUWKH ODVW GHFDGHDOWKRXJKWKH\KDYHIDOOHQEDFNLQWKH ODVWFRXSOHRI\HDUV

7KH6DYLOOV)DUPODQG9DOXH6XUYH\VKRZHG DQLQFUHDVHRIPRUHWKDQ EHWZHHQDQG DOWKRXJKSULFHV KDYHIDOOHQEDFND OLWWOHVLQFH 7KLVLQFUHDVHLQDJULFXOWXUDOODQGSULFHVRXWVWULSVJURZWKLQVRPH RWKHUODQGYDOXHV VXFKDVWKH6DYLOOV*UHHQILHOG'HYHORSPHQW/DQG 3ULFH,QGH[ ZKLFK RQO\URVHE\EHWZHHQDQGDQGZDV LQSDUWLPSDFWHGE\IDOOVGXULQJWKHILQDQFLDOFULVLVLQ

2QO\DVPDOODUHDRIDJULFXOWXUDO ODQGFKDQJHVRZQHUVKLSHDFK\HDU ,Q(QJODQGDQG:DOHVLQRQO\RIWKHXWLOLVHG DJULFXOWXUDO DUHDZDVVROG7KLVWLJKWQHVVRIVXSSO\ DVZHOODV'LUHFW 3D\PHQWV ERWKDFWWRPDLQWDLQKLJKGHPDQGDQGSULFHVRIDJULFXOWXUDOODQG

'LUHFW3D\PHQWVPD\HQFRXUDJHVXERSWLPDOLQYHVWPHQW 'LUHFW3D\PHQWVLQFUHDVHIDUPHUV¶FDVKIORZJLYLQJWKHPJUHDWHU RSSRUWXQLW\WRLQYHVWLQLWHPVVXFKDVPDFKLQHU\,QDIWHU H[FOXGLQJODQGYDOXHPRUHWKDQKDOIRIIDUPV  LQWKH)DUP %XVLQHVV6XUYH\ (QJODQG VKRZHGDQHJDWLYHRYHUDOOUHWXUQWR FDSLWDO7KLVVXJJHVWVWKDW'LUHFW3D\PHQWVDUHIDFLOLWDWLQJD VXEVWDQWLDODPRXQWRILQYHVWPHQWZKLFKLVZRUVHQLQJQRWLPSURYLQJ IDUPHUV¶UHWXUQV

FKDQJHVLQFH6DYLOOV )DUPODQG9DOXHDQG*UHHQILHOG 'HYHORSPHQW/DQG  FKDQJHVLQFH4

$JULFXOWXUDOODQGYDOXHVKDYHLQFUHDVHGIDVWHU WKDQ*UHHQILHOG 'HYHORSPHQWODQG

6DYLOOV )DUPODQG9DOXH6XUYH\ *UHDW%ULWDLQ

   

6DYLOOV*UHHQILHOG 'HYHORSPHQW /DQG3ULFH,QGH[ 8QLWHG.LQJGRP

          RIIDUPVDQGWKHLU5HWXUQ2Q&DSLWDO(PSOR\HG 52&( H[FOXGLQJWKHYDOXHRIODQGLQ(QJODQG 

$SRVLWLYH52&(VKRZVWKDWWKHIDUPLV JHQHUDWLQJDQHFRQRPLFUHWXUQRQFDSLWDO XVHG8QSDLGODERXULVLQFOXGHGDVDFRVW







 1HJDWLYH

7KH)XWXUH)DUPLQJ DQG(QYLURQPHQW(YLGHQFH&RPSHQGLXP )HEUXDU\

 





 

  

%DFNWR6XPPDU\

)RRG3URGXFWLRQ

)DUP(FRQRPLFVDQG$FFRXQWV

(QYLURQPHQWDO/DQG0DQDJHPHQW

6XSSRUWLQJ,QIRUPDWLRQ

+RZ HIIHFWLYHKDYH'LUHFW3D\PHQWVEHHQ LQGHOLYHULQJHQYLURQPHQWDOREMHFWLYHV"

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¶VHQYLURQPHQWDODQGFOLPDWHSHUIRUPDQFH,WHVWLPDWHGWKDW*UHHQLQJUHVXOWHGLQDFKDQJHLQIDUPLQJ SUDFWLFHVRIRQO\DURXQGRI(8IDUPODQG7KHOLPLWHGVFDOHRIFKDQJHLQIDUPLQJSUDFWLFHVEURXJKWDERXWE\*UHHQLQJZDVOLQNHGWRD VLJQLILFDQWOHYHORIGHDGZHLJKWµ'HDGZHLJKW¶GHVFULEHVVLWXDWLRQVZKHUHSXEOLFPRQH\ KHUHWKH*UHHQLQJSD\PHQW LVSDLGWRDEHQHILFLDU\ KHUHDIDUPHU IRUSXEOLFJRRGV KHUHIDUPLQJSUDFWLFHVEHQHILFLDOIRUWKHHQYLURQPHQW WKDWZRXOGKDYHEHHQSURYLGHGDQ\ZD\ HYHQ ZLWKRXWSXEOLFVXSSRUWEHFDXVHWKH\DUHHLWKHUSDUWRIWKHEHQHILFLDU\¶VQRUPDODFWLYLW\RUUHTXLUHGE\ODZ KHUH&URVV&RPSOLDQFH  +RZ PDQ\IDUPVDUHSURILWDEOHZLWKRXW'LUHFW3D\PHQWV"

0RUH WKDQKDOIRIIDUPV  DUH SURILWDEOHZLWK'LUHFW3D\PHQWVUHPRYHG IURPWKHLUKLVWRULFDFFRXQWV $URXQGDTXDUWHURIWKHWRWDOYDOXHRI'LUHFW 3D\PHQWVLQ(QJODQGLVHVWLPDWHGWRKDYH EHHQSDLGWRWKHRIIDUPVWKDWKDGDQ DYHUDJHDQQXDO)DUP%XVLQHVV,QFRPH )%,  H[FHHGLQJ…EHIRUHUHFHLYLQJWKHLU 'LUHFW3D\PHQW

)DUP%XVLQHVV,QFRPH EDQG H[FOXGLQJ'LUHFW 3D\PHQWV

RIIDUPV

'LUHFW3D\PHQW $YHUDJHQHWLQFRPH LQFRPHDV IURPGLUHFW SHUFHQWDJHRIWRWDO SD\PHQWV )%,

7RWDODPRXQWRI VXEVLG\UHFHLYHG

…N



…



……N



…





…N…N



…





…N…N



…





…N…N



…





…N…N



…





…N…N



…





2YHU…N



…





$OOIDUPV



…





7KH)XWXUH)DUPLQJ DQG(QYLURQPHQW(YLGHQFH&RPSHQGLXP )HEUXDU\



%DFNWR6XPPDU\

)DUP(FRQRPLFVDQG$FFRXQWV

)RRG3URGXFWLRQ

(QYLURQPHQWDO/DQG0DQDJHPHQW

6XSSRUWLQJ,QIRUPDWLRQ

:KDWDGMXVWPHQWVLQFRVWVRURWKHUDFWLYLWLHVFRXOGKHOSRIIVHWWKHUHPRYDORI'LUHFW3D\PHQWV"

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

0RUHHIILFLHQWLQYHVWPHQW $VVKRZQRQSDJHRI(QJOLVKIDUPVLQVKRZHG DQHJDWLYHRYHUDOOUHWXUQRQWKHLUFDSLWDO7KHWRWDOGHSUHFLDWLRQ FRVWRIDVVHWVIRUWKH8.ZDV…EQLQJUHDWHUWKDQWKH DPRXQWIDUPHUVSDLGRXWLQZDJHVUHQWDQGLQWHUHVWRQORDQV VHHSDJH  0DQ\IDUPEXVLQHVVHVPD\EHFRPHPRUHILQDQFLDOO\UHVLOLHQWE\ RSWLPLVLQJLQYHVWPHQWGHFLVLRQV0RUHHIILFLHQWLQYHVWPHQW IRFXVVHGRQUHGXFLQJLQSXWVDQGFRVWVRULQFUHDVLQJRXWSXWV FRXOGLQFUHDVHSURGXFWLYLW\

0RUHHIILFLHQWXVHRILQSXWV 6RPHIDUPEXVLQHVVHVDUHPRUHHIILFLHQWWKDQRWKHUVLQWKH XVHRILQSXWVVXFKDVIHUWLOLVHUV$OWHULQJ PDQDJHPHQW SUDFWLFHVVXFKDVFKDQJLQJWKHWLPLQJRU DSSOLFDWLRQRI IHUWLOLVHURUXVLQJVRLOWHVWLQJ FRXOGUHGXFHWKHWRWDODPRXQW QHHGHGORZHULQJWKHFRVWWRWKHIDUPHUDQGKHOSLQJWKH HQYLURQPHQW

'LYHUVLILFDWLRQ $URXQGWZRWKLUGVRIIDUPEXVLQHVVHVFDUULHGRXWGLYHUVLILHG DFWLYLWLHVLQ VHHSDJH JLYLQJDQDOWHUQDWLYHLQFRPH VWUHDPLQWRWKHIDUPEXVLQHVV$URXQGDTXDUWHURIDOOIDUPV PDNHDJUHDWHULQFRPHIURPGLYHUVLILHGHQWHUSULVHV HJVXFKDV UXQQLQJDQRQIDUP% % WKDQIURPWKHUHVWRIWKHLUEXVLQHVV

$GMXVWPHQWLQUHQWDOFRVWV $V'LUHFW3D\PHQWVDFWDVDQLQIODWLRQDU\SUHVVXUHRQUHQWV VHHSDJH WKHLUUHPRYDOPD\FDXVHDIDOOLQUHQWV

7KHDELOLW\WRGLYHUVLI\ZLOOGHSHQGRQWKHFKDUDFWHULVWLFVDQG ORFDWLRQRIWKHIDUP+RZHYHULIPRUHIDUPVGLYHUVLILHGLQWR WRXULVPWKLVZRXOGLQFUHDVHWKHVXSSO\DQGWKXVLQWXUQPD\ ORZHUWKHUHWXUQWRWKHIDUPHU

+RZHYHUWKHUHLVRIWHQODUJHGHPDQGIRUDJULFXOWXUDOODQGDQG VRPHIDUPHUVPD\VWLOOSD\DUHQWDOSUHPLXPDVDZD\RI H[SDQGLQJWKHLUIDUPZKHQODQGEHFRPHVDYDLODEOH7KLV PDNHVLWGLIILFXOWWRSUHGLFWWKHLPSDFWRQUHQWVLQWKHVKRUW WHUP 7KH)XWXUH)DUPLQJ DQG(QYLURQPHQW(YLGHQFH&RPSHQGLXP )HEUXDU\



%DFNWR6XPPDU\

)RRG3URGXFWLRQ

)DUP(FRQRPLFVDQG$FFRXQWV

(QYLURQPHQWDO/DQG0DQDJHPHQW

6XSSRUWLQJ,QIRUPDWLRQ

:KDWPLJKWEHWKHLPSDFWRQWKHSHUFHQWDJHRIIDUPVLQGLIIHUHQWLQFRPHEDQGVZLWKWKHUHPRYDORI'LUHFW3D\PHQWVLQ(QJODQG"

2YHUWRRIIDUPVPDGHDORVVZLWK'LUHFW3D\PHQWVDQGUHPRYLQJ ZRXOGKDYHPHDQWPDNLQJDORVVEXWDGMXVWPHQWVVXFKDVORZHULQYHVWPHQWVDQGUHQWV ZRXOGEHH[SHFWHGWRRIIVHWVRPHRIWKHLPSDFW $VVHVVLQJWKHGLUHFWLPSDFWRIUHPRYLQJ'LUHFW3D\PHQWVLVFRPSOH[DVIDUPHUV¶GHFLVLRQVDQGFRVWVDUHLQIOXHQFHGE\NQRZLQJWKH\ZLOO UHFHLYHWKHP:KLOH'LUHFW3D\PHQWVDUHDSRVLWLYHFDVKIORZWRWKHIDUPHU SDJHV DQG VKRZKRZWKH\FDQDOVRLQFUHDVHFRVWV,WLV GLIILFXOWWRPDNHDQDVVHVVPHQWRIWKHLQFUHDVHLQFRVWVWKDW'LUHFW3D\PHQWVPD\KDYHFDXVHG 7KHDQDO\VLVVKRZLQJRIIDUPVZRXOGKDYHPDGHDORVVZLWKRXW'LUHFW3D\PHQWVVKRXOGEHFRQVLGHUHGDORQJZLWKWKHLQIRUPDWLRQ RQ SDJHGHVFULELQJPDQ\ZD\VIDUPVFRXOGRIIVHWWKHUHPRYDORI'LUHFW3D\PHQWV

