DRAFT
Hart Dairy Creamery Corp. Confidential Information Memorandum $65,000,000 Private Placement March 2020
1 SPECIAL NOTICE REGARDING MATERIAL NON-PUBLIC INFORMATION CONTAINED HEREIN This confidential presentation may contain material non-public information about Hart Dairy Creamery Corp. (“Hart Dairy” or the “Company”) along with its subsidiaries and affiliates. Any recipient acknowledges that it is aware (and that its agents, employees and representatives who are apprised of this matter have been advised) that federal and state securities laws prohibit any person or entity in possession of material non-public information about a company from purchasing or selling securities of such company. Any recipient further agrees to use such information in accordance with its compliance policies, contractual obligations and applicable law, including federal and state securities laws.
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This presentation was prepared based on publicly available information as well as information provided to CIT by the Company as well as other sources believed to be reliable, none of which have been verified by CIT. Certain information or findings reflected in the presentation may not be accurate or complete. Any recipient of the presentation shall make its own independent investigation of any information or findings set forth herein. CIT makes no representation or warranty of any kind (including with regard to accuracy and completeness) in providing the presentation and shall have no duties or obligations in connection with or as a result of any recipient receiving or using the presentation in any way.
2 Table of Contents TBU
Section Page
1. Executive Summary [X]
2. Industry Overview [X]
3. Company Overview [X]
4. Project Overview [X]
5. Financial Overview [X]
6. Terms and Transaction Timeline [X]
Appendix [X]
3 1. Executive Summary
4 Introduction
Hart Dairy Creamery Corp. (“Hart Dairy” or the “Company”) is the nation’s sole producer of sustainable, 365-day grass-fed, 100% free-range milk.
. The Company has exclusive access to the only farmlands in the U.S. capable of herding cows that are grass-fed and free-range (i.e., not in confinement) all year-round.
. Hart Dairy has developed a full suite of products that span multiple categories and sizes, and possess the market’s only “365-day Grass-Fed, Free-Range” labeling.
. This unique product suite fits within the “specialty” milk category, a high growth segment of the dairy industry that encompasses “organic” and “natural” offerings. ─ Specialty milk is currently an $11.8 billion market growing at a 25.3% CAGR1. ─ The Company is poised to disrupt this market with the only product offering that comprehensively addresses prevailing consumer preferences for health and quality sourcing.
. The nation’s premier retail and distribution partners, including Walmart, Kroger, Albertsons, Publix, The Fresh Market, and Island Ventures, Inc. (“Island Ventures”), have partnered with Hart dairy to sell, promote, distribute, and grow the brand.
. The Company is building a new, state-of-the-art processing and packaging plant (the “Project” or “Plant”) in Waynesboro, Georgia in order to significantly scale production, broaden distribution, and meet the growing demand amongst its retail / distribution partners and end consumers. ─ Once this initial Phase 1 construction is complete, Hart Dairy is expected to generate $372.4 million and $100.0 million in Revenue and EBITDA, respectively, in the Plant’s first year of full production. ─ The Plant’s site allows for multiple expansion phases that will enable the Company to reach over ~$1.4 billion in total revenue.
. Hart Dairy is seeking $65.0 million in capital to complete construction of the Plant and provide for working capital post-construction.
1. IMARC Group. 5 The Compelling Hart Dairy Opportunity
Proprietary High Growth Product Sourcing Hart Dairy is the only producer Product Category of 365-day grass-fed, 100% free-range milk in the U.S., U.S. Specialty Milk Industry ($Bn)1 fulfilling needs for a consumer base that increasingly desires a healthy, transparent, and $11.8 humane milk option. $9.2 $7.5 $6.0
2016 2017 2018 2019
Premier World Class Retail Partners Production Facility
The Company is partnered with the nation’s leading retailers and is developing production capabilities that are at the forefront of the industry.
1. IMARC Group. 6 Experienced Leadership Team
Hart Dairy Management Team Overview Name / Title Background . +30 years of food and beverage entrepreneurship experience. . Owner of multiple media outlets in Australasia, including Gourmet Food Publishing, publisher of the Tim Connell number one selling Food title in New Zealand, Rugby Magazine, the number one selling rugby magazine in Founder & Chief the world, and Foodtown Magazine. Executive Officer . Previously founded Stater Holdings, an FCA-regulated trading platform based in the U.K. . Certified Chartered Accountant. . +25 years of animal science and agriculture experience. . Conducted extensive research and development on pasture-based feeding systems for animals. Richard Watson . Previously Head of the Department of Agriculture at the University of Georgia (“UGA”). Chief Scientific Officer . Prior experience at Mississippi State University and AgResearch, one of the world’s largest agricultural research bodies. . Developed a proprietary process, pioneering the 365-day grass-fed standard in the U.S.
. +10 years of investment and finance experience. Mithi Thaya . Previously investment director for the family office of an ultra-high net worth individual. Chief Financial . Prior experience as Head of Venture Capital at a listed technology investment holding company, in Officer addition to Chief of Staff to the Chairman and Chief Executive. . Corporate finance professional at KPMG Financial Advisory.
. +40 years of industrial experience. Richard Ward . Previous experience managing entire plant projects, including estimating, design, procurement, and Construction execution. Project Manager . Prior industrial experience across a variety of expertise areas for numerous Fortune 500 customers. . Licensed mechanical, boiler, and heating, ventilation, and air conditioning (“HVAC”) contractor.
. +40 years of food operations and entrepreneurship experience. . Previously founded AtlantaFresh Artisan Creamery, a leading premium artisan dairy producer in Northern Ron Marks Atlanta, focusing on grass-fed dairy. Plant Manager . Prior to that, founded Focus On Food, a culinary innovation center focusing on developing cutting edge food products for the restaurant and food industries.
7 Offering Summary
Overview Sources & Uses ($MM) . Raise $65.0 million of capital (the Sources Uses “Financing”) to develop the Project, a state-of-the-art dairy Revolving Credit1 $0.0 Capital Expenditures $50.0 processing and packaging plant in Waynesboro, Georgia. Construction Term Loan 25.0 Paydown Existing Debt 2.0 . The $65.0 million Financing will be comprised of: New Equity 25.0 Fees and Expenses 5.0 ─ $15.0 million senior secured revolving credit facility (the “Revolving Credit”)1. Pre-Money Equity 10.0 Cash to Balance Sheet 3.0 ─ Up to $50.0 million of privately placed capital (the “Private Total $60.0 Total $60.0 Capital”) comprised of a senior secured construction term loan (the “Construction Term Loan”) Pro Forma Capitalization ($MM) and cash equity (the “New Equity”). Amount at % of Total Close Capital . In addition to the New Equity, the Company has raised $10.0 million Revolving Credit1 $0.0 0.0% of cash equity (the “Pre-Money Equity”) to finance the Project. Construction Term Loan 25.0 41.7% . Financing proceeds will be used to fund Project capital expenditures, Total Debt $25.0 41.7% paydown existing indebtedness, and pay fees and expenses. New Equity 25.0 41.7% . The Company has mandated CIT Capital Securities, LLC (“CIT”) as Pre-Money Equity 10.0 16.7% Private Placement Agent of the Financing. Total Capitalization $60.0 100.0%
Note: Reflects illustrative 50% / 50% Private Capital structure across the Construction Term Loan and New Equity. 1. $15.0 million Revolving Credit to be unfunded at close. 8 Company Overview
Hart Dairy is the nation’s only producer of sustainable, 365-day grass-fed, 100% free-range milk.
. The Company sources its milk from the nation’s grazing “sweet spot”, near the Central Savannah River Area (“CSRA”), the only region of the U.S. with the climate and agrarian conditions that allow cow herds to be grass-fed and free-range all year round.
. Hart Dairy has priority access to this supply of milk via proprietary sourcing agreements with farms in the CSRA region. ─ These arrangements give the Company a protected and sustainable advantage in the market. ─ The Company’s primary farm partner, Hart Acquisitions, LLC (“Hart Agriculture”), is the only Certified Humane® farm in the U.S.
. The Company’s founding principle is to fulfill both the “Better for You” and animal welfare demands of the modern day consumer.
CSRA Region
`
9 Company Overview (cont’d)
The Company has developed a product line that spans multiple milk categories, including whole, skim, 2%, butter milk, pumpkin spice, and chocolate. . These products are all packaged in novel, transparent bottles designed to evoke a vintage, “back to basics” quality and convey Hart Dairy’s “Better for You” and animal welfare values.
. Hart Dairy has entered into partnerships with some of the nation’s leading retailers, including Walmart, Kroger, Albertsons, Publix, and The Fresh Market. ─ These partners are all eager to expand the Hart Dairy brand across their regional / national footprints.
. The Company plans to expand its operations and distribution footprint via a state-of-the-art Plant in Waynesboro, Georgia.
. To date, Hart Dairy has limited its engagement with its retail partners to defined territories within the U.S. Southeast and Texas. ─ Once the Plant is completed, the Company will broaden its distribution area to reach the entire U.S.
. The Company is positioned to disrupt the specialty milk market, which caters to select consumer preferences but lacks a product that comprehensively addresses all of the health, sustainable sourcing, and animal welfare priorities of today’s consumer base.
10 Hart Agriculture: Founding Farm Partner
Hart Dairy currently sources its milk from Hart Agriculture, a Georgia-based farm that owns and herds grass-fed, free-range cows.
. Hart Agriculture is operated by Dr. Richard Watson, an animal scientist and pioneer of innovative breeding practices for cows in the U.S. ─ Developed unique seeding / planting protocols to sustain grass feeding for 365 days a year. ─ Developed a herd of cows that are exclusively A2 genotype, a scarce genetic feature (present in only 20% of cows) that produces milk with favorable digestive attributes. ─ Achieved Certified Humane® designation – the only dairy farm in the U.S. to obtain this certification.
. Hart Dairy and Hart Agriculture share common ownership and have entered into an exclusive, 10-year offtake agreement.
Dr. Richard Watson
11 Market Overview
Hart Dairy competes in the specialty milk market, which encompasses multiple non-conventional fluid products including, organic, lactose-free, A2, and grass-fed, free-range,.
. This market is experiencing significant growth due to the overall consumer shift towards “natural”, “green”, healthy, and humane food products.
U.S. Specialty Milk Industry ($Bn)1
$11.8 $9.2 $7.5 $6.0
2016 2017 2018 2019
. Grass-fed is one of the fastest growing sub-segments of specialty milk, as it lies at the heart of current consumer trends, addressing both health and sustainable sourcing.
Specialty Milk Segments Growth2
77.8% 69.1% 53.0% 36.0%
11.9% (1.1%) (4.5%) Organic Lactose-Free Grass-Fed Organic Organic Lactose-Free A2 Grass-Fed Grass-Fed Organic A2
1. IMARC Group. 2. IRI LTM November 2019 Sales Data. 12 Project Overview
Hart Dairy is constructing the dairy industry’s premier processing plant, incorporating the latest technology to facilitate industry leading quality, flexibility, and efficiency.
