Fonterra Co-operative Group Limited · NZX:FCG
Fonterra Co-operative — FY2014 Earnings Presentation
43 slides from Fonterra Co-operative's earnings presentation, Sep 24, 2014
Slide 1: Fonterra Annual Results 2014
FONTERRA ANNUAL RESULTS 2014 24 September 2014 © FONTERRA CO-OPERATIVE GROUP LIMITED
Slide 2: Overview
Overview John Wilson – Chairman © Fonterra Co-operative Group Ltd.
Slide 3: Forecast cash payout
Forecast F t cash h payoutt 8.50 7.90 0.10 6 37 6.37 0.30 6 40 6.40 6 16 6.16 $5.55-5.65 0.27 0.32 0.32 0.25-0.35 6.10 7.60 6.08 5.84 8.40 5.30 2010 2011 2012 2013 2014 2015F Farmgate g Milk Price Dividend 1. Dividend: $ per share. 2. Farmgate Milk Price: $ per kgMS. Page 3 © Fonterra Co-operative G
Slide 4: Key highlights
Key K hihighlights hli ht Farmgate Milk Price Full Year Dividend Final Cash Payout $8 40 KGMS $8.40 10 CPS $8 50 $8.50 Milk Collection Revenue Earnings g per p Share 1 6B KGMS 1.6 $22 3B $22.3 10 CPS Page 4 © Fonterra Co-operative Group Ltd.
Slide 5: Strong rebound in milk collection in New Zealand
Strong St rebound b d in i milk ilk collection ll ti iin N New Z Zealand l d 90 2013/14 80 2012/13 70 2011/12 es/day) 60 50 me (m litre 40 Volum 30 20 10 0 Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Source: Fonterra Co-operative Group Limited Page 5 © Fonterra Co-operative Group Ltd.
Slide 6: Performance Summary
Performance Summary Theo Spierings – Chief Executive © Fonterra Co-operative Group Ltd.
Slide 7: Despite challenging year we stayed on strategy
Despite challenging year we stayed on strategy… t t Total sales Total Group Normalised Net profit EPS volume l revenue EBIT after ft tax t 4M MT $22 3B $22.3 $503M $179M 10CPS 0% +19% -50% -76% -77% . Page 7 © Fonterra Co-operative Group Ltd.
Slide 8: Extreme volatility impacting on margins
Extreme E t volatility l tilit iimpacting ti on margins i Weighted average USD GDT cheese prices vs. WMP prices 5 500 5,500 Cheese WMP 5,000 4,500 T) US$ (MT 4 000 4,000 H1 2014 3,500 3,000 H2 2014 2,500 2 500 2,000 Aug-2011 g Feb-2012 Aug-2012 g Feb-2013 Aug-2013 g Feb-2014 Aug-2014 g Page 8 © Font
Slide 9: Milk Price adjustment
Milk Price P i adjustment dj t t Stream Return Negative Impact $(578) million Peak Production Negative Impact $(75) million Asset Capacity Impact $(653) million $11m p impact on Protecting the Co-op EBIT Milk Price adjustment for Global Ingredients $642 million and Operations Add back value held in
Slide 10: Challenging dairy global situation in key dairy regions
Challenging Ch ll i global l b l situation it ti iin kkey d dairy i regions i Russia (Demand) • EU’s largest dairy export market European Union (Supply) • Trade bans on Australia, Canada, the • Milk production up 4%¹ EU, Norway, Ukraine and the US • Russian trade bans impacting exports China (Demand
Slide 11: Financial Review
Financial Review Lukas Paravicini – CFO © Fonterra Co-operative Group Ltd.
Slide 12: Protecting the Co-operative and staying on strategy
Protecting the Co-operative and staying on strategy t t Protect the Co-operative Staying on Strategy (Global Ingredients and Operations) (Consumer and Foodservice) 1,200 1,002 (653) 642 (74) 1,000 (156) Normalised EBIT ($ million) 800 (3) (118) (111) 600 (26) 503 400 200 0 FY13 Asset Milk Price Glob
Slide 13: Global Ingredients and Operations
Global Gl b l IIngredients di t and dOOperations ti Performance review Volume: 2.9m MT +1% • Eight per cent growth in NZ milk supply • Sales volume growth of one per cent – Low inventory in Q1 due to drought Q and Q4 – Record volume shipped in Q2 Q V l ¹ $269 Value¹: $269m -46% 46% • Strong growth i
Slide 14: Global Ingredients and Operations key performance drivers
Global Gl b l IIngredients di t and dOOperations ti Key performance drivers Protect the Co-operative Staying on Strategy (Global Ingredients and Operations) (Consumer and Foodservice) 1,200 1,002 (653) 642 (74) 1,000 (156) alised EBIT ($ million) 800 (3) (118) (111) 600 (26) 503 400 Norma 200 0 FY13
Slide 15: Oceania
Oceania O i Performance review Volume: 832,000 MT -6% • Growth in Australian milk supply • Decreased nutritional volumes from the Australian ingredients business • Reduced yoghurt volumes in Australia V l ¹ $31m Value¹: $31 -78% 78% • Margin squeeze in consumer brands due to significantly higher inp
Slide 16: Oceania key performance drivers
Oceania O i Key performance drivers 250 200 118 (278) Norrmalised EBIT ($ million) 150 142 (49) 100 (29) 71 (18) 50 31 74 0 (50) (100) FY13 FY13 Volume/ Price Input Ingredients OPEX Other FY14 Normalisations Mix Increases Costs Gross Increases Margin Page 16 © Fonterra Co-operative Group Ltd.