$YHUDJH)DUP%XVLQHVV,QFRPH E\LQFRPHEDQGZLWKDQGZLWKRXW'LUHFW3D\PHQWVEDVHGRQ\HDUPDWFKHGGDWDVHWWR  'LUHFW3D\PHQWVH[FOXGHG

'LUHFW3D\PHQWVLQFOXGHG



)DUPVPDNLQJDORVV 





































7KH)XWXUH)DUPLQJ DQG(QYLURQPHQW(YLGHQFH&RPSHQGLXP )HEUXDU\



)DUPVPDNLQJDORVV 



















%DFNWR6XPPDU\

)RRG3URGXFWLRQ

)DUP(FRQRPLFVDQG$FFRXQWV

(QYLURQPHQWDO/DQG0DQDJHPHQW

6XSSRUWLQJ,QIRUPDWLRQ

%DVHGRQWKHLUKLVWRULFDFFRXQWVZKDWZRXOGEHWKHLPSDFWRQWKHUHPRYDORI'LUHFW3D\PHQWVRQGLIIHUHQWIDUPW\SHV"

2YHU WRRIORZODQGJUD]LQJOLYHVWRFNIDUPVDQGRI0L[HGIDUPV PDGHDORVVLQFOXGLQJ'LUHFW3D\PHQWV7KLVULVHVWRDQGUHVSHFWLYHO\ZLWKRXW'LUHFW 3D\PHQWV RIIDUPVZLWKD)DUP%XVLQHVV,QFRPH )%, RIOHVVWKDQ]HURZLWKDQGZLWKRXW'LUHFW3D\PHQWVEDVHGRQ\HDU PDWFKHGGDWDVHW WRE\IDUPW\SH RIIDUP EXVLQHVVHV 

$GGLWLRQDOIDUPVZLWKQHJDWLYH)%, $OUHDG\KDYHQHJDWLYH)%,  













 

 









*HQHUDO &URSSLQJ

'DLU\

+RUWLFXOWXUH

/)$JUD]LQJ OLYHVWRFN





/RZODQGJUD]LQJ OLYHVWRFN

0L[HG





 &HUHDOV

+RUWLFXOWXUHDQG3LJ 3RXOWU\IDUPVZHUHOHDVW LPSDFWHGE\WKHUHPRYDORI'LUHFW3D\PHQWV IURPWKHLUKLVWRULFDFFRXQWVDVWKH\UHFHLYHIDU OHVVVXEVLG\7KHVH IDUPVWHQGWREHVPDOOHU DQGDUHOHVVOLNHO\WRKDYHODQGWKDWLVHOLJLEOHIRU 'LUHFW3D\PHQWV

3LJV 3RXOWU\

$OOIDUPW\SHV

*UD]LQJOLYHVWRFNDQGPL[HGIDUPVZRXOGKDYH EHHQPRUHOLNHO\WRKDYHKDGDQHJDWLYHLQFRPH ZLWK'LUHFW3D\PHQWVUHPRYHGIURPWKHLUKLVWRULF DFFRXQWV

7KH)XWXUH)DUPLQJ DQG(QYLURQPHQW(YLGHQFH&RPSHQGLXP )HEUXDU\



%DFNWR6XPPDU\

)DUP(FRQRPLFVDQG$FFRXQWV

)RRG3URGXFWLRQ

(QYLURQPHQWDO/DQG0DQDJHPHQW

6XSSRUWLQJ,QIRUPDWLRQ

:KDWRSWLRQVDUHWKHUHWRWUDQVLWLRQDZD\IURP'LUHFW3D\PHQWVLQ(QJODQG"

5HGXFWLRQVLQ'LUHFW3D\PHQWVFRXOGEHPDGHYLDPDQ\RSWLRQVDQGRYHUPDQ\WLPHSHULRGV EXWWKHVKRUWHUWKHWUDQVLWLRQ WKHPRUHPRQH\LVUHPRYHGIURPIDUPHUVHDFK\HDU 7KHIROORZLQJLOOXVWUDWLYHDQDO\VLVJLYHVDQ LGHDRIKRZWZRGLIIHUHQWDSSURDFKHVWRPRYLQJDZD\IURP'LUHFW3D\PHQWVPD\LPSDFWRQ )DUP%XVLQHVV,QFRPHGHSHQGLQJRQWKHDSSURDFKWDNHQWRDSSO\LQJUHGXFWLRQV7KHIROORZLQJRSWLRQVDUHFRQVLGHUHG 2SWLRQ± 3URJUHVVLYHUHGXFWLRQVZKHUHWKHSHUFHQWDJHLQFUHDVHUHGXFWLRQLQFUHDVHVDVWKH DPRXQWRI'LUHFW3D\PHQWVD UHFLSLHQWKDVLQFUHDVHVWKHDPRXQWRI'LUHFW3D\PHQWUHFHLYHGLQFUHDVHV 2SWLRQ± $FHLOLQJ FDS WRWKHODUJHVWSD\PHQWV 7KHWUDQVLWLRQFRXOGEHXQGHUWDNHQDFURVVDYDULHW\RIWLPHSHULRGVDQGWKHFKDUWDQGER[HVEHORZLQGLFDWHWKHDPRXQWUHGXFHGSHU\HDU IRUDQG\HDUWUDQVLWLRQSHULRGV ZLWKWKHVDPHWRWDODPRXQWRI PRQH\UHGXFHGLQHDFK\HDURIWKHWUDQVLWLRQ(TXDOO\RSWLRQV FRXOG EHDSSOLHGZKHUHODUJHUDPRXQWVDUH UHGXFHGHDUOLHURUODWHURYHUDWUDQVLWLRQSHULRG

0LOOLRQV

\HDUWUDQVLWLRQ 5HGXFH'LUHFW3D\PHQWVE\… PLOOLRQSHU\HDU

…

7RWDOUHGXFWLRQVIURP'LUHFW 3D\PHQWVGXULQJWKHWUDQVLWLRQ

…

\HDUWUDQVLWLRQ 5HGXFH'LUHFW3D\PHQWVE\… PLOOLRQSHU\HDU

…

\HDUWUDQVLWLRQ 5HGXFH'LUHFW3D\PHQWVE\… PLOOLRQSHU\HDU

…

1RWHWKHUHFRXOGDOVREHGLIIHUHQW SURILOHVRIUHGXFWLRQVGXULQJWKH WUDQVLWLRQ)RULOOXVWUDWLYHSXUSRVHV WKLVDQDO\VLVLVEDVHGRQDIODWSURILOH LHWKHVDPHWRWDODPRXQWRIPRQH\ EHLQJWDNHQIURP'LUHFW3D\PHQWV HDFK\HDURIWKHWUDQVLWLRQ

… \HDUWUDQVLWLRQ \HDUWUDQVLWLRQ \HDUWUDQVLWLRQ

…

&XUUHQW
7KH)XWXUH)DUPLQJ DQG(QYLURQPHQW(YLGHQFH&RPSHQGLXP )HEUXDU\



%DFNWR6XPPDU\

)DUP(FRQRPLFVDQG$FFRXQWV

)RRG3URGXFWLRQ

(QYLURQPHQWDO/DQG0DQDJHPHQW

6XSSRUWLQJ,QIRUPDWLRQ

:KDWLVWKHLPSDFWRIWKHGLIIHUHQWUHGXFWLRQRSWLRQVRQKRZPDQ\IDUPHUVDUHLPSDFWHGRYHUWLPH"

3URJUHVVLYH RUFDSSHGUHGXFWLRQVFRXOGEHDSSOLHGWR'LUHFW3D\PHQWV DIIHFWLQJDQLQFUHDVLQJ QXPEHURIIDUPHUV RYHUWKHµDJULFXOWXUDOWUDQVLWLRQ¶SHULRG7KHUHDUHPDQ\SRVVLEOHYDULDQFHVRI WKHVHRSWLRQV

$SSO\LQJDFDS $FDSRQSD\PHQWVZRXOGPHDQWKDWQRSD\PHQWLVPDGHDERYHDFHUWDLQ WKUHVKROG7KLVFDSZRXOGYDU\GHSHQGLQJRQWKHOHQJWKRIWUDQVLWLRQ7R DFKLHYHD…PLOOLRQUHGXFWLRQLQWKHILUVW\HDURID\HDUUHGXFWLRQZRXOG UHTXLUHDFDS RQSD\PHQWVRI…7RDFKLHYHD…PLOOLRQUHGXFWLRQ RYHUD\HDUWUDQVLWLRQZRXOGUHTXLUHD\HDUFDSRI…DQGWRDFKLHYH D…PLOOLRQUHGXFWLRQLQD\HDUWUDQVLWLRQD\HDUFDSRI…7KH ORQJHUWKHWUDQVLWLRQWKHIHZHUQXPEHURIIDUPVDUHLPSDFWHGLQWKHHDUOLHU \HDUV 1RWHWKHUHFRXOGDOVREHGLIIHUHQWSURILOHVRIUHGXFWLRQVGXULQJWKHWUDQVLWLRQ )RULOOXVWUDWLYHSXUSRVHVWKLVDQDO\VLVLVEDVHGRQDIODWSURILOHLHWKHVDPH WRWDODPRXQWRIPRQH\EHLQJWDNHQIURP'LUHFW3D\PHQWVHDFK\HDURIWKH WUDQVLWLRQ

%XVLQHVVHVDIIHFWHG

3URJUHVVLYHUHGXFWLRQ

&DSDSSOLHGWR SD\PHQWV


…SHUEXVLQHVV ,QFUHDVLQJDPRXQWRIPRQH\UHPRYHG

3URJUHVVLYHUHGXFWLRQ 8QGHUWKLVVFHQDULR\RXFRXOGUHGXFHSD\PHQWVXVLQJDVOLGLQJVFDOHRI UHGXFWLRQV)RUH[DPSOH LQ\HDU IRUIDUPVPDNLQJFODLPVDERYH… WKHUHFRXOGEHDUHGXFWLRQIRUDPRXQWVEHWZHHQ…DQG…D UHGXFWLRQIRUDPRXQWVEHWZHHQ…DQG…D UHGXFWLRQ IRUDPRXQWVEHWZHHQ…DQG…ZLWKKLJKHUUHGXFWLRQVIRU DPRXQWVLQKLJKHUSD\PHQWEDQGV,QIXWXUH\HDUV\RXFRXOGLQFUHDVHWKH UHGXFWLRQDQGORZHUWKHWKUHVKROGWREHORZ…ZKLFKZRXOGVHHJUHDWHU DPRXQWVUHPRYHGDQGPRUHIDUPHUVLPSDFWHG

,QFUHDVLQJQXPEHURIIDUPVDIIHFWHG

1XPEHURIIDUPV

/HQJWKRIWUDQVLWLRQWRLQWURGXFHFKDQJH 7LPH LQ\HDUV $YHUDJHUHGXFWLRQSHUEXVLQHVV

&DSDSSOLHGWR SD\PHQWV

3URJUHVVLYH UHGXFWLRQ

/HQJWKRIWUDQVLWLRQWRLQWURGXFHFKDQJH 7LPH LQ\HDUV 7KH)XWXUH)DUPLQJ DQG(QYLURQPHQW(YLGHQFH&RPSHQGLXP )HEUXDU\



%DFNWR6XPPDU\

)DUP(FRQRPLFVDQG$FFRXQWV

)RRG3URGXFWLRQ

(QYLURQPHQWDO/DQG0DQDJHPHQW

6XSSRUWLQJ,QIRUPDWLRQ

+RZPXFKZRXOGIDUPHUVLQ(QJODQGQHHGWRUHGXFHFRVWVE\ LQRUGHUQRWWRPDNHDORVVZLWKRXW'LUHFW3D\PHQWV"