Key Highlights World Class Production Facility
. Proven Equipment and Technology: Hart Dairy is investing in state-of-the-art machinery and equipment, including inspection and quality assurance equipment to provide the best quality in the industry. . Product Flexibility: Capacity to process and package a variety of dairy products, including milk, ice cream, yogurt, cheese, buttermilk, coffee creamers, and cream. ─ Alternative uses include co-packing and the production of juices, nectars, isotonic, teas, plant and nut based drinks, drinkable yogurts and kefir. . Enhanced Processing and Packaging: The Plant will feature a completely aseptic production environment, which will enable the production of dairy goods with a 60 to 90 day Maximum Product Flexibility refrigerated ESL extended shelf life and +9 month shelf stable aseptic products. ─ The initial aseptic and ESL line will consist of seven bottle sizes, five proprietary 8oz, 12oz, 16oz, 28oz, and 52oz and two non proprietary 1 Liter and 64oz. Other sizes and formats could be added later. . PET1 Packaging: The Project will utilize PET packaging, a clear, strong, and lightweight plastic that is both fully recyclable and sustainable. This capability enables Hart to mass produce its unique, vintage bottle. . Large Volumes: Fully ramped Project is expected to process over 36 million gallons of milk per annum (“MGPA”), operating on a 16-hour daily schedule, seven days per week. . Favorable Logistics and Distribution: The Project will be located close to milk supplier partner farms and over 20 retail distribution centers in the U.S. Southeast, serving over 8,600 stores. Ideal Location . De-Risked Construction Profile: Given the industrial spec building is at a shell stage with the majority of the site work and grading complete, customizing the building for the Plant’s needs is more efficient. This minimizes construction complexities related to retrofitting fully Distribution constructed buildings. The Project is scheduled to be completed in 12 months. Radius Regional . Economic Incentives: Attractive economic development incentive package from state and local governments worth $33.5 million. Expanded National . Premier Construction Team: The Company has partnered with the world’s leading design, engineering, equipment, and construction contractors.
1. Polyethylene terephthalate (“PET”) is a form of polyester molded into plastic bottles and containers for packaging food, beverages, and other consumer products. 13 Key Investment Highlights
Unique and Top-Tier Highly Stakeholders Defensible Market Position
Compelling Experienced Market Leadership Team Opportunity
Compelling Premier Retail Financial Growth Partnerships Profile
Highly Risk Mitigated Project
14 Unique and Highly Defensible Market Position
Hart Dairy enjoys extraordinary market differentiation, benefitting from the following unique characteristics:
. Markets the only 365-day grass-fed, 100% free-range milk in the U.S.
. Maintains exclusive access to the only cows in the U.S. that are grass-fed and free-range all year-round.
. Partnered with the only Certified Humane® dairy farm in the U.S.
The Company has a “first mover” advantage, as any competitor would face significant hurdles in attempting to replicate Hart Dairy’s product offering:
Requirement Challenge Path to Entry
. CSRA is the only area of the U.S. that is capable of . Acquire land within the CSRA and develop land for Farm Land supporting grass-fed, free-range herding all year- cow herding. round. . 3-year process.
. Existing cow herds in the U.S. are incapable of eating . Develop new cow herd from scratch. Cow Herds grass as they do not possess the necessary enzymes . Breeding process to scale cow herd is a 5 – 10 year for grass digestion. endeavor.
. Only 20% of cows in the U.S. are A2 genotype. . Develop A2 genotype cow herd. A2 Genotype . Breeding process to scale A2 cow herd is 5 – 10 year process.
® . Requires an extremely high standard for animal . Make farm compliant with Certified Humane treatment and farm practices that are not achievable standards. Certified Humane® by confined dairy farms, and can only be met by . < 1-year process. grass-fed dairy farms.
15 Compelling Market Opportunity
Hart Dairy addresses an unmet market demand within a fast growing category.
The specialty milk market is a high growth segment of the Grass-fed is one of the highest growth sub-segments overall milk industry. within specialty milk.
U.S. Milk Industry ($Bn)1 Specialty Milk Segments Growth2
Specialty Milk Conventional Milk
$61.5 77.8% $59.8 $57.9 69.1% $56.8 53.0%
$11.8 36.0% $9.2 $7.5 $6.0 11.9% (1.1%) (4.5%) 2016 2017 2018 2019 Organic Lactose-Free Grass-Fed Organic A2 Grass-Fed Grass-Fed Organic Lactose-Free Organic A2
Grass-fed is the only product that attempts to address all Within grass-fed, Hart Dairy is highly differentiated from the preferences of the modern day consumer. the competition.
Specialty Milk Segments for Consumer Preferences Hart Dairy Competition Consumer Lactose- Organic A2 Grass-Fed Only up to 120 – 150 Preference Free Grass-Fed 365 days / year days / year “Better for You” X X Only up to 120 – 150 “Natural” Appeal X X Free-Range 365 days / year days / year Easy to Digest XXX
Sourcing Practices X X A2 Yes No
Animal Welfare X Certified Humane® Yes No Free-Range X
1. IMARC Group. 2. IRI LTM November 2019 Sales Data. 16 Premier Retail Partnerships
The nation’s leading retail and distribution partners are working with Hart Dairy to establish a new and unparalleled product standard for the milk category.
Current Launch Retailer Product Inventory Strategy for Hart Dairy Territory Date Current Retail Partners Positioning the Hart Dairy brand as a premium dairy line and giving the brand premier “brand block” shelf positioning (i.e. all of its SKUs are Jan. Georgia located together on the shelf). Once the Plant becomes operational, 2019 Publix plans to expand the brand across its entire geographic footprint.
Currently giving the Hart Dairy brand premium visibility and shelf space as part of their “Local Brand Initiative” program. Hart Dairy is a Nov. Georgia central component of The Fresh Market’s broader strategy to expand 2019 its dairy set, which is presently under-developed.
Positioning Hart Dairy as a leader within the grass-fed category. Texas and Nov. Currently carrying Hart Dairy’s product in its Southern Division and Louisiana 2019 plans to broaden nationally once the Plant is operational.
Retail Partners with Executed Agreements Views the Hart Dairy brand as “checking all of the boxes” for prevailing consumer preferences. Preparing initial launch in 20 Atlanta, GA Apr. Georgia stores with premium positioning on the shelf. Intends to sell the brand 2020 throughout its entire enterprise once the Plant is operational.
Views Hart Dairy as the “perfect” product line for attracting the high value consumer demographic. Preparing to launch the brand via its “Buy Local” initiative in Atlanta, GA. Island Ventures (leading Walmart Aug. Georgia “Category Captain” distributor and Hart Dairy joint venture partner) to 2020 expand the Company’s presence in Walmart both regionally and nationally once the Plant is operational. Retail Distribution Partner Entered into a joint venture partnership with Hart Dairy to act as a comprehensive outsourced services partner (for sales, marketing, Feb. merchandising, distribution, and supply chain management) and brand U.S. 2020 advocate. Plans to extend Hart Dairy’s presence within Walmart and expand distribution to numerous other retailers across the U.S.
. Beyond these in-place arrangements, the Company is in advanced discussions with 19 other potential retail and distribution partners.
17 Highly Risk Mitigated Project
The Project has been comprehensively risk managed from the construction phase through commercial operations.
. The Project has been designed and engineered by industry leading firms with significant experience across multiple Fortune 500 clients. . Construction will be managed by Pattillo Construction Corporation (“Pattillo” or the “GC”), a leading Engineering, Construction, general contractor that has successfully completed over 1,000 buildings, accounting for +70 million and Equipment Partners square feet. . The primary processing and packaging equipment will be manufactured by Statco-DSI (“Statco”) and Sidel Group (“Sidel”), respectively, both leading manufacturers of extended shelf life (“ESL”) / aseptic dairy processing and packaging equipment.
. Partly de-risked construction profile given the (i) Project will be located in an industrial spec building Plant Building and Executed shell, and (ii) majority of the execution will be focused on equipment assembly and installation. Permits . The approval notices for all of the environmental and construction permits required to build and operate the Project have been executed.
State and Local Government . The State of Georgia and the City of Waynesboro have been exceptionally supportive of the Project, providing an indicative economic development incentive package worth $33.5 million comprised of land Support grants and tax credits.
. Hart Dairy has a 10-year exclusive milk supply agreement with its main partner farm, Hart Agriculture, which currently owns +2,800 365-day grass-fed, 100% free-range cows across 1,500 acres of Exclusive Milk Supply farmland. . The Company is in active discussions with prospective partner farms for additional grass-fed milk supplies via similar long-term offtake agreements and / or farm acquisitions.
. Hart Dairy has executed fixed margin retail distribution agreements with five blue-chip U.S. retailers: Premier Retail Distribution Albertsons, Publix, The Fresh Market, Kroger, and Walmart. Partnerships . The Company also maintains an active pipeline of additional retail channels and distributors, which in aggregate have over 58,000 locations across the U.S.
. The Plant will be equipped to produce a multitude of dairy products (milk, butter, ice cream, yogurt, coffee creamers, cream) and non-dairy products (nectars, juices, isotonics, teas, plant-based “milk”). Production Flexibility . This production versatility, combined with use of commercially proven equipment and technology, gives the plant economic viability across numerous potential applications.
18 Top-Tier Stakeholders
The Hart Dairy Project is being executed, validated, and endorsed by leading corporate and government entities.
Premier Retail Partners Leading Farm Partner Albertsons, Publix, The Fresh Hart Agriculture Market, Kroger, and Walmart
State and Local Authorities Strategic Business Partner State of Georgia, Burke County, and Island Ventures City of Waynesboro
Engineering, Construction, & National Insurance Provider Equipment Installation Partners Westfield Insurance Company Pattillo, Statco-DSI, Sidel Group, Dilling, and others
19 Compelling Financial Growth Profile
Hart Dairy is projected to realize over $370.0 million in Revenue and $100.0 million in EBITDA by 2023.
Projected Revenues ($MM) Projected EBITDA ($MM)
$440.1 $146.5 $421.5 $432.0 $140.3 $399.3 $132.2 $372.4 $115.0 $100.0
$189.2
$43.8
$63.0 $11.0 $5.2 NM
2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E
Construction / Ramp-up Full Production Construction / Ramp-up Full Production
20 2. Industry Overview
21 High Growth Market Segment
Hart Dairy competes in the specialty milk category, a subset of the overall fluid milk industry.
. “Specialty milk” is a catch-all term that encompasses a variety of non-conventional fluid milk products, including organic, lactose-free, A2, and grass-fed, free-range.
. Specialty milk products are experiencing significant growth due to shifting consumer preferences for natural, organic, green, and healthy food products. ─ This growth is occurring despite a gradual decline in the overall fluid milk category.
U.S. Conventional Milk Industry ($Bn)
$61.5 $59.8 $57.9 $56.8
2016 2017 2018 2019
U.S. Specialty Milk Industry ($Bn)
$11.8 $9.2 $7.5 $6.0
2016 2017 2018 2019
Source: IMARC Group. 22 Specialty Milk Category
The specialty milk category is broken down into four primary sub-categories, comprised of organic, lactose-free, A2, and grass-fed.
Sub-Category Description Growth1 Select Brands
The term “organic” has numerous connotations, but generally signifies a product made with relatively minimal synthetic pesticides and fertilizers, and derived from animals that are raised according to certain guidelines. Organic foods are promoted Organic (1.1%) as supporting sustainable agriculture, limiting damage to the environment, and better health. In the U.S., the National Organic Program run by the United States Department of Agriculture (“USDA”) is in charge of certifying foods as organic.
Lactose is a type of sugar found in milk products that can be difficult for some people Lactose-Free to digest. Lactose-free milk is produced by removing lactose and adding lactase, an 11.9% enzyme produced by people who tolerate dairy products.
A2 is a variety of cow milk that comes from A2 genotype cows. Cows are either A1 or A2, with ~20% of cows being A2. Milk from cows with A2 genotypes prevents A2 symptoms of intolerance (stomach aches, gas, bloating, diarrhea). A2 milk is 77.8% generally marketed as a more easily digestible milk product, or as baby food, given its enhanced digestive attributes.
This category pertains to milk that is derived from cows that are grass-fed. Milk from grass-fed cows can be proven to have significant health benefits, including rich levels of Vitamin A, Vitamin D, Omega 3 fatty acids, and Conjugated Linoleic Acid (“CLA”). Grass-Fed Virtually all milk companies in the U.S. that are marketing grass-fed milk can only 53.0% make a partial claim to this attribute, as they grass feed their cows for only a portion of the year. Hart Dairy is the only company in the U.S. that sources its milk from cows that are grass-fed and free-range for 365 days / year.
1. IRI LTM November 2019 Sales Data. 23 Alternative Plant-Based “Milk”
Various plant-based products in the marketplace today are sold and marketed as “milk”.