Slide 17: Asia
Asia A i Performance review Volume: 419,000 MT +12% • Strong performance across China • China Farm volume up 65 per cent • Foodservice across Asia and Greater China up 11 per cent • Excluding Sri Lanka up 18 per cent Value¹: $ 91m -56% • Asia – Significantly higher input costs – Strategic g call to
Slide 18: Asia key performance drivers
Asia A i Key performance drivers 350 105 (164) 300 Normalised EBIT ($ million)) 250 209 (1) (16) 200 150 (37) 14 (30) 100 11 91 50 0 FY13 Volume/ Volume/ Price Input FX OPEX Other Greater FY14 Mix excl. Mix Sri Increases Cost China Sri Lanka Lanka Increases Page 18 © Fonterra Co-operative Group Ltd.
Slide 19: Good returns from Greater China investments
Good G d returns t from f Greater G t China Chi investments i t t • Total sales of $5.5 billion (including ingredients) • ~100 million litres of fresh milk • Invested $112 million • China consumer brands – Anmum™ Materna rolled out to 20 new cities – now 64 • China Foodservice – Rolled out to seven
Slide 20: Latin America
Latin L ti AAmerica i Performance review Volume: 387,000 MT +3% • Volume growth driven by Soprole – Consumer volumes up two per cent – Growth in liquid milk, mature cheese and powdered milk Value¹: $111m -19% • Soprole – Margin squeeze due to higher input costs – Higher opex as business transitioned
Slide 21: Latin America key performance drivers
Latin L ti AAmerica i Key performance drivers 300 Soprole 250 96 (112) aised EBIT ($ million) 200 150 137 6 (32) 15 (5) (7) 111 13 100 Norma 50 0 FY13 Volume/ Price Input Cost FX/ DPA Southern Other OPEX FY14 Mix Increases Increases Other Cone Page 21 © Fonterra Co-operative Group Ltd.
Slide 22: Working capital and cash flow
Working W ki capital it l and d cash h flflow Working capital days¹ Free cash flow ($ million) 1,400 106 1,200 1,470 (840) 105 105 1,000 103 800 600 400 (141) 174 358 98 200 129 (434) 0 (200) (400) FY10 FY11 FY12 FY13 FY14 FY13 EBIT Supplier Other Capex Other FY14 Payables Working Capital 1. Excludi
Slide 23: Balance sheet strength
Balance B l sheet h t strength t th Economic debt to debt plus equity¹ • Higher gearing levels due to: – Lower earnings this period and FX translation movements 41 8% 41.8% 42 3% 42.3% – Higher working capital 39.1% 39.6% – Increased investment in growth – BEGA, Waitoa, A-Ware, China Farms Strong Fu
Slide 24: Strong focus on value creation
Strong St focus f on value l creation ti Improve Drive Return on Maximise V l D Value i Drivers C it l (ROC) Capital Sh h ld Wealth Shareholder W lth Volume Growth Improve ROC Earnings per Share EBIT Growth Economic Value Add Milk Price Working Capital Share Price Page 24 © Fonterra Co-operative Gro
Slide 25: Strategy Update
Strategy Update Theo Spierings – Chief Executive © Fonterra Co-operative Group Ltd.
Slide 26: Strategic priorities
Strategic St t i priorities i iti 1 Optimise Transform milk supply pp y model NZ milk ilk 2 Invest in optionality to achieve higher less volatile returns Build and grow beyond our current consumer positions g the wheel Invest to support turning 3 Deliver on Foodservice potential Focus on 8 strategic
Slide 27: Investing in optionality to achieve higher less volatile returns
Investing in optionality to achieve higher less l volatile l til returns t • More processing options over 110 the peak 10% more capacity at peak¹ 100 • Additional 8.2m litres per day¹ 90 80 2012/13 Volume (m litres/day) – Lichfield – 4.4m litres per day 2013/14 70 2014/15 60 – Edendale – 1.4m litres
Slide 28: Investing to support turning the wheel
Investing I ti tot supportt turning t i the th wheel h l • Waitoa UHT facility – Commissioned with the first shipments of UHT to China – $126 million investment to meet Asian demand – Will process >100 million litres a year • Clandeboye – $72 million investment – Will double d bl capacityit to t pro
Slide 29: Global brands aligned to benefit and technology platforms
Global brands aligned to benefit and technology t h l platforms l tf Strategic Platforms Global Brands Benefit Platforms Technology Platforms 1 Optimise NZ milk Natural Dairy Energy Farming Systems y Taste, Texturre & Stability 2 Build and grow beyond our current consumer positions 3 Growth & Dairy
Slide 30: Investment in global multi-hubs
Investment I t t in i global l b l multi-hubs lti h b Milk Powders / Foodservice Whey Cheese / Whey / Infant Formula UHT / Foodservice Page 30 © Fonterra Co-operative Group Ltd.