2QDYHUDJHIDUPVZRXOGKDYHQHHGHGWRUHGXFHWKHLUFRVWVE\LQRUGHUWREUHDNHYHQ ZLWKRXW'LUHFW3D\PHQWV EXWWKLVYDULHVJUHDWO\DFURVVGLIIHUHQWIDUPW\SHV 5HGXFWLRQLQFRVWVQHHGHGWREUHDNHYHQIRUWKRVHIDUPVPDNLQJDORVVZLWKRXW'LUHFW3D\PHQWV )DUP7\SH

2I WKHIDUPVWKDWZRXOGKDYHKDGD QHJDWLYHLQFRPHZLWK'LUHFW3D\PHQWV UHPRYHG IURPWKHLUKLVWRULFDFFRXQWV WKHDYHUDJHUHGXFWLRQLQFRVWVQHHGHG WREUHDNHYHQZRXOGKDYHEHHQ

$OOIDUPW\SHV 3LJV3RXOWU\ +RUWLFXOWXUH 0L[HG

/RZODQG*UD]LQJ/LYHVWRFN

)RURIIDUPVWKHDYHUDJHFRVW UHGXFWLRQZRXOGKDYHEHHQEHWZHHQ DQG

/)$*UD]LQJ/LYHVWRFN 'DLU\ *HQHUDOFURSSLQJ

)RURIIDUPVWKHFRVWUHGXFWLRQ UHTXLUHGZRXOGKDYHEHHQEHWZHHQ DQG

&HUHDOV 

     3HUFHQWDJH UHGXFWLRQLQFRVWUHTXLUHGWREUHDNHYHQ



+RZWRLQWHUSUHWWKLVFKDUW± ,I\RXUDQNHGDOOWKHIDUPVIURPWKHEHVWWRWKHZRUVWIURP« 7KHOLQHLQWKHPLGGOHRIWKHUHFWDQJOHLVWKHPHGLDQ DYHUDJH +DOIRIIDUPVDUH  HVWLPDWHGWRUHTXLUHDQHIILFLHQF\LQFUHDVHEHORZWKLVQXPEHUDQGKDOIDERYH 







 

7KHUHFWDQJOHVKRZVWKHVSUHDGRIWKHHIILFLHQF\LQFUHDVHUHTXLUHGIRUWKHPLGGOH 7KHOHIWHGJH RIUHFWDQJOHLVWKHIDUPUDQNHGWK RXWRI EHVWDQGWKH ULJKWHGJH RIUHFWDQJOHLVWKHWK RXWRI EHVW

7KHOLQHVWKDWH[WHQGWRWKHOHIWDQGULJKWRIHDFKUHFWDQJOHLQGLFDWHWKHUDQJH RI HIILFLHQF\LQFUHDVHQHHGHG IRUVRPH PRUHH[WUHPHIDUPVLQWKHUDQNLQJ7KHOHIWOLQH VKRZVWKHHIILFLHQF\ LQFUHDVHIRUWKHIDUP UDQNHGWK EHVWZLWKWKHULJKWOLQHVKRZLQJ WKHIDUPWK EHVW

7KH)XWXUH)DUPLQJ DQG(QYLURQPHQW(YLGHQFH&RPSHQGLXP )HEUXDU\



6XPPDU\

)DUP(FRQRPLFVDQG$FFRXQWV

)RRG3URGXFWLRQ

(QYLURQPHQWDO/DQG0DQDJHPHQW

6XSSRUWLQJ,QIRUPDWLRQ

)22'352'8&7,21 SDJHV

7KH)XWXUH)DUPLQJ DQG(QYLURQPHQW(YLGHQFH&RPSHQGLXP )HEUXDU\



%DFNWR6XPPDU\

)RRG3URGXFWLRQ

)DUP(FRQRPLFVDQG$FFRXQWV

(QYLURQPHQWDO/DQG0DQDJHPHQW

6XSSRUWLQJ,QIRUPDWLRQ

:KDWSURGXFWVFRQWULEXWHPRVWWR8.DJULFXOWXUDO RXWSXW"

0RUHWKDQRIWKH8.¶VDJULFXOWXUDOSURGXFWLRQFRPHVIURPWKHOLYHVWRFNVHFWRUV …EQ LQ RIZKLFK'DLU\DQG%HHIDUHWKHODUJHVW 2XWSXWVRISURGXFWVDVDSHUFHQWDJHRIWRWDODJULFXOWXUDOSURGXFWLRQ &URSV

/LYHVWRFN

+RUWLFXOWXUHDQGFHUHDOVDUHWKHWZR ODUJHVWFURSRXWSXWVDFFRXQWIRUDURXQG …EQHDFK

'DLU\KDVWKHKLJKHVWYDOXH RIDOODJULFXOWXUDOVHFWRUVLQ WKH8. …EQ 

 

    

  





9HJIORZHUV &HUHDOV























,QGXVWULDO

3RWDWRHV

)UXLW

2WKHU

'DLU\

%HHI

3RXOWU\

6KHHS

3LJV

(JJV

2WKHU

7KH)XWXUH)DUPLQJ DQG(QYLURQPHQW(YLGHQFH&RPSHQGLXP )HEUXDU\



%DFNWR6XPPDU\

)RRG3URGXFWLRQ

)DUP(FRQRPLFVDQG$FFRXQWV

(QYLURQPHQWDO/DQG0DQDJHPHQW

6XSSRUWLQJ,QIRUPDWLRQ

+RZKDYHWKHSULFHVUHFHLYHGE\IDUPHUVIRUWKHPDLQ8.DJULFXOWXUDORXWSXWVFKDQJHGRYHUWLPH"

7KHSULFHVIDUPHUVKDYHUHFHLYHGIRUWKHLUSURGXFHKDVIOXFWXDWHGRYHUWLPHDQGWKHIDFWRUV EHKLQGWKLVDUHRIWHQRXWVLGHRIWKHLUFRQWURO

&KDQJHLQDJULFXOWXUDOSULFHLQGH[VLQFH QRPLQDOSULFHV

0DQ\GHWHUPLQDQWVRIRXWSXWSULFHVDUHRXWVLGHWKHFRQWURORIIDUPHUV ,QFUHDVHGJOREDOVXSSO\FKDQJLQJFRQVXPHUWDVWHVDQGZHDWKHUSDWWHUQVDUH NH\H[WHUQDOSULFHGHWHUPLQDQWVSDUWLFXODUO\LQKHDYLO\WUDGHGVHFWRUVOLNH FHUHDOV VHHSDJHIRUPRUHGHWDLO 

7KHSULFHRIIUHVK YHJHWDEOHVKDVGRXEOHG VLQFH

&RPSDUHGWRWKHSULFH LQWKHPLONSULFH SHDNHGLQDQG KDVIDOOHQEDFNVLQFH



)UHVK9HJHWDEOHV

&DWWOHDQGFDOYHV

 0LON &HUHDOV





/RFDODQGJOREDOHYHQWVDUHRIWHQ NH\WRXQGHUVWDQGLQJDJULFXOWXUDO SULFHV+HUHLW LVHDV\WRVSRWWKH OLQJHULQJHIIHFWVRIWKH%6( FULVLV

)RUFHUHDOVWKHSULFHE\WKHHQGRI WKHSHULRGLVOLWWOHGLIIHUHQWIURPWKH EHJLQQLQJDOEHLWZLWKVLJQLILFDQW YDULDWLRQLQEHWZHHQ

 















7KH)XWXUH)DUPLQJ DQG(QYLURQPHQW(YLGHQFH&RPSHQGLXP )HEUXDU\

















%DFNWR6XPPDU\

)RRG3URGXFWLRQ

)DUP(FRQRPLFVDQG$FFRXQWV

(QYLURQPHQWDO/DQG0DQDJHPHQW

6XSSRUWLQJ,QIRUPDWLRQ

+RZGRHVWKHRXWSXWIURPDJULFXOWXUDOSURGXFWLRQYDU\DFURVV(QJODQG"

7KH:HVWRI(QJODQGLVGRPLQDWHGE\OLYHVWRFNSURGXFWLRQRIZKLFKGDLU\KDVWKHKLJKHVW YDOXH 7KH(DVWLV JHQHUDOO\GRPLQDWHGE\SLJVSRXOWU\DQGFURSV PLON FDWWOH SRXOWU\

FDWWOH

1RUWK:HVW

1RUWK(DVW

VKHHS ZKHDW

PLON SRXOWU\ FDWWOH

:HVW0LGODQGV

PLON FDWWOH SRXOWU\

6RXWK:HVW 





…PLOOLRQV

0LONDQGFDWWOHIRUPHDW GRPLQDWHWKH:HVWRI (QJODQGZLWKPLON SURGXFWLRQLQWKH6RXWK :HVWDFFRXQWLQJIRUDOPRVW RIDOO(QJODQG¶V DJULFXOWXUDORXWSXWV

3RXOWU\LVZLWKLQWKHWRS WKUHHRXWSXWVIRUPRVW UHJLRQVRI(QJODQG





7RSSURGXFWV RXWSXWV E\ UHJLRQLQ 

SLJV SRXOWU\ ZKHDW


ZKHDW SRXOWU\ YHJHWDEOHV

(DVW0LGODQGV

SRXOWU\ ZKHDW YHJHWDEOHV

(DVWHUQ

SODQWV IORZHUV IUXLW :KHDWDQGRWKHUFURSV ZKHDW IURPKRUWLFXOWXUHDQG  JHQHUDOFURSSLQJ DUH PRUHGRPLQDQWLQWKH (DVWDOWKRXJKSLJVDQG SRXOWU\DUHVWLOOLQWKHWRS WKUHHRXWSXWVLQSODFHV

7KH)XWXUH)DUPLQJ DQG(QYLURQPHQW(YLGHQFH&RPSHQGLXP )HEUXDU\

6RXWK(DVW 







…PLOOLRQV



%DFNWR6XPPDU\

)DUP(FRQRPLFVDQG$FFRXQWV

)RRG3URGXFWLRQ

(QYLURQPHQWDO/DQG0DQDJHPHQW

6XSSRUWLQJ,QIRUPDWLRQ

:KDWDJULFXOWXUDOIRRGSURGXFWVGRZHLPSRUWDQGH[SRUWPRVWRI"

:HLPSRUWPRUHDJULFXOWXUDORUOLJKWO\SURFHVVHGIRRGSURGXFWVWKDQZHH[SRUWZLWKWKH H[FHSWLRQRIODPEPXWWRQRIIDOPLONDQGFUHDPDQGPLONSRZGHU :KHDW XQPLOOHG 2WKHUFHUHDOV XQPLOOHG 3RXOWU\PHDW 3RXOW\SURGXFWV %HHIDQG9HDO %HHISURGXFWV /DPEDQG0XWWRQ 3RUN %DFRQDQG+DP 6DXVDJHV (GLEOHRIIDODQGRWKHUPHDW 0LONDQG&UHDP 0LON3RZGHU &KHHVH %XWWHUDQG
7KLVFKDUWVKRZVDVHOHFWLRQRI DJULFXOWXUDOIRRGSURGXFWVFROODWHGIURP +05&WUDGHVWDWLVWLFV )RUPRVWSURGXFWVWKHYDOXHRILPSRUWV ZDVPXFKKLJKHUWKDQH[SRUWVLQ 3URGXFWVZLWKDKLJKHUH[SRUWYDOXH WKDQLPSRUWYDOXHDUHKLJKOLJKWHGLQ EROG





 …PLOOLRQV

7KH)XWXUH)DUPLQJ DQG(QYLURQPHQW(YLGHQFH&RPSHQGLXP )HEUXDU\



0HDW PHDWSURGXFWV :HLPSRUWHGPRUHRIDOOPHDWV DQGPHDWSURGXFWVLQ RWKHUWKDQODPEDQGPXWWRQ HGLEOHRIIDODQGRWKHUPHDW ZKLFKLQFOXGHVJRDWIRU H[DPSOH 

)UXLW YHJHWDEOHV 7KHKLJKHVWYDOXH LPSRUWFDWHJRULHVZHUH IUHVKIUXLWDQGIUHVK YHJHWDEOHV





%DFNWR6XPPDU\

)RRG3URGXFWLRQ

)DUP(FRQRPLFVDQG$FFRXQWV

(QYLURQPHQWDO/DQG0DQDJHPHQW

6XSSRUWLQJ,QIRUPDWLRQ

2IWKHIRRGZHFDQSURGXFHLQWKH8.KRZPXFKGRZHSURGXFHDQGZKDWGRZHSURGXFHWKHPRVWRI"