. Products in this category include:
Soy milk Almond milk Coconut milk Rice milk
. These products are essentially artificial replicas of regular milk with few of the nutritional benefits: ─ Processed food that contains 2 – 6% of nut paste, with the remainder of ingredients consisting of water and additives to make it “milk-like” (calcium, omegas, etc.). ─ Lacks all of the key health and nutritional features of traditional milk, which is naturally rich in protein, calcium, and many key vitamins.
. There is growing scrutiny amongst regulators about the propriety of labeling plant-based alternatives as “milk”.
24 Consumer Trends Driving Specialty Milk
The growth in specialty milk is driven by a shift in consumer trends towards “Better for You” and increasing consumer sophistication, specifically regarding animal welfare.
. The “Better for You” movement represents the significant shift occurring in consumer behavior towards a healthier diet, which is occurring alongside the broader trend of “Better for You” consumers trying to live an overall healthier lifestyle. . Consumers are demanding food and beverage products that are natural, green, organic, and / or free from any artificial additives.
. In tandem with the “Better for You” movement, consumers today have an increased level of awareness and sophistication on the food and beverage products they consume. Increasing Consumer Sophistication . Consumers are increasingly interested in knowing more about the manufacturing of dairy products, including ingredients, manufacturing process, and sourcing practices.
McKinsey Dairy Consumer Survey: Information Requirements Prior to Dairy Purchase¹ Category Product Ingredients Manufacturing Processes Sourcing Practices
19% 21% 31% 25% 25% 30% Millennials
50% 50% 49%
18% 21% 22% 27% 30% Average Across 37% Age Groups
45% 51% 49%
Must Know Would Like to Know Don’t Need to Know
1. McKinsey & Company Report (March 2019). 25 Grass-Fed, Free-Range: Poised for Significant Growth
Grass-fed, free-range is attractively positioned for significant growth, driven by (i) consumer preferences and trends, (ii) health advantages over other specialty milk alternatives, and (iii) regulatory tailwinds.
Grass-Fed, Free Range
Consumer Preferences Health Advantages Regulatory Tailwinds
26 Grass-Fed, Free-Range: The Apex of Consumer Demand
Grass-fed, free-range is at the forefront of consumer trends as it addresses all Consumer of the preferences of the modern day consumer. Preferences
. Capitalizes on the consumer health and organic trends while also addressing consumer sensitivity around product sourcing and animal welfare.
Specialty Milk Segments for Consumer Preferences Consumer Preference Organic Lactose-Free A2 Grass-Fed
“Better for You” ✔ ✔
“Natural” Appeal ✔ ✔
Easy to Digest ✔✔Hart Dairy Only
Sourcing Practices ✔ ✔
Animal Welfare ✔
Free-Range ✔
“The types of milk that are selling these days are the grass-fed, organic ‘specialty’ milks that turn the dairy case more colorful.” – The New York Times (March 2020)
“Move Over, Organic And Natural Foods. We Live An A Grassfed Era Now” – Forbes Magazine (April 2016)
“Grass-Fed Is the New Organic” – Yahoo! (March 2016)
27 Grass-Fed, Free-Range: Proven Health Advantages
Grass-fed, free-range milk has significant product and health advantages Health Advantages relative to other specialty milk alternatives.
. Richer in Omega 3 fatty acids and CLA, which have been scientifically proven to reduce the risk of chronic diseases, including cancer.
. Naturally contains higher levels of Vitamin A and Vitamin D.
. Grass-fed cows: ─ Have stronger stomachs with a healthy pH balance of 7, which enhances their ability to fight off harmful microbes such as E.coli. ─ Are not exposed to the harmful microbes and diseases that are often encountered in confinement farms and feedlots.
Omega 3 Fatty Acids¹ CLA² Vitamin A³ “Accordingtoasystematicreviewof “High-fat dairy food and CLA intake “The effects of grass feeding on three case-control studies and five were examined in 60,708 women of beta-carotene content of beef was prospective studies published in age 40 to 76 with 14.8 yr follow-up. It described by Descalzo who found 2007–2011, evidence is increasing was found that women who pasture-fed steers incorporated that higher intakes of dietary and consumed four or more servings of significantly higher amounts of supplemental LC omega-3s are high-fat dairy foods per day beta-carotene into muscle tissues as associated with a lower risk of (including whole milk, full-fat cultured compared to grain-fed animals. breast cancer. Similarly, the authors milk,cheese,cream,sourcreamand Concentrations were 0.45 μg/g and of a meta-analysis of data from 21 butter) showed half the risk of 0.06 μg/g for beef from pasture and prospective cohort studies concluded developing colorectal cancer, grain-fed cattle respectively, that women with the highest dietary compared to women who consumed demonstratinga7foldincreaseinβ- intakes and/or tissue levels of LC less than one serving per day. carotene levels for grass-fed beef omega-3s had a 14% lower risk of Concerning CLA intake, they found it over the grain-fed contemporaries.” breast cancer than those with the wasassociatedwithanalmost30 lowest intakes and tissue levels.” percent reduction in the risk of colorectal cancer.”
1. Cancer Center Paul Lamarque-Val d’Aurelle, France and Department of Food Science and Nutrition, Zhejian University, China. 2. National Institute of Environmental Medicine, Sweden. 28 3. School of Veterinary Science, University of Bristol, U.K. Grass-Fed, Free-Range: Strong Regulatory Tailwinds
Regulatory tailwinds are further driving the growth of grass-fed, free-range Regulatory Tailwinds milk.
. 2018 California Proposition 12: In November 2018, the State of California passed Proposition 12, or the Prevention of Cruelty to Farm Animals Act. The measure bans the (i) confinement of certain farming livestock (calves, breeding pigs, and hens) to areas below prescribed levels, and (ii) sale of veal, pork, and eggs produced by livestock living under such conditions (in or outside California) by 2022. As a result, companies such as Hart Dairy will benefit significantly since a large portion of the market (that uses confined animals) will no longer be legally allowed to sell its products in California. Since the passing of Proposition 12, eight additional states have put in motion a similar proposition.
. The Dairy Pride Act (Pending): Introduced by Senators Tammy Baldwin (D-WI) and Jim Risch (R-ID) and Representatives Peter Welch (D-VT) and Mike Simpson (R-ID), the Dairy Pride Act is a proposed legislation to designate foods that make an inaccurate claim about milk contents as “misbranded” and subject to enforcement of labeling rules. If passed, the FDA would be required to restrict the use of terms like “milk” or “dairy” to describe / market many plant-based alternative products in the market today.
. FDA Nutrition Innovation Strategy: The FDA is reviewing potential policies on modernizing food standards of identity and the use of dairy names for plant-based substitutes. In 2018, FDA Commissioner, Scott Gottlieb, M.D. expressed concerns that “the labeling of some plant-based products may lead consumers to believe that those products have the same key nutritional attributes as dairy products, even though these products can vary widely in their nutritional content.” The Commissioner also noted that “plant-based products are sometimes packaged very similarly to those used for milk or yogurt, for example, and sold in the dairy section of grocery stores. However, these plant-based products may not be satisfactory substitutes for all uses of dairy. And some may not be nutritionally equivalent.”
. FDA Grass-Fed Definition (Pending): The FDA is contemplating the implementation of a federal standard that defines grass-fed. The current lack of regulations defining grass-fed enables certain dairy companies to market their products as “grass-fed”, despite the fact that most of the cows on these farms feed on grass for a mere 120 – 150 days of the year. The FDA is particularly concerned about outright distortions of the grass-fed label, as recently characterized by American Grassfed Association Executive Director, Carrie Balkcom, who stated: “In some cases, folks are taking animals out of feed yards and putting them on grass for a few weeks, and then calling it grass-finished.” (Organic Authority, June 2018).
29 Grass-Fed Milk: Competitive Landscape
There are a few limited “Grass-fed” and “Free-range” product offerings currently in the market, including, Horizon Organic, Maple Hill, and Organic Valley.
. These products are generally derived from farms that grass feed their cows for only a limited period of the year (up to 120 – 150 days).
. Organic Valley’s “Grassmilk” product is currently leading the grass-fed market, but has significant supply limitations, as it sources its products from multiple small farms with defined capacity.
. The market generally has limited ability to supply grass-fed milk, given a scarcity of genetics and farmland: ─ Existing cows in the U.S. have been fed corn / grain-based diets for decades and thereby lack the proper stomach enzymes to digest grass. o To amass sizable herds of grass eating cows, dairy companies have to import cows from other areas of the globe and breed them over extended periods of time. ─ Outside of the CSRA, it can be cost-prohibitive to develop farm land for grass grazing, which can only be done for short periods of the year due to climate conditions. o Utilizing farmland for other uses (such as crops) is typically a more economically viable option.
. Further, none of these competing grass-fed brands utilize A2 milk nor have a Certified Humane® certification.
Grass-Fed 365 Days XXX✔
Free-Range 365 Days XXX✔
Certified Humane® XXX✔
A2 Profile XXX✔
Large Supply Source XXX✔
Novel, PET Packaging XXX✔
30 International Growth Opportunity
A significant surplus of milk production is expected in the U.S. over the next seven years while a corresponding deficit is expected in Asia and Africa over the same period, presenting a large and long-term global opportunity.
Dairy Surplus / Deficit (MM Tons)
E.U. 18 China 13 2017 2027
Asia ex China, India 2017 2027 -15 U.S. -26 2017 2027 12 5
-19 2017 2027 India -23 2017 2027 Africa 2017 2027 -3 South Am erica -6 2017 2027 -10 -18 New Zealand, 0 Australia 23 -6 19
2017 2027
Source: McKinsey & Company Report (March 2019). 31 Industry Certifications
The milk and dairy farm industries are overseen by a host of regulatory authorities that validate and control animal welfare and quality certifications.
Certified Humane®
. The Certified Humane® certification standard was created to label food and beverage products sourced from facilities that meet precise, objective standards for farm animal treatment. ─ Humane Farm Animal Care (“HFAC”) issues the certification and undergoes a rigorous diligence process to ensure that all certified farms are held to the highest standards. ─ HFAC incorporates scientific research, veterinary advice, and the practical experience of farmers to develop these standards and continually review new information pertaining to improving the lives of farm animals. . HFAC is the leading non-profit certification organization dedicated to improving the lives of farm animals in food production from birth through slaughter. ─ The goal of HFAC’s program is to improve the lives of farm animals by driving consumer demand for kinder and more responsible farm animal practices. . Hart Agriculture owns the first and only Certified Humane® dairy farm in the U.S. ─ The Company is at the industry forefront of animal welfare and the “Better for You” movement, having been further validated through the receipt of the Certified Humane® certification.
Certified Organic
. The Certified Organic certification is used to label food and beverage products that are grown and processed “organically” as well as made with only USDA-approved substances.
. USDA is the U.S. federal executive department responsible for overseeing the farming industry, including issuing and enforcing the Certified Organic certification. ─ The primary goal of the USDA is to help farmers and ensure overall food safety for consumers across the U.S. ─ Requires farmers and handlers to document their processes and get inspected every year, accounting for every component of the operation. . Hart Dairy does not seek the Certified Organic label. ─ USDA does not allow farmers to administer any form of antibiotics or hormones. ─ The Company uses antibiotics to save the lives of ill cows, given its animal welfare principle.
32 3. Company Overview
33 Company Overview
Hart Dairy is the only producer of 365-day grass-fed, 100% free-range milk in the U.S.
. The Company sources milk from the nation’s grazing “sweet spot”, near the CSRA, the only area of the U.S. with climate and agrarian conditions that allow cow herds to be grass-fed and free-range all year-round. ─ Maintains near exclusive access to this milk supply, giving it a substantial and sustainable advantage in the market.
. Hart Dairy is poised to disrupt the high-growth “specialty” milk arena by offering the only product in the market that comprehensively addresses prevailing consumer preferences for health and quality sourcing.