Slide 31: Example of connecting via global multi-hubs
Example E l off connecting ti via i global l b l multi-hubs lti h b Europe: • 30,000 MT Whey products from A-Ware China: • Global Fonterra and Beingmate potential partnership • Partial Tender Offer for 20% of Beingmate Australia: • Anmum™ distribution • 50,000 MT infant agreement formula from Darnum
Slide 32: Recap – investments and acquisitions in 14
Recap R – investments i t t and d acquisitions i iti in i 2014 • Partial offer for up to 20% of Beingmate • Fonterra and Abbott • Whey investments • $1.6b invested/ farming hub JV with A-Ware and approved y Crest Dairy since 2011 • Ingredients – Lichfield, Edendale, Pahiatua, Darfield • Foodservice
Slide 33: Our food safety and quality roadmap
Our O food f d safety f t and d quality lit roadmap d BUILDING TRUST IN SOURCE OUR FOOD SAFETY AND QUALITY ROADMAP 2014 2015 2016 2017 AND BEYOND FOCUS DRIVE ACHIEVE LEAD Making g a clear Makinggppurposeful p Building g absolute Takingg the initiative commitment to be progress and credibility and wi
Slide 34: Outlook
Outlook O tl k • Forecast Cash Payout of $5.55-$5.65 – Forecast Farmgate Milk Price $5.30 per kgMS – Targeting dividend of 25 to 35 cents per share • Outlook for global economic environment remains far from certain • Expect continued volatility for dairy prices driven by geo-political events and sup
Slide 35: Supplementary Information
Supplementary Information © Fonterra Co-operative Group Ltd.
Slide 36: Annual results summary
Annual A l results lt summary Year ended Year ended $ million 31 July 2014 31 July 2013 Change Total volume (million MT) 3.97 3.96 0% Revenue 22,275 18,643 19% Normalised EBIT 503 1,002 (50%) Net profit after tax 179 736 (76%) Earnings per share (cents) 10 44 (77%) Dividend per share (cents) 10 32 (
Slide 37: Normalisation adjustments
Normalisation N li ti adjustments dj t t Year ended Year ended $ million 31 July 2014 31 July 2013 Total EBIT 503 937 Costs associated with closure of Cororooke – 30 plant in Australia Costs associated with the Group p Strategy gy – 38 Right-Sizing Other items (3) Total normalisation adjustments – 6
Slide 38: Global Ingredients and Operations
Global Gl b l IIngredients di t and dOOperations ti Year ended Year ended $ million 31 July 2014 31 July 2013 Change Total volume¹ (‘000 MT) 2,848 2,824 1% Revenue 18,041 13,917 30% Gross margin 1,030 1,251 (18%) Gross margin percentage 5.7% 9.0% Operating expenses (960) (892) 8% Other 199 121 64% N
Slide 39: Global Ingredients and Operations contribution margin
Global Gl b l IIngredients di t and dOOperations ti Contribution margin Year ended Year ended $ million 31 July 2014 31 July 2013 Sales volume¹ volume ((‘000 000 MT) 2,848 2,824 Gross margin 1,030 1,251 S lli Selling, marketing k ti and d distribution di t ib ti expenses (289) (277) Contribution mar
Slide 40: Oceania
Oceania O i Year ended Year ended $ million 31 July 2014 31 July 2013 Change Total volume¹ (‘000 MT) 832 884 (6%) Revenue 3,600 3,745 (4%) Gross margin 583 756 (23%) Gross margin percentage 16.2% 20.2% Operating expenses (574) (677) (15%) Normalised EBIT 31 142 (78%) Normalised EBIT percentage 0.9%
Slide 41: Asia
Asia A i Year ended Year ended $ million 31 July 2014 31 July 2013 Change Total volume¹ (‘000 MT) 419 375 12% Revenue 2,168 2,059 5% Gross margin 581 702 (17%) Gross margin percentage 26.8% 34.1% Operating expenses (505) (519) (3%) Normalised EBIT 91 209 (56%) Normalised EBIT percentage 4.2% 10.2% 1
Slide 42: Latin America
Latin L ti AAmerica i Year ended Year ended $ million 31 July 2014 31 July 2013 Change Total volume¹ (‘000 MT) 387 377 3% Revenue 1,161 1,135 2% Gross margin 267 303 (12%) Gross margin percentage 23.0% 26.7% Operating expenses (198) (191) 4% Normalised EBIT 111 137 (19%) Normalised EBIT percentage 9
Slide 43: Capital expenditure
Capital C it l expenditure dit 926 888 892 586 683 602 93 192 144 153 57 70 53 29 44 FY12 FY13 FY14 Latin Asia Oceania Global America Ingredients Page 43 © Fonterra Co-operative Group Ltd.
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