7KH8.¶VIRRGSURGXFWLRQWRVXSSO\UDWLRDQLQGLFDWRURIWKHDELOLW\RI8.DJULFXOWXUHWRPHHW GRPHVWLFFRQVXPHUGHPDQGVVWRRGDWIRULQGLJHQRXVIRRGVLQ



WKH)RRG3URGXFWLRQWR 6XSSO\5DWLRRILQGLJHQRXV IRRGLQ

+LVWRULFDOO\WKH8.KDVEHHQDODUJHQHWLPSRUWHURIIRRG7RKDYHDUHVLOLHQWIRRG FKDLQLWLVDGYDQWDJHRXVWRKDYHDGLYHUVHUDQJHRIIRRGVRXUFHVLQFOXGLQJLPSRUWV IURPDZLGHUDQJHRIVWDEOHHFRQRPLHV

7KH)RRG 3URGXFWLRQWR6XSSO\5DWLRSURYLGHV DEURDGLQGLFDWRURIWKHDELOLW\RI8.DJULFXOWXUH WRPHHWGRPHVWLFFRQVXPHUGHPDQGVDQGLV FDOFXODWHGXVLQJWKHIROORZLQJIRUPXOD

)UHVKIUXLW

)UHVKYHJHWDEOHV

7RWDOSURGXFWLRQ LQFOXGLQJIRUH[SRUW 7KHWRWDOSURGXFHGSOXVLPSRUWVPLQXV H[SRUWV

,QGLJHQRXVIRRGH[FOXGHVWKRVHIRRGVQRW FRPPHUFLDOO\JURZQLQWKH8.DQGLVW\SLILHG E\IUXLWVVXFKDVEDQDQDVZKLFKFRXOGQRW UHDVRQDEO\ EHJURZQLQRXUFOLPDWH

3RWDWRHV

6XJDU 3LJV

(JJV 6KHHS

0LON

2LOVHHGUDSH

&DWWOH 3RXOWU\ &HUHDOV









,PSRUWVPRUHVLJQLILFDQWSRUWLRQRI8.FRQVXPSWLRQ







6XUSOXVSURGXFHG

7KHIRRGSURGXFWLRQWRVXSSO\UDWLRVRIFHUHDOVDQGPLONZHUHRYHULQ VKRZLQJWKDWGRPHVWLFSURGXFWLRQPRUHWKDQPHWGRPHVWLFFRQVXPHUGHPDQG

)RUIUHVKIUXLWWKHIRRGSURGXFWLRQWRVXSSO\UDWLRZDVMXVWLQKLJKOLJKWLQJ WKHQHHGIRULPSRUWVWRPHHWGRPHVWLFGHPDQG

7KH)XWXUH)DUPLQJ DQG(QYLURQPHQW(YLGHQFH&RPSHQGLXP )HEUXDU\



%DFNWR6XPPDU\

)DUP(FRQRPLFVDQG$FFRXQWV

)RRG3URGXFWLRQ

(QYLURQPHQWDO/DQG0DQDJHPHQW

6XSSRUWLQJ,QIRUPDWLRQ

'R%ULWLVKFRQVXPHUVZDQWWREX\%ULWLVKIRRG"

:KHQDVNHGWKHSXEOLFVD\WKH\WU\WREX\%ULWLVKIRRGDQGEHOLHYHLWLVLPSRUWDQWWRVXSSRUW %ULWLVKIDUPHUV EXWWKDWLVQ¶WZKROO\ UHIOHFWHGLQFRQVXPHUEHKDYLRXU

 

RI%ULWLVKVXUYH\HGFRQVXPHUV EHOLHYHLWLVLPSRUWDQWWRVXSSRUW %ULWLVKIDUPHUV« VD\WKH\WU\WREX\%ULWLVKIRRG ZKHQHYHUWKH\FDQ«

%XWOHVVWKDQKDOIVDLGWKH\DUHZLOOLQJWRSD\PRUH IRU%ULWLVKIRRGRUVDLGWKDWWKH\FKHFNZKHUHWKHLU IRRGFRPHVIURPEHIRUHEX\LQJ &RQVLVWHQWO\SULFHLVWKHNH\GHWHUPLQLQJIDFWRU GHWHUPLQLQJSXUFKDVLQJIRUFRQVXPHUV7KHUHLV VWURQJHYLGHQFHIURPRIILFLDOVWDWLVWLFV'HIUD IXQGHGLQGHSHQGHQWUHVHDUFKDQGUHWDLOHU UHVHDUFKWKDWSULFHLVWKHPRVWLPSRUWDQWIDFWRU LQIOXHQFLQJFRQVXPHUFKRLFH

&RQVXPHU$WWLWXGHV  ,W VLPSRUWDQWWRVXSSRUW%ULWLVKIDUPHUV

,WU\WREX\%ULWLVKIRRGZKHQHYHU,FDQ

, PSUHSDUHGWRSD\PRUHIRU%ULWLVKIRRG ,XVXDOO\FKHFNWKHODEHOWRVHHZKLFK FRXQWU\P\JURFHULHVFRPHIURP %ULWLVKIRRGWHQGVWREHPRUHH[SHQVLYH WKDQLPSRUWHGIRRG 

6WURQJO\DJUHH

$JUHH



1HLWKHUDJUHHQRUGLVDJUHH





'LVDJUHH





6WURQJO\GLVDJUHH

+RZGRFRQVXPHUSUHIHUHQFHVDIIHFW8.IRRGLPSRUWVDQGH[SRUWV" $OWKRXJKZHFDQSURGXFHDZLGHUDQJHRIIRRGVLQWKH8.LPSRUWLQJIRRGIURPGLIIHUHQWFOLPDWHVPHDQVWKDWFRQVXPHUVKDYHWKH FKRLFHRIVHDVRQDOIRRGDOO\HDUURXQG ,QWHUQDWLRQDOWUDGHLQPHDWDOORZVSURGXFHUVPDQXIDFWXUHUVDQGUHWDLOHUVWRDGGUHVVGHILFLWVLQFHUWDLQFXWVRIPHDW ‡ LPSRUWVVXSSOHPHQWWKHVXSSO\RIWKRVHFXWVPRVWSRSXODUZLWK%ULWLVKFRQVXPHUVVXFKDVEDFRQOHJRIODPEDQGFKLFNHQEUHDVW ‡ WKHOHDVWSRSXODUFXWVDUHH[SRUWHGWRFRXQWULHVZKHUHWKHUHLVDVWURQJHUGHPDQG IRUH[DPSOHH[SRUWLQJSLJVIHHWWR&KLQD  7KH)XWXUH)DUPLQJ DQG(QYLURQPHQW(YLGHQFH&RPSHQGLXP )HEUXDU\



%DFNWR6XPPDU\

)DUP(FRQRPLFVDQG$FFRXQWV

)RRG3URGXFWLRQ

(QYLURQPHQWDO/DQG0DQDJHPHQW

6XSSRUWLQJ,QIRUPDWLRQ

+RZPXFKGR%ULWLVKKRXVHKROGVVSHQGRQIRRGDQGKRZGRHVWKDWFRPSDUHWRWKHSDVW"

$YHUDJHKRXVHKROGH[SHQGLWXUHRQIRRGDQGGULQNKDVIDOOHQIURPLQWKHVWROHVV WKDQ WRGD\EXWWKLVLVVWLOOIRUWKHORZHVWLQFRPHKRXVHKROGV 7KHVKDUHRIFRQVXPHUH[SHQGLWXUHRQ IRRGKDVIDOOHQIURPLQWKH¶VWR OHVVWKDQWRGD\$VFRQVXPHUV¶ LQFRPHVULVHWKH\WHQGWRVSHQGD VPDOOHUSURSRUWLRQRIWKHLUIDPLO\EXGJHW RQIRRGDQGGULQNEXWIRFXVH[SHQGLWXUH RQSURFHVVHGDQGSDFNDJHGSURGXFWV /RZHULQFRPHIDPLOLHVVSHQGDKLJKHU SURSRUWLRQRIWKHLUH[SHQGLWXUHRQIRRG DQGGULQNV WKHSHUFHQWDJHRI KRXVHKROGLQFRPHVSHQWRQ IRRGE\WKHORZHVW KRXVHKROGVE\HTXLYDOLVHG LQFRPH



,QDYHUDJH8.KRXVHKROGV SXUFKDVHGOHVVIRRGWKDQLQ ZKLOHVSHQGLQJPRUH+RXVHKROGVLQ LQFRPHGHFLOH ORZHVWLQFRPHJURXS  VSHQWPRUHRQIRRGLQWKDQLQ DQGSXUFKDVHGOHVV

…

WKHDYHUDJHZHHNO\ 8.KRXVHKROGH[SHQGLWXUHRQIRRGDQGQRQ DOFRKROLFGULQNVLQ QRWLQFOXGLQJHDWLQJRXW

7KH)XWXUH)DUPLQJ DQG(QYLURQPHQW(YLGHQFH&RPSHQGLXP )HEUXDU\



6XPPDU\

)DUP(FRQRPLFVDQG$FFRXQWV

)RRG3URGXFWLRQ

(QYLURQPHQWDO/DQG0DQDJHPHQW

6XSSRUWLQJ,QIRUPDWLRQ

(QYLURQPHQWDO/DQG0DQDJHPHQW SDJHV± 

7KH)XWXUH)DUPLQJ DQG(QYLURQPHQW(YLGHQFH&RPSHQGLXP )HEUXDU\



%DFNWR6XPPDU\

)DUP(FRQRPLFVDQG$FFRXQWV

)RRG3URGXFWLRQ

(QYLURQPHQWDO/DQG0DQDJHPHQW

6XSSRUWLQJ,QIRUPDWLRQ

+RZGRODQGRZQHUVDQGIDUPHUVORRNDIWHURXUKLVWRULFODQGVFDSH"

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¶VVKRZVKRZXQGHUO\LQJ WUHQGVLQDJULFXOWXUDOLQWHQVLILFDWLRQDQGD JHQHUDOGHFOLQHLQWUDGLWLRQDOIDUPLQJ SUDFWLFHVKDYHUHVXOWHGLQDVLPSOLILFDWLRQRI ODQGVFDSHSDWWHUQDQGVWUXFWXUHLQPDQ\ SODFHV (QYLURQPHQWDO/DQG0DQDJHPHQWKDVDNH\ UROHLQKHOSLQJWRUHVWRUHWKHFRPSOH[LW\RI IHDWXUHVWKDWFRQWULEXWHWRD GLVWLQFWLYHVHQVH RISODFH UHYHDOLQJRXUSDVWLQWKHSUHVHQW ODQGVFDSHDQGZKLFKSURYLGHDZLGHUDQJH RIRWKHUEHQHILWVIRUSHRSOH 7KH)XWXUH)DUPLQJ DQG(QYLURQPHQW(YLGHQFH&RPSHQGLXP )HEUXDU\

)URPDUFKDHRORJLFDOVLWHVWRILHOGSDWWHUQV WRSDUNODQGDQGWRWUDGLWLRQDOEXLOGLQJVWKH KLVWRULFHQYLURQPHQWWHOOVXVWKHVWRU\RIRXU SDVW(QJODQG¶VIDUPHUVDUHWKHJXDUGLDQVRI RXUVKDUHGKHULWDJH 'XHWRFKDQJLQJDJULFXOWXUDOSUDFWLFHV WUDGLWLRQDOIDUPEXLOGLQJVDUHYXOQHUDEOHWR QHJOHFWDQGGHFD\ $JULHQYLURQPHQW VFKHPHVKDYHIXQGHGWKHPDLQWHQDQFHDQG UHVWRUDWLRQRIRYHUEXLOGLQJV $JULHQYLURQPHQWVFKHPHVDOVR VXSSRUWWKH PDQDJHPHQWDQGUHVWRUDWLRQRI DUFKDHRORJLFDOVLWHVRQIDUPODQGHQVXULQJ WKHLUSUHVHUYDWLRQIRUIXWXUHJHQHUDWLRQV 2YHUKHFWDUHVDUHXQGHUSRVLWLYH PDQDJHPHQW.H\SUDFWLFHVFRQVHUYH ‡ ILHOGWUHHV ‡ ERXQGDU\IHDWXUHV ‡ ZHWDQGURXJKJUDVVODQGV ‡ ZRRGODQGVDQGRUFKDUGV

$FRPELQDWLRQRIRSWLRQVZRUNLQJWRJHWKHU KDYHGHOLYHUHGPRVWIRUODQGVFDSHFKDUDFWHU



%DFNWR6XPPDU\

)RRG3URGXFWLRQ

)DUP(FRQRPLFVDQG$FFRXQWV

(QYLURQPHQWDO/DQG0DQDJHPHQW

6XSSRUWLQJ,QIRUPDWLRQ

+RZGRIDUPVFRQWULEXWHWRWKHSURYLVLRQRISXEOLFJRRGV"

:KLOHIDUPLQJFDQKDYHDQHJDWLYHLPSDFWRQWKHHQYLURQPHQWDQXPEHURISXEOLFJRRGV DULVHIURPDZHOOIDUPHGODQGVFDSHLQFOXGLQJUHFUHDWLRQDODQGHQYLURQPHQWDOEHQHILWV 3XEOLF JRRGV DUH JRRGV RU VHUYLFHV WKDW QR RQH FDQ EH VWRSSHG IURP XVLQJ DQG ZKHUH RQH SHUVRQ¶V XVH GRHV QRW DIIHFW DQRWKHU¶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…EQ ZRUWKRIHQYLURQPHQWDO EHQHILWVIURPIDUPODQGIRUHVWU\ ZRRGODQGDQGWUHHVSHU\HDULQWKH 8.LQFOXGLQJ

…P RIDLUILOWUDWLRQ EHQHILWVIURPIDUPODQG LQWKH8.