. The Company plans to expand its operations and distribution via a state-of-the-art production Plant in Waynesboro, Georgia. ─ Once construction is finalized, the Hart Dairy will have the ability to produce 36 MGPA of fluid milk (+$370 million Revenue) and distribute product across the U.S. and internationally.
. Hart Dairy has a fully developed product line and distribution partnerships with the nation’s leading retailers including Walmart, Kroger, Albertsons, Publix, and The Fresh Market. ─ The Company has limited its engagement with these companies to defined territories within the U.S. Southeast and Texas. ─ These retail partners are eager to significantly expand the product lines across their regional / national footprints once the Plant is operational.
Hart Dairy Creamery Corp.
34 Company Overview (cont’d)
Hart Dairy combines both “Better for You” and animal welfare appeal for consumers.
“BETTER FOR YOU” ANIMAL WELFARE
. Hart Dairy’s product capitalizes on the . Hart Dairy’s sourcing methods are in significant consumer shift towards perfect alignment with the growing healthier, organic, and natural diets. free-range movement amongst consumers, who increasingly desire . The Company provides 365-day sustainability and transparency on the grass-fed milk, which provides origin and condition of their food. compelling nutritional attributes: ─ 99% of cows in the U.S. are ─ Rich in Omega 3 fatty acids and confined and held captive indoors. CLA, which help reduce fat, build muscle, and increase energy / ─ The subset of dairy producers that endurance. claim “grass-fed” or “free-range” only due so for a portion of the ─ Higher levels of Vitamin A and D year (typically ~120 days). than those contained in fortified milk. ─ All of Hart Dairy’s cows are both free-range and grass-fed for 365 . All of Hart Diary’s products are days a year. certified non-GMO and Kosher. . Hart Agriculture owns the only Certified Humane® dairy farm in the U.S.
35 Proprietary Product Sourcing
Hart Dairy currently sources its milk from Hart Agriculture, a Georgia-based farm that owns and herds +2,800 grass-fed, free-range cows.
. Hart Agriculture is operated by Dr. Richard Watson, an animal scientist who has innovated ground-breaking breeding practices for cows in the U.S. ─ Developed unique seeding / planting protocols to sustain grass feeding for 365 days a year. ─ Developed a herd of cows that are exclusively A2 genotype, which produce milk with favorable digestive attributes. ─ Achieved Certified Humane® designation – the only dairy farm in the U.S. to obtain this certification.
. Hart Dairy and Hart Agriculture have entered into an exclusive offtake agreement. ─ 10-year exclusive term, executed December 2018, with the ability to extend the agreement at any time before expiration. ─ All milk delivered from Hart Agriculture to Hart Dairy is required to be 100% grass-fed, non-GMO whole raw milk. ─ Hart Dairy has the right to reject any milk that does not meet the requirements of (i) flavor, (ii) odor, (iii) appearance, (iv) acidity, (v) temperature, (vi) freezing point, and (vii) sediment. ─ The milk price is determined using the monthly “Base” milk price in the relevant Federal Marketing Region, plus the applicable “Premium”, plus (or minus) any “Quality Adjustments”.
. Hart Dairy and Hart Agriculture further share common ownership.
36 TBU: Hart – Please confirm the Proprietary Product Sourcing (cont’d) # of bankruptcies
Hart Dairy is further partnering with the other farms near the CSRA that maintain grass-fed, free- range cow herds.
. There are a total of 17 dairy farms in the region, in addition to Hart Agriculture, representing +30,000 grass-fed cows. . These farms are largely in a state of financial distress due to the decline in commodity milk prices. ─ The farms currently supply their milk to the Dairy Farmers of America (“DFA”) at commodity prices that no longer cover their operating costs. ─ In the last year alone, [three] of these farms have filed for bankruptcy. . Hart Dairy represents an opportunity for these farms to sell their product at a premium and regain profitability. The Company is offering attractive, above-market prices for their milk via exclusive offtake agreements: ─ The offtake agreements will be structured as perpetual contracts with a $23 – 28 / hundredweight pricing collar to be repriced every 10 years. ─ The fiscal year 2019 average price for Base Class I commodity milk was $17 / hundredweight1. . The Company is currently finalizing Letters of Intent (“LOI”) for offtake agreements with four of these farms, representing +4,000 cows. ─ Is in active discussion with all of the remaining farms. ─ Each of the farms have expressed a strong desire to sell milk to Hart Dairy as soon as possible. ─ The Company intends to enter into definitive agreements with all of the farms by late 2020 / early 2021. . The Company is additionally considering the outright purchase of certain farms. ─ The owners of Hart Dairy are in the process of raising capital as a reserve fund for potential farm acquisitions. o This farm acquisition fund would have common ownership with Hart Dairy but be a separately capitalized entity.
1. USDA. 37 Supply Scaling Process and Timeline
Hart Dairy has established a defined schedule to consolidate the region’s grass-fed milk supply over the next three years.
. The plan involves programmatically onboarding farms via executed supply agreements and, if appropriate, opportunistically acquiring farms.
Timeline Overview
2020 2021 2022 2023 +2,800 Cows +7,000 Cows +14,000 Cows +33,000 Cows
Hart Agriculture supplies Onboard farms via executed Onboard farms via executed Onboard farms via executed secured through an exclusive offtake agreements. offtake agreements. offtake agreements. offtake agreement.
38 Supply Scaling Process and Timeline (cont’d)
Hart Dairy’s supply consolidation schedule:
Current Production Annual Capacity Farm Name Grass-Fed A2 Status Cows Acreage (Gallons) (Gallons) Timeline Hart Agriculture Newberry ✔ 100% Active Exclusive Offtake Agreement 800 400 130,000 1,300,000 Seven Oaks ✔ 100% Active Exclusive Offtake Agreement 1,000 600 1,000,000 1,500,000 Girard ✔ 100% Active Exclusive Offtake Agreement 1,000 500 1,000,000 1,500,000 Current 2,800 Total Hart Agriculture 2,800 1,500 2,130,000 4,300,000 Cows Prospective Partner Farms Milky Way ✔ 70% Pending LOI 1,000 500 1,000,000 1,500,000 Birdsville ✔ 70% Pending LOI 1,200 700 1,500,000 1,750,000 Pineland ✔ 70% Pending LOI 1,000 500 1,000,000 1,500,000 Peaches & Cream ✔ 70% Pending LOI 1,000 650 1,500,000 1,500,000 2021 7,000 Weddle Dairy ✔ 70% Indicated Strong Interest 450 250 500,000 750,000 Cows Eberly Dairy ✔ 70% Indicated Strong Interest 450 250 500,000 750,000 Sweet Grass 1 ✔ 70% Engaged in Initial Discussions 800 400 1,300,000 1,300,000 Sweet Grass 2 ✔ 70% Engaged in Initial Discussions 800 400 1,300,000 1,300,000 Sweet Grass 3 ✔ 70% Engaged in Initial Discussions 800 400 1,300,000 1,300,000 Cordele ✔ 70% Engaged in Initial Discussions 800 400 1,300,000 1,300,000 Nickerson ✔ 70% Engaged in Initial Discussions 3,000 1,500 5,100,000 5,100,000 2022 14,100 Green Meadows ✔ 70% Available for Offtake or Lease 1,200 600 1,750,000 1,750,000 Cows Adams’s Rd Dairy ✔ N/A Available For Sale 1,000 500 0 1,500,000 Eden Church ✔ N/A Available For Sale 750 350 0 1,000,000 Alliance 50% Engaged in Initial Discussions 6,000 10,000 10,000,000 10,000,000 Grasslands ✔ 70% Contingency Supply Needed 5,000 3,000 0 8,500,000 Focal Dairies ✔ 70% Contingency Supply Needed 5,000 3,000 0 8,500,000 2023 33,050 Total Prospective Partner Farms 30,250 23,400 28,050,000 49,300,000 Cows Total Hart Agriculture + Prospective Partner Farms 33,050 24,900 30,180,000 53,600,000
39 Aggregate Supply Potential
The farms in the CSRA currently comprise 33,050 grass-fed cows that can produce 36 million gallons of milk per year.
. These farms can support a substantial higher number of cows given the current under-utilization of acreage. ─ Farms can support two cows per acre. ─ The CSRA farms have a current cow-to-acre ratio of 1.32 (based on 33,050 total cows and aggregate acreage of 24,900). ─ Through breeding, the cow herd could be further scaled to 49,800 (i.e. 24,900 acres x 2 cows per acre). ─ This cow count level could generate annual capacity of approximately 54 million gallons1, translating to more than $750 million of revenue for Hart Dairy. ─ Once Hart Dairy maximizes the capacity of the existing CSRA farms, additional capacity will be achieved by acquiring and developing additional land in the region and developing for cow herding.
Additional Existing Farm Capacity Unrealized Farm Capacity 33,050 Cows 16,750 Cows 36.0MM Gallons of Fluid Milk 17.6MM Gallons of Fluid Milk +$500MM Retail Sales Revenue +$250MM Retail Sales Revenue
Ultimate Farm Potential
49,800 Cows 53.6MM Gallons of Fluid Milk +$750MM Retail Sales Revenue
1. Assumes 1,080 gallons per annum per cow. 40 Hart Dairy’s Rigorous Farm Standards
Hart Agriculture has established a comprehensive set of policies and procedures to achieve non- GMO and Certified Humane® certifications. These standards will be implemented at all onboarded farms.
Non-GMO
. Hart Agriculture has designed a non-GMO standard operating procedure that clearly outlines the necessary steps to achieve the Company’s standard for the highest quality non-GMO dairy products.
. The standard operating procedure covers a wide range of best practices, including animal management, crop management, plant and equipment, and administrative policies and procedures. ─ Animal Management: Outlines the best practices to treat cows, starting from calf rearing (birth – seven weeks) through vaccination protocols and healthy milking procedures. ─ Crop Management: Identifies how to monitor plants for “high risk” GMO species and how to correctly harvest all the crops on the farm. ─ Plant and Equipment: Highlights the most effective operations, maintenance, cleaning, and sanitation procedures along with the correct fencing and equipment to utilize. ─ Administrative Policies and Procedures: Pinpoints the procedures and records to remain compliant, including the correct feed purchasing practices, traceability of non-GMO integrity materials, and internal sampling / testing.
Certified Humane®
. In order to receive the Certified Humane® designation, applicant farms must comply with an exhaustive list of management and infrastructure criteria that maximizes the health and wellbeing of their farm animals.
. However, much of the required criteria is already inherent in the 365-day grass-fed, free-range system run by Hart Agriculture. ─ The vast majority of the prospective partner farms currently run on the same system as Hart Agriculture, thus requiring only relatively minor improvements to infrastructure (e.g., grooving all concrete surfaces where the cows walk to create non-slip surfaces) and management practices (e.g., discontinue anti-suck nose rings).
. Hart Agriculture will manage the entire process from initial inspection through final approval by HFAC, which is expected to take ~3 months to complete.
41 Ideal Geographic Location
Hart Agriculture’s farms are located in Burke County, Georgia, providing the ability for year-round gazing due to ideal levels of rainfall and temperature conditions.
. The farms are located within the Central Savannah River Area (“CSRA”) of Burke County, a location with attractive environmental and commercial attributes. ─ Land: Productive and free draining soils that are ideal for grazing cows all year round and growing a forage of crops. ─ Water: +50 inches of annual rainfall with close access to the Floridan Aquifer, one of the world’s most productive aquifers. ─ Climate: Warm climate with mild winters that supports some of the highest forage yields in the world. ─ Market: Access to the highest value fluid milk market in the world.
. The CSRA is located in a region where extreme weather events are not at high risk, such as hurricanes, tornados, and droughts. ─ In the event of a potential drought, which is highly unlikely in this region, fresh water can still easily be sourced from the nearby Floridan Aquifer, which yields the second largest source of fresh water in the world.
Annual Rainfall in the U.S. Average Winter Temperatures in the U.S.
Grazing “Sweet Spot”
Source: National Oceanic and Atmospheric Administration and PRISM Climate Group. 42 Comprehensive Product Suite Hart – We’d like to discuss this slide.
Hart Dairy has a full suite of milk product offerings consisting of six stock keeping units (“SKU”) of 365-day grass-fed, 100% free-range milk across three bottle sizes.
Milk Unit Size Product Description (oz) Retail Price Range Retail Margin Range 12 $1.99 – $2.29 Whole Milk 28 $3.29 – $3.99 52 $4.99 – $6.49
28 $3.29 – $3.99 Skim Milk 52 $4.99 – $6.49
28 $3.29 – $3.99 2% Reduced Fat Milk 52 $4.99 – $6.49 25 – 26%
Buttermilk 28 $3.79 – $4.29
12 $1.99 – $2.29 Pumpkin Spice Milk 28 $3.29 – $3.99
12 $1.99 – $2.29 Chocolate Milk 28 $3.29 – $3.99 52 $4.99 – $6.49
43 Premier Retail Partnerships
Hart Dairy has executed fixed margin retail distribution agreements with some of the largest retailers in the United States.
Store Locations Launch Retailer Counterparty Entity Current Territory Date Current Post-Project1 Current Retail Partners
Publix, LLC Georgia Jan. 2019 56 1,243
The Fresh Market, Inc. Georgia Nov. 2019 8 159
Texas and Albertsons Companies, Inc. Nov. 2019 154 2,260 Louisiana
Total Current Retail Partners 218 3,662
Retail Partners with Executed Agreements
The Kroger Co. Georgia Apr. 2020 20 2,419
Walmart, Inc. Georgia Aug. 2020 10 4,759
Total Retail Partners with Executed Agreements 30 7,178
Total Current Retail Partners + Retail Partners with Executed Agreements 248 10,840
1. Management projections. 44 Future Pipeline Growth Opportunities
Hart Dairy is in active discussions with 19 total additional retail channels and distributors, all of which have expressed strong interest in carrying the Company’s products.
Retailer Store Locations Grocery Retail Channels Giant Eagle 400 Wakefern (Shoprite) 350 Harris Teeter 250 Ingles Markets 212 Earthfare 53 Gelsons 28 Metropolitan Market 20 Strack & Van Til 20 Central Market 10 Total Grocery Retail Channels 1,343
Food Service Distributors KeHe Distribution 10,000 United Natural Foods International 10,000 Highland Distribution 4,500 Associated Wholesale Grocers 3,800 Gourmet Foods International 2,500 Total Food Service Distributors 30,800
Mass Channels – Big Box / Drug Walgreens Company 9,560 7-Eleven 7,800 CVS Health – Core 7,800 Sams Club 599 COSTCO 527 Total Mass Channels 26,286
Total Grocery Retail Channels + Food Service Distributors + Mass Channels 58,429
45 Strategic Joint Venture
Hart Dairy has established an exclusive sales and supply chain management joint venture partnership with Island Ventures, a leading provider of sales and distribution services for consumer goods.
Overview Company Snapshot Key Joint Venture Objectives Key Benefits for Hart Dairy
. Background: Based in Rogers, Arkansas, Support the overall brand and product development for Hart Island Ventures joint venture Island Ventures is one of the nation’s 1 Dairy, eliminating the need to build an entire organization from provides the following premier providers of sales and distribution ground up. advantages: services with decades of successful Provide broker services for new sales channels and logistics . A powerful and financially- industry experience. 2 partners by introducing Hart Dairy to key retail accounts and aligned advocate for the . Industry Expertise: Food and beverage, assisting in the selection process. brand. agribusiness, finance, over-the-counter . Immediate credibility and drugs, wine and spirits, sporting goods, Assist in merchandising and tactical marketing strategies by 3 visibility with retailers across and advertising agencies. utilizing key sales insights through data analytics. the nation. ─ Largest supplier of eggs in the U.S. for Provide various supply chain optimization services including . A comprehensive the last 20 years, supplying ~4.3 billion financial planning, inventory management, purchase order 4 outsourcing partner for per year to Walmart (Category processing, and freight forecasting. distribution, logistics, supply Captain). chain management, Key Joint Venture Economic Terms . Established Retail Channels: Serves marketing, and in-store more than 140,000 retail stores across the Island Ventures and Hart Dairy have established a partnership through merchandising. U.S., including Walmart since 1998. sales and equity incentives that further align their interests. . Strategic partner with deep . Branding and Supply Chain Expertise: . Provided Hart Dairy achieves a target of +$500 million in annual industry expertise and track Sales, marketing, category management, revenues within 36 months post-Plant construction, Island Ventures record. finance, accounting, executive leadership, would be entitled to (i) a percentage of sales, and (ii) a 3% equity product development, brand development, interest in Hart Dairy. advertising, and media planning.
46 Strategic Joint Venture (cont’d)
Island Ventures will provide Hart Dairy with a full suite of services to increase market exposure and optimize supply chain logistics.
Joint Venture
Sales and Marketing Supply Chain and Finance
Sales Planning and Customer Service Supply Chain . Create a cohesive plan for merchandising, assortment, pricing, . Manage the processing, fulfillment, and portal management of and shelving (“MAPS”). purchase orders. . Plan distribution timelines for each product and distribution . Optimize freight and shipping through a carrier network. channel. . Forecast freight and inventory needs. . Manage the insights and analysis of all sales data. . Arrange any potential international shipping / exports. . Handle the internal customer service interface. Finance Field Sales . Organize and execute cash needs of customer interface. . Manage customer communications, sales volume quotas, and . Coordinate customer financial service, deduction management, forecasting. and resolutions. . Develop pricing and trade promotion models and costs for all . Manage budgeting process, timing, and communications. distribution channels. . Prepare financial reporting related to the joint venture, including . Build out a customer merchandising organization database. accounting and audit management. . Hire and train any necessary third party selling organizations.
47 TBU: Hart – Confirm bracketed item Case Study: Publix and provide additional color below.
Retail Partner: Publix, LLC
Current Territory: Georgia
Launch Date: January 2019
Description: Founded in 1930, Publix is an employee-owned, regional grocery store chain. Publix is headquartered in Lakeland, Florida and currently operates 1,243 store locations, nine distribution centers, and 11 manufacturing facilities across seven states in the U.S. Southeast.
Background Product Positioning
Hart Dairy and Publix initiated discussion in June 2018. Publix expressed a Hart Dairy and Publix initially entered into a vendor agreement to supply 54 strong interest in taking on the brand, specifically because of the grass-fed stores in Georgia and since added two additional stores for a current total of attribute and the premium flavor profile. Publix executives had lamented an 56 stores. Publix has given the brand at least one facing in every store, while inability to fully build out grass-fed milk options on their shelves, as current many of their stores have provided multiple product facings to build the brand grass-fed brands generally have limited supply. Additionally, they were presence. Hart Dairy is positioned as a “brand block” (i.e. all of its SKUs are attracted to the vintage packaging and felt it would resonate well with their located together on the shelf), which [few / no] other milk brands enjoy, customers. Furthermore, they were attracted to the brand given both the thereby amplifying the Hart Dairy brand against the competition. Publix Company and Publix are located in the Southeast. positions the brand as a premium dairy line that fits within the “Better for You” messaging, while presenting the key benefits of being a grass-fed product. Hart: How exactly does Publix do this positioning, messaging, presenting? More color would be helpful here Current Status Publix Go-Forward Plan for Hart Dairy
Hart Dairy has shown a steady increase in sales at Publix. For example, Publix is eager to expand the Hart Dairy brand across their entire enterprise average units per week has increased by over 65% while spoils have once the Company’s Plant is fully operational. The retailer has further reduced in excess of 35% over the same period. While Publix has expressed expressed interest in the development of product extensions including strong enthusiasm about this performance, the Company plans to utilize cultured dairy such as yogurt. targeted social media marketing and other store programs to further build on Grass-fed products are “definitely where the market is trending, and Hart the sales momentum. Dairy is one of the most exciting things to happen to dairy in his +20-year Sales Per Month $45,133 career.” – Publix’s Category Buyer $43,916 $44,213 $42,083 $42,637 $42,916 $40,224
Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 Jan-20
48 Case Study: The Fresh Market TBU
Retail Partner: The Fresh Market, Inc.
Current Territory: Georgia
Launch Date: November 2019
Description: Founded in 1982, The Fresh Market is a privately held, regional grocery store chain. The Fresh Market is headquartered in Greensboro, North Carolina and currently operates 159 store locations across 22 states in the U.S. Southeast, Mid-Atlantic, and Midwest.
Background Product Positioning
Hart Dairy and The Fresh Market initiated discussion in July 2019. The Fresh Hart Dairy and The Fresh Market entered into a vendor agreement in July Market expressed a strong interest in taking on the brand in Georgia as a 2019 to supply eight stores in Georgia as part of their “Local Program”. The part of their “Local Brand Initiative”. The retailer has a relatively small dairy initial launch included five SKUs in the 28oz and 52oz sizes. The products set that they were eager to expand. Further, The Fresh Market executives were given center set placement as a call out for premium exposure, next to ® believed that the vintage feel of the brand and the Certified Humane other competitors in the set. Pricing was established at a premium level, in designation would fit very well with the premium brands that target the line with the nearby competition on the shelf. higher-end demographic shopper.
Current Status The Fresh Market Go-Forward Plan for Hart Dairy
Hart Dairy has had success at The Fresh Market with a steady increase in The Fresh Market customers and local store personnel have indicated that retail sales despite minimal marketing stimulus. For example, a key metrics the brand is a “mover”. The retailer is expecting to expand the brand into the such as units per store / week have increased on average by 20% each remainder of their stores across the U.S. once the Plant becomes month. Additional efforts will be implemented to further boost sales via on- operational. Further, Hart Dairy’s ESL capabilities will work well within The shelf temporary price reductions and in-store tastings. Fresh Market’s supply chain, which relies on third parties and is subject to regular days. Sales Per Month $1,306 Hart: We deleted the consumer quote that was previously provided. $650 We are not looking for consumer testimonials, but any relevant and $350 “quotable” feedback from your retail partner. If there are no such quotes, that’s fine. We don’t have to include specific quotes if they Nov-19 Dec-19 Jan-20 don’t exist.
49 Case Study: Albertsons
Retail Partner: Albertsons Companies, Inc.
Current Territory: Texas and Louisiana
Launch Date: November 2019
Description: Founded in 1939, Albertsons is a privately held, national grocery store chain. Albertsons is headquartered in Boise, Idaho and currently operates 2,260 store locations across 35 states. The company is the second largest supermarket chain in North America by store count.
Background Product Positioning
Hart Dairy and Albertsons initiated discussion in July 2019. The Company Hart Dairy and Albertsons entered into a supplier agreement for 154 stores in met directly with the Southern Division executives, who immediately the Southern Division, specifically throughout Texas and Louisiana. expressed a strong desire to take on the brand. Albertsons had already been Albertsons has given the Hart Dairy brand 10 facings for six product SKUs, seeking a grass-fed product line and was particularly attracted to Hart Dairy’s concentrating solely on the Whole Milk and Chocolate Milk lines at launch. ® free-range story, Certified Humane Designation, and superior flavor profile. Hart Dairy products are planogrammed at eye-level on all the shelves next to They further believed that the Hart Dairy brand would strongly resonate with other premium dairy competitors. Albertsons is positioning the brand on their multiple demographics within their Southern Division footprint and thereby shelves as a leader in the grass-fed space at a premium price. drive new high margins sales into their existing premium dairy set.