0RUHWKDQWKRXVDQG PLOHVRIULJKWVRIZD\LQ (QJODQGDVIRRWSDWKV EULGOHZD\VDQGE\ZD\V

1DWXUDO&DSLWDO UHIHUVWRWKHHOHPHQWV RIWKHQDWXUDO HQYLURQPHQWZKLFK SURYLGHYDOXDEOH JRRGVDQGVHUYLFHV WRSHRSOHVXFKDV ZDWHUIRRGDQG UHFUHDWLRQ

)DUPODQG LVWKHGHVWLQDWLRQRI DURXQGRIDOOYLVLWVWRWKH QDWXUDOHQYLURQPHQWLQ(QJODQG DURXQGELOOLRQYLVLWVHYHU\\HDU

)DUPODQGPDQDJHPHQWFRQWULEXWHVWR WKHSURWHFWLRQRILFRQLFODQGVFDSH IHDWXUHVVXFKDVGU\VWRQHZDOOV

7KHYDOXHRIHGXFDWLRQDO YLVLWVWRIDUPODQG 8. LV HVWLPDWHGDW…P

YDOXHLQSULFHV 7KH)XWXUH)DUPLQJ DQG(QYLURQPHQW(YLGHQFH&RPSHQGLXP )HEUXDU\



%DFNWR6XPPDU\

)DUP(FRQRPLFVDQG$FFRXQWV

)RRG3URGXFWLRQ

(QYLURQPHQWDO/DQG0DQDJHPHQW

6XSSRUWLQJ,QIRUPDWLRQ

:KDWDUHWKHEHQHILWVRI(QYLURQPHQWDO/DQG0DQDJHPHQWVFKHPHV"

(QYLURQPHQWDO/DQG0DQDJHPHQWVFKHPHVHQFRXUDJHSRVLWLYHIDUPLQJSUDFWLFHVWKURXJK LQFRPHIRUHJRQHSD\PHQWVWKDWLQFHQWLYLVHWKHGHOLYHU\RISXEOLFJRRGV (QYLURQPHQWDO /DQG 0DQDJHPHQW (/0 VFKHPHV SUHYLRXVO\ NQRZQ DV DJULHQYLURQPHQW VFKHPHV ZHUH ILUVW LQWURGXFHG LQ WKH PLG V WR VHFXUH QRQSURGXFWLRQ QDWXUDO FDSLWDO EHQHILWV IURP WKH IDUPHG ODQGVFDSH DORQJVLGH WKH LQFRPH IDUPHUV PDNH IURP DJULFXOWXUDO DFWLYLWLHV

2XUDJULFXOWXUDOODQGVFDSHGHOLYHUVPRUHWKDQMXVWIRRG 7KHZD\ODQGLV PDQDJHGFDQSURYLGHEHQHILWVWRZDWHUDQGDLUTXDOLW\SXEOLFKHDOWKDQGRXU ZHOOEHLQJ (/0V\VWHPVFDQHQKDQFHWKHHQYLURQPHQWE\GHOLYHULQJVXEVWDQWLDO LPSURYHPHQWVLQWKHIROORZLQJRXWFRPHV

(/0 SUDFWLFHV FRYHU YHU\ GLIIHUHQW VFDOHV IURP LQGLYLGXDO ILHOGV ZHWODQGV DQG QHVWLQJ VLWHV WR ZKROH FDWFKPHQWV 7KH GLIIHUHQW VFDOHV DUH DSSURSULDWH IRU GLIIHUHQW RXWFRPHV IRU H[DPSOH GHSHQGLQJ RQ WKH W\SH RI KDELWDW EHLQJ HQKDQFHG 7KH IXOO SRWHQWLDO RI VRPH (/0 RSWLRQV FDQ RQO\ EH UHDOLVHG ZKHUH MRLQW SDUWLFLSDWLRQ IURP VSDWLDOO\ FRQQHFWHG VLWHV LV DFKLHYHG $ IDFLOLWDWLRQ IXQG LV DYDLODEOH WR HQFRXUDJH IDUPHUV WR ZRUN WRJHWKHU ,QWKH*RYHUQPHQWVHWRXWLWVDPELWLRQWRLPSURYHWKH HQYLURQPHQWLQWKH
&OHDQZDWHU +HDOWK\6RLOV &DUERQ6HTXHVWUDWLRQ

$KHDOWKLHU QDWXUDO HQYLURQPHQW

:RRGODQG )RUHVWV :LOGOLIHKDELWDWV &OHDQDLU

,QFUHDVHG SXEOLFKHDOWK

5HGXFHGIORRGULVN

‡ &UHDWLQJRUUHVWRULQJKHFWDUHVRISULRULW\KDELWDWV ‡ 3ODQWLQJKHFWDUHVRIZRRGODQGE\ ‡ 7KDWDOOVRLOVZLOOEHPDQDJHGVXVWDLQDEO\E\ ‡ 7KDWQDWXUDOFDSLWDOUHVRXUFHVZLOOEHGRXEOHGE\ ‡ 7KDWZLOGOLIHLVIXUWKHUSURWHFWHG

/DQGVFDSHVDQG5XUDO +HULWDJH

$VXFFHVVIXO UXUDOHFRQRP\

2XWGRRUVSDFHVIRU H[HUFLVHDQGWRXULVP

‡ $QGHQVXULQJWKDWDOOIRRGLVSURGXFHGVXVWDLQDEO\DQGSURILWDEO\ 7KH)XWXUH)DUPLQJ DQG(QYLURQPHQW(YLGHQFH&RPSHQGLXP )HEUXDU\



%DFNWR6XPPDU\

)DUP(FRQRPLFVDQG$FFRXQWV

)RRG3URGXFWLRQ

(QYLURQPHQWDO/DQG0DQDJHPHQW

6XSSRUWLQJ,QIRUPDWLRQ

+RZGRFXUUHQW(QYLURQPHQWDO/DQG0DQDJHPHQWVFKHPHVZRUNLQ(QJODQG"

&RXQWU\VLGH6WHZDUGVKLSLVRSHQWRDOOIDUPHUVDQGODQGPDQDJHUVDQGDOORZVWKHPWRVHOHFW IURPDUDQJHRIRSWLRQVWKDWFDQEHWDLORUHGWRGLIIHUHQWIDUPW\SHVDQGGHVLUHGRXWFRPHV

‡ 7KH0LG7LHUDUHVLPSOHEXWHIIHFWLYHDJULHQYLURQPHQWDJUHHPHQWV ‡ 7KH+LJKHU7LHUFRYHUVWKHPRVWHQYLURQPHQWDOO\VLJQLILFDQWVLWHV FRPPRQVDQGZRRGODQGV &RXQWU\VLGH6WHZDUGVKLSLVRSHQWRDOOIDUPHUVZRRGODQGRZQHUVIRUHVWHUV DQGODQGPDQDJHUV)DUPHUVDQGODQGPDQDJHUVFDQFKRRVHIURPDZLGH UDQJHRIRSWLRQVGHSHQGLQJRQWKHRXWFRPHVWKH\ZDQWWRGHOLYHUDQGWKH SULRULWLHVIRUWKHODQGWKDWLVEHLQJPDQDJHG ,QIRXUQHZRSWLRQEXQGOHVIRUZLOGOLIHDUHEHLQJRIIHUHGLQDGGLWLRQWR WKHRULJLQDODSSOLFDWLRQURXWHV7KLVSURYLGHVDVLPSOLILHGDSSOLFDWLRQSURFHVV ZKLFKLVWDLORUHGWRGLIIHUHQWIDUPW\SHV

3D\PHQWVDUHPDGHDVUHLPEXUVHPHQWVIRUHDUQLQJVIDUPHUV DQGODQGPDQDJHUVFRXOGKDYHHDUQHGDOWHUQDWLYHO\LIWKH\KDG QRWFDUULHGRXWWKHZRUN $PRQLWRULQJDQGHYDOXDWLRQSURJUDPPHLQIRUPVSROLF\DQG IXWXUHVFKHPHGHYHORSPHQW5HVHDUFKSURMHFWVLQYHVWLJDWH WKHLPSDFWVRI(QYLURQPHQWDO/DQG0DQDJHPHQWSUDFWLFHV 7KH)XWXUH)DUPLQJ DQG(QYLURQPHQW(YLGHQFH&RPSHQGLXP )HEUXDU\

7KHDUHDRIODQGWKDWLVXQGHUVSHFLILFPDQDJHPHQWRSWLRQV LVW\SLFDOO\ORZDQGLVVSOLWEHWZHHQ ‡ 0D[LPLVLQJWKHHQYLURQPHQWDOEHQHILWRIQRQSURGXFWLYH IHDWXUHVVXFKDVKHGJHURZV ‡ $VPDOODPRXQWRIODQGWDNHQRXWRIDJULFXOWXUDO SURGXFWLRQIRUH[DPSOHEXIIHUVWULSVDJDLQVWZDWHU FRXUVHV ‡ $VRPHZKDWODUJHUDUHDRIODQGWKDWLVIDUPHGVXEMHFWWR PDQDJHPHQWFRQVWUDLQWVIRUH[DPSOHJUDVVODQGZLWKORZ IHUWLOLVHULQSXWV 0DQDJHPHQWLVGHVLJQHGWRDGGUHVVPXOWLSOHDVSHFWV RI QDWXUDOFDSLWDOEXWGLIIHUHQWRSWLRQVUHFHLYHYDU\LQJOHYHOV RIXSWDNH:KLOHDQRSWLRQPD\KDYHDSULPDU\REMHFWLYH HJ%LRGLYHUVLW\LPSURYHPHQWV LWZLOOW\SLFDOO\GHOLYHU DGGLWLRQDOEHQHILWV  7KRXVDQGKHFWDUHV

7KHFXUUHQW(QYLURQPHQWDO/DQG0DQDJHPHQWVFKHPH&RXQWU\VLGH 6WHZDUGVKLSZDVODXQFKHGLQ7KLVWDUJHWHGDQGFRPSHWLWLYHVFKHPH DLPVWRFRQVHUYHUHVWRUHKDELWDWVPDQDJHIORRGULVNUHGXFHZDWHUSROOXWLRQ PDLQWDLQWKHFKDUDFWHURIWKHFRXQWU\VLGHSUHVHUYHKLVWRULFIHDWXUHV HQFRXUDJHHGXFDWLRQDODFFHVVPLWLJDWHDQGDGDSWWRFOLPDWHFKDQJHDQG FUHDWHDQGPDQDJHZRRGODQG7KHVFKHPHLVGHOLYHUHGDWWZROHYHOV WLHUV 