Current Status Albertsons Go-Forward Plan for Hart Dairy
Hart Dairy has had success at Albertsons with retail sales rapidly increasing Three other divisions within Albertsons have already indicated their intent to month-over-month. Average units per week has increased by over 25% each bring on Hart Dairy once the Plant is complete and provides longer shelf-life month while spoils have been limited by a 5% spoil allowance period. products. Unlike the typical delivery process at other grocery chains in Georgia, Hart Dairy delivers directly to the Albertsons distribution center which allows the ability test delivery algorithms for further expansion across the enterprise. The Southern Division buyer for Albertsons has been one of Sales Per Month $60,874 the Company’s biggest fans, showing a tremendous amount of support. “I love your brand and they way we work together, and I will make sure you $23,261 succeed on our shelves!” – Albertsons Southern Division Buyer $5,959 $5,959 Hart Dairy is “the only game in town that delivers the complete package!”– Nov-19 Dec-19 Jan-20 Feb-20 Albertsons Buyer
50 Case Study: Kroger
Retail Partner: The Kroger Co.
Current Territory: Georgia
Launch Date: April 2020
Description: Founded in 1883, Kroger is a publicly-traded (NYSE: KR) national grocery store chain. Kroger is headquartered in Cincinnati, Ohio and currently operates 2,758 store locations across 35 states. The company is the largest supermarket in the U.S. by revenue.
Background Product Positioning
Hart Dairy and Kroger initiated discussion in August 2019. The Company met Hart Dairy and Kroger entered into a supplier agreement to initially supply 20 directly with the Atlanta Division executives at the Hart Dairy farms in stores in their Atlanta Division. Kroger has given the Hart Dairy brand an Georgia. At the same time, Hart Dairy was working with the Cincinnati entire refrigerator section in order to display the brand prominently in their headquarters team. Kroger expressed their desire for a grass-fed alternative set. Kroger will (i) dedicate five shelves in each store specifically to Hart to other dairy products in their set and immediately determined their desire to Dairy, (ii) initiate a seasonal program, and (iii) planogram Hart Dairy products take on the Hart Dairy brand. Their goal is to remove brands that do not have next to other premium dairy competitors. Kroger is positioning the brand on the required attractive attributes to maintain a premium spot and replace their shelves as a leader in the grass-fed space at a premium price and those with Hart Dairy products. Kroger has expressed that Hart Dairy “checks expects to add additional stores throughout 2020. off all of the boxes and more” in their search for a replacement brand ® (Certified Humane designation was a big factor).
Current Status Kroger Go-Forward Plan for Hart Dairy
Hart Dairy is scheduled to enter 20 Kroger stores in Georgia in April 2020. Kroger expects to expand Hart Dairy throughout its enterprise once the Plant The vendor setup is complete and Kroger is giving the Company full freedom becomes operational and the ESL capabilities are accessible. Since the to determine product mix and shelf placement. Products will be delivered via vendor acceptance and approvals are already complete, the process of Direct Store Distribution (“DSD”) through Gourmet Foods International adding new stores is simply a matter of seamlessly turning on new divisions. (“GFI”). Kroger expects to grow the number of stores throughout 2020 to The Kroger Atlanta Division buyer and the Head of Dairy Distribution Center further drive momentum and maximize brand exposure. in Georgia has expressed their desire to grow the brand into their various distribution centers. “Hart Dairy is positioned to be an innovation that the dairy industry has been looking for to energize consumers to drink more milk.” – Kroger Head of Dairy Distribution Center
51 Case Study: Walmart
Retail Partner: Walmart, Inc.
Current Territory: Georgia
Launch Date: August 2020
Description: Founded in 1962, Walmart is a multinational retail corporation. Walmart is headquartered in Bentonville, Arkansas and currently operates 11,503 stores and clubs across 27 countries. Walmart is the world’s largest company by revenue.
Background Product Positioning
Hart Dairy and Walmart initiated discussion in July 2019. Walmart Hart Dairy and Walmart entered into a supplier agreement in September immediately expressed a strong interest in the brand given its fit within the 2019 to initially supply 10 stores in the Atlanta area. Walmart will start off by highly growth specialty milk category and Walmart’s desire to play a giving the Hart Dairy brand two facings for the 52oz Whole and Chocolate meaningful role in the grass-fed and A2 premium segments. Walmart Milk SKUs. Hart Dairy will be positioned as a new premium brand and will indicated that an initial test in the Atlanta region would work well with their have minimal competition on the shelves. Walmart plans to distinctly position “By Local” initiative. Furthermore, Walmart is actively looking to attract the the Hart Dairy brand as a premium dairy line, boasting key “Better for You” ® higher value consumer demographic and believes that Hart Dairy has the attributes such as grass-fed and Certified Humane . “perfect” product line to do so.
Current Status Walmart Go-Forward Plan for Hart Dairy
Hart Dairy has met with the buyer that supplied the potential store data Hart Dairy is engaged with Island Ventures, the Category Captain in eggs, footprint for the Atlanta area. The Company then worked with various who has extensive experience working with Walmart. Island Ventures partners and the buyer to decide on the best store selections for the specialty maintains an intimate knowledge of Walmart, which plays a key factor in dairy category. Hart Dairy has executed on all the required vendor succeeding in the Atlanta test and then accelerating growth into additional agreements and is fully approved with Walmart to move forward. The stores once the Plant is operational. Company is very confident in the Atlanta test and believes it will yield a “Grass-fed milk will become THE key differentiator in his set for premium positive outcome and open the door for a national rollout with Walmart. dairy brands.” – Walmart dairy buyer “Hart Dairy is uniquely positioned to lead the charge.” – Walmart dairy buyer
52 4. Project Overview
53 Project Overview
Hart Dairy is constructing the dairy industry’s premier processing plant, incorporating the latest technology to facilitate industry leading quality, flexibility, and efficiency.
Key Highlights Industrial Spec Building
. Proven Equipment and Technology: Hart Dairy is investing in state-of-the-art 100 Murray Drive, Waynesboro, GA machinery and equipment, including inspection and quality assurance equipment to provide the best quality in the industry. . Product Flexibility: Capacity to process and package a variety of dairy products, including milk, ice cream, yogurt, cheese, buttermilk, coffee creamers, and cream. ─ Alternative uses include co-packing and the production of juices, nectars, isotonic, teas, plant and nut based drinks, drinkable yogurts and kefir. . Enhanced Processing and Packaging: The Plant will feature a completely aseptic production environment, which will enable the production of dairy goods with a 60 to 90 day refrigerated ESL extended shelf life and +9 month shelf stable aseptic products. ─ The initial aseptic and ESL line will consist of seven bottle sizes, five proprietary 8oz, 12oz, 16oz, 28oz, and 52oz and two non proprietary 1 Liter and 64oz. Other sizes and formats could be added later. . PET Packaging: The Project will utilize PET packaging, a clear, strong, and lightweight plastic that is both fully recyclable and sustainable. . Large Volumes: Fully ramped Project is expected to process over 36 million gallons of milk per annum, operating on a 16-hour daily schedule, seven days per week. . Favorable Logistics and Distribution: The Project will be located close to milk supplier partner farms and over 20 retail distribution centers in the U.S. Southeast, serving over 8,600 stores. . De-Risked Construction Profile: Given the industrial spec building is at a shell stage with the majority of the site work and grading complete, customizing the building for the Plant’s needs is more efficient. This minimizes construction complexities related to retrofitting fully constructed buildings. The Project is scheduled to be completed in 12 months. . Economic Incentives: Attractive economic development incentive package from state and local governments worth $33.5 million.
54 Project Location
The Project will be located in Waynesboro, Georgia within proximity of dairy supplier partner farms and various major retail distribution centers in the U.S. Southeast.
Key Considerations Proximity to Dairy Farms and Major Retail Distribution Centers1
. The Project will be located close to Hart Agriculture, Hart Dairy’s principal dairy supplier, and other potential partner farms suitable for the 365-day grass-fed, 100% free-range regimen. ─ +7,000 cows in Central Georgia. ─ +15,000 cows in North Florida. ─ +10,000 cows in Southeast Missouri. . Waynesboro is strategically located within range of multiple major retail distribution centers, improving lead times and logistics costs. ─ Major retailers include Kroger, Publix, Walmart, Target, Albertsons, Fresh Market, HEB, Ingles, Harris Teeter, and others. The Project . Waynesboro offers competitive energy, labor, and raw material input costs. . The State of Georgia and the City of Waynesboro have been receptive to new industry in the area and have provided Hart Dairy with $33.5 million of economic development incentives for the Project. ─ Income tax credits and exemptions. ─ Land right grants. ─ Recruiting and training assistance. Key: The Project ─ Waivers for certain fees and permits. Dairy Farms
1. Map reflects approximate locations of retail distribution centers by retailer logo. 55 Optimized Plant Design and Configuration
The Plant’s design and configuration uniquely enables Hart Dairy to have maximum product flexibility and extended shelf life capabilities.
Maximum Product Flexibility . The Plant will be capable of producing numerous dairy and non-dairy products. ─ Dairy products: milk, ice cream, yogurt, cheese, buttermilk, coffee creamers, and cream. ─ Non-dairy products: Juices, nectars, isotonic soft drinks, teas, and plant-based “milk” products.
Extended Shelf Life (“ESL”) and Aseptic Processing . Products will be refrigerated extended shelf life for 60 to 90 days; aseptic products will be "shelf stable" for in excess of 9 months . Allows for maximum production flexibility to address seasonal fluctuations in demand.
Plant Processing Overview
Aseptic Environment
Cooling Tower / Chillers Steam Boiler Blow-Mold Bottling Warehouse / Storage
Silo Pasteurization Packaging
Milk Lifecycle . The Plant utilizes the Ultra-High Temperature (“UHT”) process, the world’s most advanced and effective pasteurization technology. ─ Compared to most U.S. industry participants who utilize a traditional High temperature Short Time (“HTST”), “Direct Steam Injection” UHT has numerous advantages, including (i) a complete destruction of bacteria that cause spoilage (sterilization), and (ii) short time which minimizes adulteration of the product and maintains a desirable taste profile. This is a highly efficient regeneration heat transfer method.
56 Key Project Stakeholders
Party Description Country Role General Contractor Pattillo Construction Corporation (“Pattillo” or the “GC”) is a leading general Manage site construction as Design-Builder / contractor in the U.S. Southeast based in Georgia. General Contractor. Original Equipment Manufacturers (“OEM”) Statco-DSI (“Statco”) is an industrial processing equipment manufacturer Supply ESL / Aseptic dairy processing based in California that caters to the consumer goods industries. equipment.
Sidel Group (“Sidel”), a Tetra Laval subsidiary, is a packaging equipment Supply Aseptic dairy packaging equipment. provider based in France that caters to the consumer goods industries.
The Raymond Corporation (“Raymond”), a Toyota subsidiary, is a global Supply warehousing solutions, including robot provider of material handling and logistics equipment based in New York. stacking and shelving, and forklift equipment.
Daikin Applied Americas, Inc. (“Daikin”) is a provider of heating, ventilation, Supply HVAC equipment. and air conditioning (“HVAC”) equipment and solutions based in Minnesota.
Advantage Engineering, Inc. (“AEI”) is a provider of industrial temperature Supply chilling system tanks and pumps, and control equipment and solutions based in Indiana. cooling tower.
Clayton Industries (“Clayton”) is a manufacturer of industrial steam boiler Supply steam boiler / generator equipment. equipment based in California.
Feldmeier Equipment, Inc. (“Feldmeier”) is a manufacturer of custom stainless Supply silo equipment. steel processing equipment based in New York. Design and Engineering Ruark & Wyatt Architects (“R&W”) is a full-service commercial and industrial Plan, design, and review site construction architecture firm based in Georgia. architecture.
AHA Consulting Engineers (“AHA”) is a mechanical, electric, and plumbing Design and engineer MEP for office and (“MEP”) engineering firm based in Massachusetts. administrative areas of the Project.
JM2 Associates, PLLC (“JM2”) is a provider of industrial engineering services Design and engineer MEP for plant processing based in Tennessee. areas of the Project.