3ULPDU\REMHFWLYH 6HFRQGDU\REMHFWLYH

    

%LRGLYHUVLW\ /DQGVFDSH

6RLO

+LVWRULF

:DWHU

$UHDRIODQGEHLQJPDQDJHGWRDGGUHVVGLIIHUHQWSULRULWLHV LQ&RXQWU\VLGH6WHZDUGVKLSDVDW6HSWHPEHU



%DFNWR6XPPDU\

)DUP(FRQRPLFVDQG$FFRXQWV

)RRG3URGXFWLRQ

(QYLURQPHQWDO/DQG0DQDJHPHQW

6XSSRUWLQJ,QIRUPDWLRQ

:KDWLPSDFWVKDYH(QYLURQPHQWDO/DQG0DQDJHPHQWVFKHPHVKDGWRGDWHLQ(QJODQG"

(QYLURQPHQWDO/DQG0DQDJHPHQWKDVEHHQEHQHILFLDOWRKDELWDWVDQGVSHFLHVODQGVFDSH FKDUDFWHUDQGZDWHUTXDOLW\ZLWKDWOHDVW…RISXEOLFJRRGVUHWXUQHG IRUHYHU\…SXWLQ 7KHLPSDFWRI(QYLURQPHQWDO/DQG0DQDJHPHQW6FKHPHV +DELWDWVDQGVSHFLHV KHFWDUHVRIIRRG VRXUFHVIRUIDUPODQGELUGV KHGJHURZWUHHV DQGLQILHOGWUHHVSURWHFWHG KHFWDUHVRISODQWHG DUHDVSURYLGLQJSROOHQDQG QHFWDUVRXUFHVIRU SROOLQDWRUV 6LJQLILFDQWSRVLWLYHHIIHFWV DWWKHIDUPVFDOHZHUH UHFRUGHGIRURXWRI IDUPODQGELUGVSHFLHVRQ +LJKHU/HYHO6FKHPH DJUHHPHQWVLQMXVWWKUHH \HDUV   +LJKHU/HYHO6FKHPH PDQDJHPHQWIRUSROOLQDWRUV FDQVLJQLILFDQWO\LQFUHDVH WKHVL]HRIZLOGEXPEOHEHH SRSXODWLRQV

/DQGVFDSHFKDUDFWHUDQG KLVWRULFHQYLURQPHQW

:DWHU4XDOLW\

GHVLJQDWHGVFKHGXOHG PRQXPHQWVUHPRYHGIURP WKH+HULWDJHDW5LVN 5HJLVWHU

…PLOOLRQRIIDUP LPSURYHPHQWVFRRUGLQDWHG WKURXJK&DWFKPHQW 6HQVLWLYH)DUPLQJ

NPPDLQWHQDQFH PDQDJHPHQWDQG UHVWRUDWLRQRIKHGJHURZV GLWFKHVDQGVWRQHZDOOV

PLOOLRQKHFWDUHVRIODQG DQGIDUPHUV DFWLYHO\HQJDJHGZLWK &DWFKPHQWV6HQVLWLYH IDUPLQJ

$SRVLWLYHVWURQJO\SRVLWLYH HIIHFWRQWKHODQGVFDSHLQ RI1DWLRQDO&KDUDFWHU $UHDVLQ(QJODQG

KHFWDUHVRIEXIIHU VWULSVSURWHFWLQJZDWHU FRXUVHVDQGIHDWXUHVIURP DJULFXOWXUDOLPSDFWV &DWFKPHQW6HQVLWLYH )DUPLQJDFWLYLW\XS WRWKH HQGRI0D\SUHGLFWHG IURPPRGHOOLQJ WRUHGXFH DJULFXOWXUDOORVVHVRINH\ SROOXWDQWVE\ WRLQ &DWFKPHQW6HQVLWLYH )DUPLQJWDUJHWDUHDV

7KH)XWXUH)DUPLQJ DQG(QYLURQPHQW(YLGHQFH&RPSHQGLXP )HEUXDU\

$FRVWEHQHILWUDWLR FDQEHFDOFXODWHGE\ PRQHWLVLQJWKHHQYLURQPHQWDO LPSURYHPHQWVDQGSXEOLFJRRGVGHOLYHUHG E\VFKHPHVDQGFRPSDULQJWKDWZLWKWKHLU FRVW &RVWEHQHILWUDWLRVIRUSDVWHQYLURQPHQW PDQDJHPHQWVFKHPHVDUH

&RXQWU\VLGH 6WHZDUGVKLS

…

)RUHVWU\ &UHDWLRQ

…

)RUHVWU\ 0DQDJHPHQW

…

)RUHYHU\…RIVXSSRUWSXWLQWRD VFKHPHWKLVLVWKHYDOXHRIWKH EHQHILWVWKHSXEOLFUHFHLYHEDFN 

%DFNWR6XPPDU\

)RRG3URGXFWLRQ

)DUP(FRQRPLFVDQG$FFRXQWV

(QYLURQPHQWDO/DQG0DQDJHPHQW

6XSSRUWLQJ,QIRUPDWLRQ

+RZGRIDUPLQJSUDFWLFHVLPSDFWRQRXUZDWHU"

:DWHUTXDOLW\LVDGYHUVHO\DIIHFWHGE\IDUPLQJWKURXJKUXQRIIRIIHUWLOLVHUVSHVWLFLGHVDQG VOXUU\DQGWKURXJKHURVLRQRIVRLOZKLFKLVZDVKHGRIIIDUPODQG 6RLODQG 6HGLPHQW

(QWHUZDWHUZKHQUDLQDQGZLQG HURGHVRLOOHDGLQJWRQXWULHQW HQULFKPHQWDQGVLOWDWLRQZKLFK LPSDFWILVKDQGLQYHUWHEUDWHV DQGFDXVHHFRORJLFDOGDPDJH

RIDOOVXUIDFHDQG JURXQGZDWHUERGLHV LQ(QJODQGIDLOHGWR DFKLHYHJRRGVWDWXV LQ



7KHPDMRULW\RIWKHVHZDWHU ERG\IDLOXUHVDUHGXHWR XUEDQDQGRWKHUQRQ DJULFXOWXUDOSROOXWLRQEXW



IDLOHGIRUDUHDVRQ UHODWHGWRDJULFXOWXUH DQGUXUDOODQG PDQDJHPHQW

,QFUHDVHG QXWULHQWVDQG VHGLPHQWLQZDWHULQFUHDVH WKHFRVWRIZDWHUWUHDWPHQW DQGQHJDWLYHO\LPSDFW EDWKLQJZDWHUTXDOLW\

1XWULHQWV IURP )HUWLOLVHUV

1LWURJHQDQGSKRVSKRUXVHQWHU WKHZDWHUF\FOHYLDJURXQGZDWHU DQGUXQRIIFDXVLQJKDUPIXO EORRPVRISODQWOLIHWKDW GHR[\JHQDWHULYHUVDQGODNHV

3HVWLFLGHV  $PPRQLD

0RUHWKDQRIQLWUDWHSROOXWLRQRISKRVSKDWHLQ8. ZDWHUVDQGRIVHGLPHQWSROOXWLRQFRPHVIURPIDUPLQJ

([FHVVQLWURJHQ SKRVSKRUXVILQHVHGLPHQW DQGORZR[\JHQFDXVH GDPDJHWRDTXDWLFHFRORJ\

)HUWLOLVHUSHVWLFLGHVDQG VOXUU\DGGHGWRWKHODQG

5DLQPRELOLVHVSROOXWDQWVZKLFKIORZ RYHUODQG IDVW DQGWKURXJKVRLOV )DUP\DUGPDQXUH DQGVOXUU\

/LYHVWRFNFDQFDXVHHURVLRQ SROOXWLRQGLUHFWO\LQWRZDWHU

&RPSDFWLRQE\OLYHVWRFN DQGPDFKLQHU\HURGHVRLOV DQGVSHHGXSIORZ

3ROOXWDQWVFDQHQWHUJURXQGZDWHUDIIHFWLQJGULQNLQJZDWHUVXSSOLHVDQGWDNLQJGHFDGHVWR ZDVKDZD\6RPHRIWKHSROOXWLRQDIIHFWLQJ8.ZDWHUVLVDOHJDF\RISUHYLRXV DJULFXOWXUDOSUDFWLFHV ZKLFKKHDYLO\IRFXVVHGRQLQFUHDVLQJSURGXFWLRQ

7KH)XWXUH)DUPLQJ DQG(QYLURQPHQW(YLGHQFH&RPSHQGLXP )HEUXDU\

3HVWLFLGHVDQGDPPRQLDFDQEH WR[LFWRPDQ\DTXDWLFSODQWV  DQLPDOVNLOOLQJILVKDQG LQYHUWHEUDWHV

([FHVV1LWURJHQDQG 3KRVSKRURXVIURPPDQXUH VOXUU\DQGIHUWLOLVHU DSSOLFDWLRQFDQPDNHLWVZD\ LQWRVXUIDFHZDWHUVDQG DTXLIHUV,PSURYHPHQWVLQ QXWULHQWPDQDJHPHQW SUDFWLFHVDQGVOXUU\DQG PDQXUHVWRUDJHFDQKHOSWR UHGXFHZDWHUSROOXWLRQ

1LWURJHQ UHGXFWLRQLQWRWDOQLWURJHQ DSSOLFDWLRQVLQ*UHDW%ULWDLQ EHWZHHQDQG

3KRVSKRUXV UHGXFWLRQLQWRWDOPLQHUDO SKRVSKDWHDGGLWLRQVEHWZHHQ DQGLQ*UHDW %ULWDLQ 

%DFNWR6XPPDU\

)DUP(FRQRPLFVDQG$FFRXQWV

)RRG3URGXFWLRQ

(QYLURQPHQWDO/DQG0DQDJHPHQW

6XSSRUWLQJ,QIRUPDWLRQ

+RZGRIDUPLQJSUDFWLFHVLPSDFWRQRXUVRLOV"

6RLOLVDQHVVHQWLDOQDWXUDOUHVRXUFHZLWKSRRUPDQDJHPHQWFDXVLQJHURVLRQFRPSDFWLRQ DQGGHSOHWLRQRIQXWULHQWVRUJDQLFPDWWHUDQGELRGLYHUVLW\ :K\DUHVRLOVLPSRUWDQW"

2QHTXDUWHU RIWKHSODQHW¶VELRGLYHUVLW\LVIRXQGLQLWVVRLOV 6RLODQGLWVRUJDQLVPVSOD\YLWDOUROHVLQ VXSSRUWLQJIRRGSURGXFWLRQSODQWDQGWUHH KHDOWKQXWULHQWF\FOLQJFDUERQVWRUDJHDQG VHTXHVWUDWLRQZDWHUVWRUDJHDQGTXDOLW\DQG IORRGSUHYHQWLRQ 3RRUVRLOPDQDJHPHQWFDQOHDGWR ‡

&RPSDFWLRQIURPOLYHVWRFNDQGPDFKLQHU\ OHDGLQJWRLQFUHDVHGIORRGULVNVIRU GRZQVWUHDPDUHDVDQGUHGXFHGFURS\LHOGV

‡

,QFUHDVHGJUHHQKRXVHJDVHPLVVLRQVDQG ORVVRIWKHFDUERQVWRUHGLQVRLOV

‡

(URVLRQE\ZLQGDQGZDWHUOHDGLQJWROHVV IHUWLOHVRLOVDQGSROOXWLRQLQVXUIDFHDQG FRDVWDOZDWHUV

‡

‡

3RRUVRLOVWUXFWXUHDQGQXWULHQWEDODQFHV UHGXFLQJIHUWLOLW\DQGSURYLVLRQRISXEOLF JRRGV /RVVRIVRLOELRGLYHUVLW\

:KDWLVWKHFXUUHQWVWDWHLQWKH8."

RI8.VRLOVDUHWKRXJKWWR EHGHJUDGHGZLWKPLOOLRQKHFWDUHV RIWKH8.¶VDJULFXOWXUDOODQG DQGRIFURSODQG DWULVNRI HURVLRQ

PWRQQHV

7KHPHGLXPIRU +HDOWK\ OLYLQJ SURGXFLQJ VRLOVSURYLGH PRVWRIRXU IRRG 1XWULHQWDQG $KDELWDWIRUD RUJDQLFPDWWHU KXJHYDULHW\RI UHF\FOLQJ

RUJDQLVPV

$KDELWDWIRUD KXJHYDULHW\RI RUJDQLVPV

7KHPHGLXPIRU SURGXFLQJPRVW RIRXUIRRG

&

&DUERQ VWRUDJH UHGXFLQJ WKHFDUERQ IRRWSULQWRI IDUPLQJ :DWHUILOWUDWLRQ VWRUDJHDQGIORRG SUHYHQWLRQ

RIWRSVRLOHVWLPDWHGWREHORVW WKURXJKZDWHUDQGZLQGHURVLRQ HYHU\\HDULQWKH8.ZKLFKPD\ WDNHFHQWXULHVWRUHSODFH

+RZFDQDJULFXOWXUHKHOSVRLOV"

WR\HDUV

&DUHIXOPDQDJHPHQWLVQHHGHGWRPDNHWKHXVH RIVRLOUHVRXUFHVE\DJULFXOWXUHVXVWDLQDEOH

HVWLPDWHVRIKRZTXLFNO\ZHFRXOG ORVHVRPHRIRXUPRVWIHUWLOHVRLOV LQ(DVW$QJOLDDWFXUUHQWUDWHV

=HURWLOODJHV\VWHPVPD\LQFUHDVHRUJDQLFPDWWHU LQWKHURRW]RQHKHOSLQJQXWULHQWDQGZDWHU UHWHQWLRQDQGDOVRUHGXFHIRVVLOIXHOXVH

…P &RVWRIRIIVLWHVRLOHURVLRQDQG FRPSDFWLRQIURPDJULFXOWXUHLQ IRU(QJODQGDQG:DOHV

0RUHWKDQRIWKH 8.ODQGFDUERQVWRFNLVKHOGLQRXU VRLOV

7KH)XWXUH)DUPLQJ DQG(QYLURQPHQW(YLGHQFH&RPSHQGLXP )HEUXDU\

3ODQWLQJFRYHUFURSVDQGFDUHIXOPDQDJHPHQWRI KLOOVLGHILHOGVFDQUHGXFHHURVLRQUDWHV 5HGXFLQJFRPSDFWLRQOHDGVWRLQFUHDVHVLQVRLO IHUWLOLW\DQGIDUPSURGXFWLYLW\DQGKHOSVWRUHWDLQ ZDWHULQXSODQGFDWFKPHQWV 2UJDQLFIDUPLQJDQGRWKHUDJURHFRORJLFDO DSSURDFKHVFDQSURWHFWDQGHQKDQFHWKHKHDOWK RIDJULFXOWXUDOVRLOVIRUH[DPSOHWKURXJKWKHXVH RIOHJXPHVFURSURWDWLRQVDQGRUJDQLFPDQXUHV



%DFNWR6XPPDU\

)RRG3URGXFWLRQ

)DUP(FRQRPLFVDQG$FFRXQWV

(QYLURQPHQWDO/DQG0DQDJHPHQW

6XSSRUWLQJ,QIRUPDWLRQ

+RZGRIDUPLQJSUDFWLFHVLPSDFWRQZLOGOLIHDQGELRGLYHUVLW\"

)DUPLQJSUDFWLFHVFDQUHVXOWLQKDELWDWORVVUHGXFLQJZLOGOLIHELRGLYHUVLW\ 7KH8.IDUPODQGELUG LQGH[ DQLQGLFDWRURIWKHVWDWHRIZLOGOLIHJHQHUDOO\KDVIDOOHQWROHVVWKDQKDOILWVYDOXH 7KHLQGH[PHDVXUHVWKHDYHUDJHUDWHRIFKDQJHLQ UHODWLYHDEXQGDQFHIRUVSHFLHVRIZLOGELUGVZKLFKOLYH LQDJULFXOWXUDOODQGVFDSHVDJDLQVWDEDVHOLQH %LUGSRSXODWLRQVDUHRIWHQXVHGDV G SRSXODWLRQV DUH RIWHQ XVHG LQGLFDWRUV RIWKHVWDWHRIZLGHUZLOGOLIH ELRGLYHUVLW\DVWKH\RFFXS\DZLGH UDQJHRIKDELWDWVUHVSRQGWR HQYLURQPHQWDOVWUHVVHVWKDWDIIHFW RWKHUJURXSVRIZLOGOLIHDQGDUHRIWHQ KLJKXSWKHLUUHVSHFWLYHIRRGFKDLQV 6RPHIDUPLQJSUDFWLFHVKDYHQHJDWLYH LPSDFWVRQELUGSRSXODWLRQVDQGRQ ZLOGOLIHPRUHJHQHUDOO\7KHYDVW PDMRULW\RI(QJODQG¶VZLOGOLIHGHSHQGV RQWKHUHPDLQLQJDUHDVRIVHPLQDWXUDO KDELWDWWKDWDUHOHVVLQWHQVLYHO\IDUPHG ZLWKLQWKHFRXQWU\VLGH +RZHYHUPDQ\IDUPHUVDQGODQG RZQHUVDUHDFWLYHO\SOD\LQJWKHLUSDUW WRFRQVHUYHDQGHQKDQFHWKH FRXQWU\VLGH¶VZLGHQHWZRUNRIWUHHV KHGJHURZVSRQGVGLWFKHVDQGRWKHU ZDWHUFRXUVHV0DQ\RSWLRQVWRGRVR DUHLQFOXGHGZLWKLQDJULHQYLURQPHQW DJUHHPHQWV

)DUPODQG%LUG,QGH[ 

*HQHUDOLVWVSHFLHV IDOOHQVLQFH







$OOIDUPODQGELUGVSHFLHV IDOOHQVLQFH







6SHFLDOLVWVSHFLHV IDOOHQVLQFH













7KH)XWXUH)DUPLQJ DQG(QYLURQPHQW(YLGHQFH&RPSHQGLXP )HEUXDU\









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



%DFNWR6XPPDU\

)DUP(FRQRPLFVDQG$FFRXQWV

)RRG3URGXFWLRQ

(QYLURQPHQWDO/DQG0DQDJHPHQW

6XSSRUWLQJ,QIRUPDWLRQ

+RZPXFKGRHVDJULFXOWXUHFRQWULEXWHWRFOLPDWHFKDQJHWKURXJKHPLVVLRQVRIJUHHQKRXVHJDVHV"

$JULFXOWXUHLVUHVSRQVLEOHIRURIWKH8.¶VJUHHQKRXVHJDVHPLVVLRQVPDLQO\WKURXJK HPLVVLRQVRIPHWKDQHDQGQLWURXVR[LGHIURPJUD]LQJOLYHVWRFNDQGIHUWLOLVHUV

2

&

+ +

+

&

1 1

2

+

2

&DUERQGLR[LGH &2 LVDPDMRUJUHHQKRXVHJDV EXWDJULFXOWXUHLVRQO\UHVSRQVLEOHIRUDURXQGRI 8.&2 HPLVVLRQV7KHVHDUHPDLQO\WKRXJKXVH RIHQHUJ\DQGIXHOZKLFKFDQEHUHGXFHGE\ LPSURYLQJHIILFLHQF\DQGE\JHQHUDWLQJHQHUJ\ IURPUHQHZDEOHVRXUFHVRQIDUP 0HWKDQH &+ LVDPRUHSRWHQWJUHHQKRXVHJDV WKDQ&2ZDUPLQJWKHDWPRVSKHUHPRUH ZKHQLWLV UHOHDVHG$JULFXOWXUHLVUHVSRQVLEOHIRUKDOIRIWKH 8.¶VWRWDOHPLVVLRQV 1LWURXVR[LGH 12 LVWKHPRVWSRWHQW JUHHQKRXVHJDVWKDWDJULFXOWXUHHPLWVKDYLQJD ZDUPLQJHIIHFWWKDWLVDURXQGWLPHVVWURQJHU WKDQ&2 $JULFXOWXUHHPLWVRIWKH8.WRWDO

&DUERQVHTXHVWUDWLRQ /DQGPDQDJHUVFDQDQGGRKHOSFRPEDWFOLPDWHFKDQJHE\ LQFUHDVLQJFDUERQVHTXHVWUDWLRQWKURXJKWKHFUHDWLRQRIPRUH IRUHVWVDQGZRRGODQGUHVWRUDWLRQRIZHWODQGVDQGXQGHUWDNLQJ SUDFWLFHVZKLFKLQFUHDVHWKHRUJDQLFFDUERQFRQWHQWRIVRLOV 7KLVWDNHVFDUERQGLR[LGHRXWRIWKHDWPRVSKHUHDQGVWRUHVLW LQWKHWHUUHVWULDOHQYLURQPHQWUHGXFLQJ8.QHWHPLVVLRQVDQG PLWLJDWLQJDJDLQVW&2 UHOHDVHGIURPRWKHULQGXVWULHV

…EQ FRVWRI8.JUHHQKRXVHJDV HPLVVLRQVLQIURP DJULFXOWXUH

FERTILISERS

RIDJULFXOWXUDO12 HPLVVLRQVDUHDUHVXOWRI QLWURJHQIHUWLOLVHUDSSOLFDWLRQ

 HVWLPDWHGIDOOLQDJULFXOWXUDO HPLVVLRQVRIQLWURXVR[LGH 12 DQGPHWKDQH &+  VLQFH

*UD]LQJOLYHVWRFN DUHUHVSRQVLEOHIRURI PHWKDQHHPLVVLRQV

8.*UHHQKRXVH*DV(PLVVLRQV  LQ&2 HTXLYDOHQWV 7RWDO 2WKHUJDVVHV

$JULFXOWXUH

1LWURXV2[LGH

2WKHU6RXUFHV

0HWKDQH &DUERQ'LR[LGH 









0W&2H 7KH)XWXUH)DUPLQJ DQG(QYLURQPHQW(YLGHQFH&RPSHQGLXP )HEUXDU\





%DFNWR6XPPDU\

)RRG3URGXFWLRQ

)DUP(FRQRPLFVDQG$FFRXQWV

(QYLURQPHQWDO/DQG0DQDJHPHQW

6XSSRUWLQJ,QIRUPDWLRQ

:KDWLVWKHLPSDFWRIDPPRQLDHPLVVLRQVIURPDJULFXOWXUH"

$JULFXOWXUHLVUHVSRQVLEOHIRURI8.HPLVVLRQVRIDPPRQLDPDLQO\IURPOLYHVWRFNIDUPLQJ DQGIHUWLOLVHUXVH

 HVWLPDWHGIDOOLQDJULFXOWXUDOHPLVVLRQVRIDPPRQLD VLQFHGXHSDUWO\WRGHFOLQLQJFDWWOHQXPEHUV EHWWHUPDQXUHDQGVOXUU\PDQDJHPHQWDQGUHGXFHG PLQHUDOIHUWLOLVHUXVHDOWKRXJKRYHUWKHODVW\HDUV HPLVVLRQVKDYHEHHQVWDEOHRUKDYHULVHQ

$PPRQLDHPLVVLRQVDIIHFWKXPDQKHDOWKUHGXFH DLUTXDOLW\FDQFDXVHVRLODFLGLILFDWLRQKDUP YHJHWDWLRQDQGFRQWULEXWHWRDLUSROOXWLRQ



&DWWOHDUHWKHODUJHVWVRXUFHRIDPPRQLDEXWLWLV DOVRDVVRFLDWHGZLWKFKLFNHQDQGSLJIDUPVDQGZLWK VOXUU\DQGIHUWLOLVHUXVH3RRUVWRUDJHRIVOXUU\DQG PDQXUHFDQOHDGWRKLJKOHYHOVRISROOXWLRQDQGPDQ\ IDUPHUVKDYHWDNHQVWHSVWRLPSURYHWKLV

RI8.DPPRQLDHPLVVLRQVFRPHIURP DJULFXOWXUHPDLQO\IURPOLYHVWRFN IDUPLQJDQGPLQHUDOIHUWLOLVHUXVH

…P FRVWVWRKXPDQKHDOWK DQGWKHHQYLURQPHQW IURP8.DJULFXOWXUDOO\ SURGXFHGDPPRQLDLQ  LQSULFHV

$PPRQLDHPLVVLRQVFDQFRPELQHZLWKLQGXVWULDO DQGWUDQVSRUWHPLVVLRQVIRUPLQJKDUPIXOILQH SDUWLFXODWHVZKLFKFDXVHVPRJLQXUEDQDUHDV DQGLPSDFWSXEOLFKHDOWK