The Dilling Group (“Dilling”) is a provider of turnkey industrial engineering Manage execution of MEP engineering as MEP solutions based in Indiana. Project Manager / Contractor.
57 General Contractor
General Contractor Overview Select Client Testimonials
. Pattillo, a leading general contractor in the U.S. Southeast, will “It is with great appreciation and respect that The Boeing serve as the Project’s Design-Builder / General Contractor. Company congratulates Pattillo Construction Corporation ─ The GC will manage the preconstruction design and general site for achieving superior supplier performance.” construction activities of the Project. “For a design build project on such a tight timeline one . Pattillo was established in 1950 as a family-owned general has to wonder how we accomplished this. I look back and contractor in Georgia providing design-build, interiors, industrial, believe that if it were not for the ability and capabilities of and EPC services. the team that we would not have met our goals.” . The company specializes in turnkey distribution and manufacturing facilities and has successfully completed over 1,000 buildings, “ZF Wind Power has developed a high level of trust in the accounting for more than 70 million square feet. capabilities of Pattillo, and we greatly appreciate the partnership we have formed through the project.” ─ Portfolio of completed projects includes facilities for automotive, aeronautical, energy, farm machinery, food services, paper, pharmaceutical, plastics, heavy metals, and general distribution “Pattillo provides business and industry a high quality, companies. full service, turn key alternative at a fair price.”
Services
Interiors / General Pre- Pre- Design Engineering Special Construction Construction Development Projects
58 General Contractor (cont’d)
Select Pattillo Construction Experience (Processing, Distribution, and Logistics) Project Client Industry Location Description
Food Construction of a food distribution and storage facility for MBM Foodservice, one of the largest Newnan, GA Logistics customized food-service distributors in the U.S. for restaurant chains.
Food & Construction of a processing and logistics facility for PepsiCo, one of the world’s largest Stone Mountain, GA Beverages multinational food, snack, and beverage companies.
Food Construction renovation of a distribution and parts facility for Foodmate, a poultry food processing Ballground, GA Processing equipment and services provider.
Consumer Construction of a logistics and distribution facility for Reckitt Benckiser, a multinational consumer Jefferson, GA Goods goods manufacturer focused on home, health, and hygiene products.
Construction and two-phase expansion of a storage and distribution facility for C.R. Bard, a Healthcare Covington, GA medical device manufacturer.
Construction of a food processing and distribution facility for King’s Hawaiian, a producer of Food Flowery Branch, GA baked goods.
Construction of a distribution and logistics facility for Atlanta Beverage Company, a beverage Beverages Stone Mountain, GA distributor and exclusive distributor of Anheuser-Busch products in Atlanta.
Construction of processing facilities for Alpla, a provider of packaging solutions, including blow- Packaging McDonough, GA molded bottles and caps, injection-molded parts, preforms and tubes.
Food Construction of a distribution facility for FoodHandler, a provider of food safety products, including North Charleston, SC Processing disposable gloves, apparel, and food storage / cooking bags.
Food Construction of a distribution facility for H.T. Hackney, a national wholesale distributor of food Orangeburg, SC Processing products for grocery store chains.
Consumer Construction of a warehousing and distribution facility for Sears Logistics Services, a distributor of Jacksonville, FL Goods consumer goods across 2,700 Sears and affiliated stores in 50 states.
Construction of a distribution facility for BMW Group, a leading multinational producer of Autos Jacksonville, FL automobiles and motorcycles.
59 Original Equipment Manufacturers
Processing Equipment Packaging Equipment
. Statco-DSI is a processing equipment manufacturer based in . Sidel Group, a subsidiary of Tetra Laval, is an France-based California that caters to the food, dairy, pharmaceutical, and provider of equipment and services solutions for packaging food, cosmetics industries. beverages, and other consumer products in PET, cans, glass, and ─ The company was established in 1982 and will supply the other materials. Project’s ESL / Aseptic processing equipment, which is currently ─ With 170 years of experience in advanced systems, line utilized in over 150 comparable dairy plants. engineering, and innovation, Sidel has installed over 40,000 machines in more than 190 countries. . Statco’s Therma-Stat ESL / Aseptic solution is a comprehensive, commercially proven sterilized processing method designed to ─ Sidel has served the dairy industry for over 50 years and its extend the shelf-life of perishable products at normal room technology has been deployed in more than 150 projects. temperatures without preservatives. . The Project will feature Sidel’s Aseptic Combi PredisTM solution, . Statco designed the Project for longer run times with (i) modular which enhances productivity, efficiency, and safety via (i) a fully production capacity expansion options, (ii) clean-in-place (“CIP”) sterilized container blowing / molding process, and (ii) flexible flexibility for pipe maintenance without disassembly, (iii) labor product and format changeovers with limited manual intervention. efficiencies, and (iv) reduced product loss (shrink). ─ Customizable aseptic packaging in five bottle sizes: 8oz, 12oz, 16oz, 28oz, 34oz, 52oz, and 64oz. . Statco will manage the equipment installation process along with personnel operations and maintenance (“O&M”) training. . Sidel will supervise equipment installation and O&M training.
60 Original Equipment Manufacturers (cont’d)
Warehousing Equipment HVAC Equipment Chilling System Equipment Steam Boiler Equipment Silo Equipment
. Raymond, a Toyota . Daikin is a Minnesota- . AEI is a provider of . Clayton is a manufacturer . Feldmeier is a New York- Industries Corporation based global provider of industrial heat transfer of industrial steam boiler based provider of custom subsidiary, is a New York- HVAC equipment and products, including water equipment based in stainless steel processing based provider of material solutions for residential, chillers, temperature California. equipment. handling and logistics commercial, and industrial control units, and ─ Established in 1930, ─ Established in 1952, the equipment, and applications. evaporative cooling Clayton manufactures company manufactures warehouse solutions in ─ Established in 1924, towers, based in Indiana. industrial steam boiler stainless steel silos, +40 countries. Daikin manufactures ─ Established in 1977, equipment, including storage tanks, batch ─ Established in 1922, heating and cooling AEI serves industrial fired and unfired waste processors, kettles, and the company produces products, oil hydraulics, companies, selling heat boilers. pasteurizers for dairy electric lift trucks for fluorochemicals, and 1,200 portable chillers, ─ Clayton’s systems are and beverage, food, warehousing and filtration systems. 120 central chillers, deployed worldwide via biotech, cosmetic, and distribution, including and 3,500 temperature pharmaceutical, . Daikin is a leading provider manufacturing order pickers, side control units per year. processing facilities. of HVAC solutions with operations in the U.S., loaders, tow tractors, products sold in over 140 . AEI will supply the Belgium, and Mexico. ─ Feldmeier has produced walkie stackers, and countries. Project’s (i) outdoor chiller over 25,000 tanks for pallet lift trucks. . The company will supply system with tank and the dairy industry and . Daikin will supply various two industrial-scale steam . Raymond will supply the pumps, (ii) chilling adheres to the 3-A industrial rooftop HVAC boilers to support the Project’s (i) stand-up modules, (iii) pump tanks, Sanitary Standards. systems for the Project’s Project’s dairy processing counterbalanced truck, (ii) and (iv) outdoor cooling plant processing areas, operations. . Feldmeier will supply the pallet truck, (iii) swing- towers and indoor pump and a split-unit VRV Project’s Model SVW reach truck, and (iv) tank station with pumps . Clayton will provide system for the office / Spray-Up Silo tanks. radioshuttle automated and heat exchangers. installation and training administrative areas. storage system. services.
61 Design and Engineering
Site Architect MEP Engineer (Office) MEP Engineer (Processing) MEP Contractor
. R&W is an architecture firm in . AHA is a mechanical, electric, . JM2 is a provider of industrial . Dilling is an Indiana-based Georgia that specializes in and plumbing engineering firm engineering services based in industrial engineering solutions commercial and industrial based in Massachusetts. Tennessee. company. projects. ─ Established in 1991, AHA ─ Over 20 years of experience ─ Established in 1948, Dilling ─ Established in 1999, R&W provides MEP engineering designing MEP systems for provides institutional and has designed over 30 million and other advisory services industrial, food processing, industrial engineering, square feet of commercial, to commercial, industrial, distribution, institutional, construction, MEP, HVAC, industrial, manufacturing, academic, and government educational, medical, and construction management, warehouse, and distribution clients. commercial companies. and maintenance services. facilities. . AHA will design and engineer . JM2 will design and engineer . Dilling will lead the planning and . R&W will collaborate with the MEP components for the the MEP components for the execution of the Project’s MEP Pattillo to design the Project’s Project’s general office and Project’s plant processing activities under a GMP contract. overall site structure. administrative areas. areas. Select Clients Select Clients Select Clients Select Clients
62 Fully Integrated Equipment Manufacturers
All of the original equipment manufacturers will play an integral role in the plant processing lifecycle.
Plant Processing Overview
Aseptic Environment
Cooling Tower / Steam Boiler Blow-Mold Bottling Warehouse / Chillers Storage
Silo Pasteurization Packaging
Milk Lifecycle
63 Comparable Dairy Processing and Packaging Plants
The Project will rely on commercially proven, state-of-the-art dairy processing and packaging equipment deployed in multiple plants across the U.S.
Key Original Equipment Suppliers Capacity1 Project Project Owner Type Country Date (Gallons / Year) Processing Packaging
West Coast Dairy Project Confidential Dairy 2020 37,960,000
West Coast Dairy Project Confidential Dairy 2020 40,880,000
New York Dairy Project Confidential Dairy 2020 8,760,000
Missouri Dairy Project Dairy 2020 N/A
New York Dairy Project Confidential Dairy 2019 29,200,000
West Coast Dairy Project Confidential Dairy 2019 37,960,000
East Coast Dairy Project Confidential Dairy 2018 35,040,000
West Coast Dairy Project Confidential Dairy 2016 37,960,000
Virginia Dairy Project Confidential Dairy 2015 37,960,000
São Paulo Dairy Plant Dairy 2015 25,000,000
Oregon Dairy Project Confidential Dairy 2014 43,800,000
California Dairy Project Confidential Dairy 2013 43,800,000
Texas Dairy Project Dairy 2010 26,280,000
Source: Statco-DSI and Sidel. 1. Assumes 16-hour work days. 64 Illustrative Execution Timeline
The Project is expected to start-up in March 2021 and be fully operational by Q2 2021.
2020 2021 Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Financial Closing Construction (Pattillo) Deposit / Purchase Orders Mobilization / Site Work Design / Engineering EPC / MEP Contract GMP Contract Permits / Building Construction Certificate of Occupancy Close Out Processing Equipment (Statco-DSI) Deposit / Purchase Orders Design & Fabrication Freight Installation Commissioning / Testing Packaging Equipment (Sidel) Deposit / Purchase Order Blower / Filler / EOL Manufacturing Freight / Shipping (from Europe) Installation Training Personnel Training (Statco-DSI and Sidel) Commissioning / Testing Commission / Validation GDA Validation / Permit Test Production (First Saleable Product) FDA Validation for Aseptic Full Production
65 Staffing and Training
Hart Dairy will utilize a flexible non-union labor model rooted in a comprehensive employee recruitment strategy and rigid training program.
Staffing Training
. Hart Dairy is offering attractive employee benefits to draw qualified . The Company will have intensive personnel training programs to candidates for both senior management roles and mid-level ensure all employees are fully qualified and capable of operating operating roles. the Plant. ─ The Company will utilize a comprehensive program for on-the- ─ Both Statco and Sidel will provide extensive on-site training job training, education, and personnel improvement with programs for +90 days prior to the Plant startup. professional advancement opportunities. ─ Diligent, hands-on training will be conducted with all ─ Salaries will be competitive / above-market and on par with equipment staff. national levels. . Hart Dairy will receive support from the State of Georgia’s . Hart Dairy has identified three recruiting firms that specialize in the “QuickStart” program, which provides training materials such as dairy processing industry to focus on key senior figures in the manuals and videos. The State of Georgia will assist the Company. Company by: ─ Key positions such as the Plant Operations Manager, Food ─ Hosting job fairs and work with private recruiters. Safety Director, and Plant Engineer, are expected to be filled ─ Providing pre-employment assessment and screening +90 days before the Plant becomes operational. services. ─ The Company will place an emphasis on long-term retention ─ Providing up to 50% pf post-employment training costs. and goal alignment when hiring senior members. . All of the key operating staff will be required to have prior . Hart Dairy has an active working relationship with the Department experience with opening and maintaining a dairy processing of Agriculture at the University of Georgia. plant. ─ Dr. Richard Watson, Hart Dairy’s Chief Scientific Officer, served as the Head of UGA’s Department of Agriculture. ─ The Company has collaborated with UGA on various dairy product development trials and innovation studies. ─ Hart Dairy plans to establish a recruitment program at UGA to create a future pipeline of graduate hires.
66 Economic Incentive Package
The State of Georgia and the City of Waynesboro have been exceptionally supportive of the Project, providing an indicative economic development incentive package worth $33.5 million.
Overview Incentive Potential Value
. State and local governments have been State Incentives receptive to Hart Dairy’s proposed State-hosted job fairs and work with private recruiters $200,000 Project and have provided a $33.5 million Pre-employment assessment and screening 100,000 package of economic development incentives. Post-employment training 50% of Training cost 250,000 ─ State of Georgia: $30.8 million in Job Tax Credit of $4,000 per employee per year for 5 years 4,000,000 recruiting and training support, job tax Sales tax exemption on manufacturing equipment 2,660,000 credits, sales tax exemptions, and income tax saving incentives. Sales tax exemption on material handling equipment 97,000 ─ City of Waynesboro: $2.7 million Sales tax exemption on equipment repair (annual) 35,000 comprised of land grants, utility Sales tax exemption on utilities (annually at full capacity) 1,750,000 services, tax abatements, and waivers for certain fees and permits. Sales tax exemption on raw materials (annually at full capacity) 14,700,000 State income tax savings on out of state sales 6,975,000 . The City of Waynesboro also plans to assist Hart Dairy as follows: Total State Incentives $30,767,000 ─ Fast-tracking approval of plans and City / County Incentives permitting. Land package incentive $200,000 ─ Rapid response to requests. Utility services to industrial spec building 500,000 ─ Direct contact with all key city and county officials. Future tax abatement based on employment 2,000,000 ─ Infrastructure upgrades for water, Waiver for utility tap fees 20,000 natural gas, and traffic controls to Waiver for individual permits for temporary services 5,000 support the Plant’s operations. Waiver for deposits on utilities or temporary connections 10,000 ─ Coordination of press releases. ─ Coordination with state and local Total City / County Incentives $2,735,000 officials for ground breaking. Total State Incentives + Total City / County Incentives $33,502,000
67 5. Financial Overview
68 Projection Assumptions
Projection Assumptions
. The Plant is expected to be operational by the end of Q1 2021E and gradually ramp-up until 2023E. ─ Hart Dairy is expected to reach full Plant capacity (36 million gallons of fluid milk per annum) by 2023E.
. Once the Plant is running at full production, Revenue is projected to grow at a 4.3% CAGR from $372.4 million in 2023E to $440.1 million in 2027E primarily driven by the increase in average retail sales price.
. Expenses are expected to grow from $21.9 million in 2021E to $106.7 million in 2023E as the Plant ramps-up, then remain approximately 28% of Revenue during full production. ─ Expenses are primarily comprised of marketing, product recall / spoilage, and staffing.
. EBITDA is projected to grow at a 10.0% CAGR from $100.0 million in 2023E to $146.5 million in 2027E primarily driven by top line expansion.
. Annual Maintenance Capital Expenditures are projected to be approximately $9.0 million once the Plant reaches full production.
Projected Revenues ($MM) Projected EBITDA ($MM)
$440.1 $146.5 $421.5 $432.0 $140.3 $399.3 $132.2 $372.4 $115.0 $100.0
$189.2
$43.8
$63.0 $11.0 $5.2 NM
2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E
Construction / Ramp-up Full Production Construction / Ramp-up Full Production
69 Projected Financial Performance
Hart Dairy Projected Income Statement ($MM)
Projected Fiscal Year Ending December 31, 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E
Revenue $5.2 $63.0 $189.2 $372.4 $399.3 $421.5 $432.0 $440.1
% Change N/A NM 200.0% 96.8% 7.2% 5.6% 2.5% 1.9%
Cost of Goods Sold 6.1 30.1 86.6 165.7 171.3 171.3 171.3 171.3
Gross Profit ($0.9) $32.9 $102.5 $206.7 $227.9 $250.2 $260.6 $268.7
% of Revenue (17.5%) 52.2% 54.2% 55.5% 57.1% 59.4% 60.3% 61.1%
Operating Expenses 2.7 21.9 58.7 106.7 113.0 118.0 120.4 122.2
EBITDA ($3.6) $11.0 $43.8 $100.0 $115.0 $132.2 $140.3 $146.5
% of Revenue (69.1%) 17.4% 23.2% 26.9% 28.8% 31.4% 32.5% 33.3%
Capital Expenditures ($0.1) ($1.6) ($4.7) ($9.0) ($9.0) ($9.0) ($9.0) ($9.0)
Change in Working Capital (1.8) (12.0) (26.4) (38.2) (5.5) (4.4) (2.1) (1.6)
Interest Expense (2.8) (3.4) (3.6) (2.8) (2.1) (1.9) (1.8) (1.7)
Income Taxes -- (0.8) (7.6) (19.6) (22.9) (26.8) (28.7) (30.1)
Free Cash Flow ($8.2) ($6.9) $1.5 $30.4 $75.5 $90.0 $98.7 $104.1
70 Projected Credit Statistics
Hart Dairy Projected Debt Capitalization ($MM)
PF at Projected Fiscal Year Ending December 31, Close 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E
Cash $8.1 $8.1 $7.1 $6.5 $19.5 $92.3 $179.8 $276.2 $378.4
Revolving Credit -- 8.2 15.0 14.7 ------Construction Term Loan 25.0 25.0 24.1 22.8 21.6 20.3 19.1 17.8 16.6 Total Debt $25.0 $33.2 $39.1 $37.6 $21.6 $20.3 $19.1 $17.8 $16.6 Net Debt $16.9 $25.1 $31.9 $31.0 $2.0 NM NM NM NM
Projected Total Leverage Projected Fixed Charge Coverage Ratio1
3.6x 36.1x 33.3x 30.2x
25.1x
17.4x
0.9x 6.4x
0.2x 0.2x 0.1x 0.1x 0.1x 2.0x NM NM NM NM
PF at 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E PF at 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E Close Close
Construction / Ramp-up Full Production Construction / Ramp-up Full Production
Note: For illustrative purposes, the Construction Term Loan reflects L+8.50%, 1.00% LIBOR Floor, and 5.0% amortization per annum. 1. Equal to (EBITDA – Capital Expenditures – Taxes) / (Interest + Scheduled Debt Amortization). 71 6. Organizational Structure and Transaction Timeline
72 Simplified Organizational Structure
Investor Hart Acquisitions, LLC $50.0MM of Private Capital (Hart Agriculture) $15.0MM Revolving Credit
Exclusive Offtake Hart Dairy Creamery Corp. Agreements (Hart Dairy or the Company)
100% Ownership
Hart Dairy Creamery Plant Waynesboro, Inc. (The Project or Plant)
Retail Distribution Agreements
73 Transaction Calendar TBU
March 2020 April 2020 SMTWThFS SMTWThFS 1234567 1234 8 9 10 11 12 13 14 567891011 15 16 17 18 19 20 21 12 13 14 15 16 17 18 22 23 24 25 26 27 28 19 20 21 22 23 24 25 29 30 31 26 27 28 29 30
Key Date Holiday
Date Event
[TBU] . [TBU]
[TBU] . [TBU]
[TBU] . [TBU]
74 Appendix
75 A. Advisory Board
76 Hart Dairy’s Advisory Board
Jason Ackerman Fredrik Johnsson Tom Paschall
. Executive Chairman and Interim CEO of . International sports agent and journalist. . Managing Partner at Checkmate Capital, TerrAscend, a global cannabinoid . Founder of Race of Champions, an annual an investment firm managing family office company. global competition that brings together the assets and Asia-Pacific institutional funds. . Sole Founder and previous CEO of world’s best race car drivers. . Decades of diverse financial experience FreshDirect, the leading online grocer with across mergers and acquisitions, legal and nearly $1 billion in sales. tax, and renewable energy.
Mike Riskind John Varughese
. Founder and CEO of Highwood Estate . Most recently CFO of Taulia, an AI- Capital, a third party marketing and powered supply chain management and placement agency. financing company. . Previous experience in equity sales at . Former Partner and Head of Technology UBS Investment Bank, KeyBanc, and Investment Banking at Perella Weinberg BB&T. Partners.
77 B. Project Phase 2
78 Project Phase 2: Project Assumptions
Projection Assumptions
. Phase 2 encompasses additional capacity for powdered milk starting in 2023E. ─ The Plant’s production is expected to be the same as Phase 1 during the construction / ramp-up period from 2020E to 2022E.
. Once the Plant is running at full production, additional Revenue from powdered milk is projected to grow at a 44.7% CAGR from $74.4 million in 2023E to $326.6 million in 2027E. ─ The Plant is projected to produce 9.8 million to 43.2 million gallons of powdered milk per annum during this time period.
. Expenses are expected to remain approximately 28% of Revenue during the full production period, on par with Phase 1. ─ Expenses are primarily comprised of marketing, product recall / spoilage, and staffing.
. EBITDA is projected to grow at a 18.4% CAGR from $114.7 million in 2023E to $225.8 million in 2027E primarily driven by top line expansion.
Projected Revenues ($MM) Projected EBITDA ($MM)
$748.1 $758.6 $766.7 $219.5 $225.8 $211.4 $602.0 $161.0 $446.8 $114.7
$189.2 $43.8 $63.0 $11.0 $5.2 NM
2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E
Construction / Ramp-up Full Production Construction / Ramp-up Full Production
79 Project Phase 2: Projected Financial Performance
Hart Dairy Projected Income Statement ($MM)
Projected Fiscal Year Ending December 31, 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E
Revenue $5.2 $63.0 $189.2 $446.8 $602.0 $748.1 $758.6 $766.7
% Change N/A NM 200.0% 136.2% 34.7% 24.3% 1.4% 1.1%
Cost of Goods Sold 6.1 30.1 86.6 201.8 268.6 326.4 326.4 326.4
Gross Profit ($0.9) $32.9 $102.5 $244.9 $333.4 $421.7 $432.2 $440.3
% of Revenue (17.5%) 52.2% 54.2% 54.8% 55.4% 56.4% 57.0% 57.4%
Operating Expenses 2.7 21.9 58.7 130.2 172.5 210.3 212.7 214.5
EBITDA ($3.6) $11.0 $43.8 $114.7 $161.0 $211.4 $219.5 $225.8
% of Revenue (69.1%) 17.4% 23.2% 25.7% 26.7% 28.3% 28.9% 29.4%
Capital Expenditures ($0.1) ($1.6) ($4.7) ($11.2) ($12.8) ($12.8) ($12.8) ($12.8)
Change in Working Capital (1.5) (11.1) (24.0) (49.1) (29.6) (28.0) (2.1) (1.6)
Interest Expense (2.8) (3.4) (3.5) (2.7) (2.1) (1.9) (1.8) (1.7)
Income Taxes -- (0.8) (7.6) (22.7) (32.6) (43.4) (45.4) (46.9)
Free Cash Flow ($8.0) ($5.9) $3.9 $29.0 $83.9 $125.3 $157.4 $162.8
80 81