)DUPHUVFDQDOVROLPLWWKHXVHRIQLWURJHQULFK IHUWLOLVHUVWRHFRQRPLFDOO\HIILFLHQWOHYHOVVWRULQJDQG DSSO\LQJWKHPVDIHO\DQGHIILFLHQWO\DVH[FHVV QLWURJHQFDQEHFRQYHUWHGWRDPPRQLDE\PLFURELDO SURFHVVHV

7KH)XWXUH)DUPLQJ DQG(QYLURQPHQW(YLGHQFH&RPSHQGLXP )HEUXDU\



%DFNWR6XPPDU\

)RRG3URGXFWLRQ

)DUP(FRQRPLFVDQG$FFRXQWV

(QYLURQPHQWDO/DQG0DQDJHPHQW

6XSSRUWLQJ,QIRUPDWLRQ

+RZDUHZRRGODQGVDQGIRUHVWVLPSDFWHGE\DJULFXOWXUH"

7KHUHDUHPLOOLRQKHFWDUHVRIZRRGODQGRQDJULFXOWXUDOODQGZLWKLQWKH8.DOPRVWDWKLUGRI WKHPLOOLRQKHFWDUHVRI8.IRUHVWVDQGZRRGODQGV 8./DQG8VH G8

7KHFRQWULEXWLRQRIIRUHVWU\WR8.HFRQRP\ZDV …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

7KH*RYHUQPHQWLVFRPPLWWHGWR SODQWLQJPLOOLRQWUHHVWKURXJKWKH
: :RRGODQG

7KHZRRGODQGDUHDRIWKH8.LQZDV PLOOLRQKHFWDUHVFRYHULQJRIWRWDO8.ODQG DUHDRIZKLFKPLOOLRQKDLVIRXQGRQDJULFXOWXUDO ODQG

‡ 5HGXFHGVRLOHURVLRQUDWHV ‡ &DUERQVHTXHVWUDWLRQ ‡ 6KHOWHUIRUOLYHVWRFN

)DUPHGODQG

$JULFXOWXUDO ODQG

:RRGODQGRQDJULFXOWXUDOODQG D :RRGODQG %XLOWXSRQ 2WKHU

7KH DUHD RI IDUP ZRRGODQG LQ WKH 8. KDV LQFUHDVHG IURP  WKRXVDQG KHFWDUHV LQ  WR  WKRXVDQG KHFWDUHV LQ  $URXQG RQH KDOI  RI DOO IDUP ZRRGODQG ZDV LQ 6FRWODQG LQ  ZLWK D IXUWKHU  LQ (QJODQG  LQ :DOHV DQG WKH UHPDLQLQJ  LQ 1RUWKHUQ ,UHODQG

7KH)XWXUH)DUPLQJ DQG(QYLURQPHQW(YLGHQFH&RPSHQGLXP )HEUXDU\

‡ %LRGLYHUVLW\JDLQVDQGKDELWDW FRQQHFWLRQDQGFUHDWLRQ ‡ 5HGXFHGIORRGLQJULVNIRU GRZQVWUHDPFRPPXQLWLHV ‡ $JURIRUHVWU\LQFRUSRUDWHVWUHHVLQWR SURGXFWLYHIDUPLQJV\VWHPV :HOOPDQDJHGDQGGLYHUVHZRRGODQGV KHOSWRLQFUHDVHUHVLOLHQFHDJDLQVWSHVWV DQGGLVHDVHVDVZHOODVZLOGILUHHYHQWV 0HDVXUHVDUHLQSODFHWRSUHYHQWDQG DGGUHVVGLVHDVHDQGSHVWRXWEUHDNV TXLFNO\DQGHIIHFWLYHO\DQGZHZRUN ZLWKODQGRZQHUVWRUHPRYHGLVHDVHG WUHHVDQGSHVWVRQGHWHFWLRQ



%DFNWR6XPPDU\

)DUP(FRQRPLFVDQG$FFRXQWV

)RRG3URGXFWLRQ

(QYLURQPHQWDO/DQG0DQDJHPHQW

6XSSRUWLQJ,QIRUPDWLRQ

+RZFDQ IDUPPDQDJHPHQWSUDFWLFHVKHOSWRUHGXFH IORRGULVNVDQGSURYLGHZLGHUHQYLURQPHQWDORXWFRPHV"

7KHUHDUHPDQ\ODQGPDQDJHPHQWSUDFWLFHVWKDWFDQUHGXFHIORRGULVNDVZHOODVSURYLGH ZLGHUHQYLURQPHQWDORXWFRPHV 1DWXUDO)ORRG0DQDJHPHQWWHFKQLTXHVFDQEHDGRSWHGE\IDUPHUVWRKHOSPDQDJHIORRGULVNE\XVLQJODQGPDQDJHPHQWSUDFWLFHVWKDW VORZRUVWRUHZDWHULQWKHODQGVFDSH:KHQSURSHUO\WDUJHWHG1DWXUDO)ORRG0DQDJHPHQW 1)0 WHFKQLTXHVFDQSURYLGHH[FHOOHQWYDOXH IRUPRQH\ZLWKFRVWEHQHILWUDWLRVRIDURXQGDQGEHQHILWVRIDURXQG…SHUP RIZDWHUVWRUHGIRUIORRGULVNUHGXFWLRQDORQH /HDN\ZRRG\GDPV 3URYLGHIORRGZDWHUVWRUDJHDQGKDYHEHHQVKRZQ WRLQFUHDVHKDELWDWGLYHUVLW\E\DVPXFKDV /HDN\ZRRG\GDPVFDQDOVRUHVXOWLQGHFUHDVHVRI LQVWUHDP3KRVSKDWHFRQFHQWUDWLRQVZKLFKFDQ FDXVHKDUPIXOEORRPVRISODQWOLIHWKDW GHR[\JHQDWHULYHUVDQGODNHV

%XIIHUVWULSV $UHDUHDVRISHUPDQHQWYHJHWDWLRQWKDWFDQUHGXFH UXQRIIE\RYHUDQGFRQWULEXWHWRUHGXFWLRQVLQ ZDWHUSROOXWLRQ7KH\FDQDOVRDLGELRGLYHUVLW\ VXFKDVLQFUHDVLQJQXPEHUVRILQYHUWHEUDWHV FRPSDUHGZLWKQRUPDOFURSSHGPDUJLQV

5LSDULDQ ULYHUEDQN SODQWLQJ &DQUHGXFHSHDNIORZE\XSWRDV ZHOODVUHPRYLQJRYHUPRUHQLWUDWHV WKDQFKDQQHOPDQDJHPHQWRIULYHUV 3ODQWLQJWUHHVRQWKHULYHUEDQNLQFUHDVHV VKDGHEHQHILWWLQJELRGLYHUVLW\E\ SUHYHQWLQJZDWHUWHPSHUDWXUHIURPULVLQJ WROHWKDOOLPLWVIRUVSHFLHVVXFKDVEURZQ WURXWDQGOHDGLQJWRUHGXFWLRQVLQ SK\WRSODQNWRQORDGE\DVPXFKDV

&RYHUFURSV &DQUHGXFHVXUIDFHUXQRIIE\DQGERWK QXWULHQWDQGVHGLPHQWORVVHVIURPWKHVRLOE\ XSWRDQGQLWUDWHOHDFKLQJORVVHVE\ 

7KH)XWXUH)DUPLQJ DQG(QYLURQPHQW(YLGHQFH&RPSHQGLXP )HEUXDU\

6ZDOHV 6ZDOHVDUHVKDOORZEURDGDQGYHJHWDWHG FKDQQHOVWKDWFDQUHGXFHUXQRIIE\ SHDNIORZE\DQGLQFUHDVHIORRGODJ WLPHE\ 6ZDOHVFDQDOVRUHVXOWLQVHGLPHQWGHOLYHU\ EHLQJUHGXFHGE\DQGUHGXFHWKH FRQFHQWUDWLRQVRISKRVSKRUXVDQGKHDY\ PHWDOVLQVWRUPZDWHUUXQRIIE\XSWR DQGUHVSHFWLYHO\

3RQGVDQGUHVHUYRLUV &DQUHGXFHWKHULVNRIIORRGLQJE\EHWZHHQ DQGLQDQ\RQH\HDU7KH\DOVRKDYHWKH EHQHILWRIUHGXFLQJERWKGRZQVWUHDP SKRVSKRUXVDQGQLWUDWHFRQFHQWUDWLRQVGXULQJ VWRUPVE\DQGUHVSHFWLYHO\



6XPPDU\

)DUP(FRQRPLFVDQG$FFRXQWV

)RRG3URGXFWLRQ

(QYLURQPHQWDO/DQG0DQDJHPHQW

6XSSRUWLQJ,QIRUPDWLRQ

'DWDVRXUFHVXVHGLQWKLVSXEOLFDWLRQ RI  -XQH6XUYH\RI$JULFXOWXUH± 8.  7RWDO,QFRPHIURP)DUPLQJQG (VWLPDWH  -XQH6XUYH\RI$JULFXOWXUH± 8. DQG'HIUD-XQH6XUYH\RI $JULFXOWXUH  $JULFXOWXUHLQWKH8.  -XQH6XUYH\RI$JULFXOWXUH±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

7KH)XWXUH)DUPLQJ DQG(QYLURQPHQW(YLGHQFH&RPSHQGLXP )HEUXDU\

 (FRQRPLF ,PSDFWRI+HDOWKDQG:HOIDUH,VVXHVLQ%HHI&DWWOH DQG6KHHSLQ(QJODQG8SGDWHG(VWLPDWHVRIWKH&RVWV $VVRFLDWHGZLWK7KLUW\)RXU(QGHPLF/LYHVWRFN'LVHDVHVLQ *UHDW%ULWDLQ %HQQHWWDQG,-SHODDU-RXUQDORI$JULFXOWXUDO (FRQRPLFVYRO &RVWVRIWKH0DMRU(QGHPLF'LVHDVHVRI 6KHHSLQ*UHDW%ULWDLQDQGWKH3RWHQWLDO%HQHILWVRI5HGXFWLRQLQ 'LVHDVH,PSDFW 1LHXZKRIDQG%LVKRS$QLPDO6FLHQFH  DOOILJXUHVLQIODWLRQDGMXVWHGWRSULFHVDQG$QDQDO\VLV RIWKHHIIHFWVRI%9'HUDGLFDWLRQLQ6FRWODQG$IDUPEXVLQHVV OHYHOLPSDFWDVVHVVPHQW  ZZZFURSPRQLWRUFRXN
6XPPDU\

)DUP(FRQRPLFVDQG$FFRXQWV

)RRG3URGXFWLRQ

(QYLURQPHQWDO/DQG0DQDJHPHQW

6XSSRUWLQJ,QIRUPDWLRQ

'DWDVRXUFHVXVHGLQWKLVSXEOLFDWLRQ RI  'HIUD DQDO\VLVRI)DUP%XVLQHVV6XUYH\  'HIUDDQDO\VLVRI)DUP%XVLQHVV6XUYH\  'HIUDDQDO\VLVRI)DUP%XVLQHVV6XUYH\  'HIUDDQDO\VLVRI)DUP%XVLQHVV6XUYH\  1RUHIHUHQFHV  $JULFXOWXUHLQWKH8.  'HIUD$JULFXOWXUDO3ULFHV,QGLFHV  $JULFXOWXUHLQWKH(QJOLVK5HJLRQVQG (VWLPDWH  $JULFXOWXUHLQWKH8. DQG+05&7UDGHGDWD  $JULFXOWXUHLQWKH8. DQG)RRG6WDWLVWLFV3RFNHWERRN  )RRG6WDWLVWLFV3RFNHWERRN  )RRG6WDWLVWLFV3RFNHWERRN DQG$+XQGUHG
7KH)XWXUH)DUPLQJ DQG(QYLURQPHQW(YLGHQFH&RPSHQGLXP )HEUXDU\

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± 8.$*UHHQ)XWXUH2XU