Fonterra Co-operative Group Limited · NZX:FCG
Fonterra Co-operative — H1 2016 Earnings Presentation
24 slides from Fonterra Co-operative's earnings presentation, March 2016
Slide 1: Interim Results 2016
Interim Results 2016 MARCH 2016
Slide 2: Forward Looking Statements
Forward Looking Statements This presentation contains forward looking statements, and forecasts, including statements of current intention, statements of opinion and predictions as to possible future events. Such statements are not statements of fact and there can be no certainty of outcome in relat
Slide 3: Overview
OVERVIEW Confidential to Fonterra Co-operative Group Page 3
Slide 4: A tough season for farmers
A tough season for farmers Low milk price, but our Co-op delivered a strong result 2015/16 forecast • Farmgate Milk Price $3.90 PER KGMS payout • Available for payout¹ $4.35 – $4.45 PER KGMS • Forecast full year dividend 40 cents PER SHARE • Cash payout² $4.30 PER KGMS Strong interim • Normalised EB
Slide 5: Milk supply in NZ lower than last season
Milk supply in NZ lower than last season 2015/16 season forecast to be 4% lower 100 90 80 Volume (m litres/day) 70 60 50 40 Season Total Milk Solids Peak Day Milk 30 —– 2013/14 1,584 kgMS 87.1 litres 20 —– 2014/15 1,614 kgMS 89.7 litres 10 —– 2015/16 1,545 kgMS (Forecast) 86.9 litres Jun Jul Aug Sep
Slide 6: Global trade in dairy – temporary imbalance
Global trade in dairy – temporary imbalance Key changes in net trade from 2014 to 2015 25 EU quotas removed – Net Exports 14 Net Exports 15 more than 1bn litres Net Imports 14 Net Imports 15 additional milk 20 China – Slow down, imported finished goods Billions LME 15 US – higher domestic market Rus
Slide 7: Outlook
Outlook • Good operating performance to continue • Forecast 2015/16 total available for payout: – A forecast Farmgate Milk Price of $3.90 per kgMS – A strong forecast earnings performance of 45-55 cents per share • Intention to pay final dividend earlier • Dairy market outlook – WMP price expected t
Slide 8: Strong Co-op
Strong Co-op • Driving performance – Volume to higher value and increased earnings – Cash flow focus – Strong balance sheet – Higher dividend • Fonterra Co-op Support loan • Intention to pay final dividend earlier • More support on the ground: regional heads • Fonterra Farm Source™ – Extended credit
Slide 9: Performance
PERFORMANCE Confidential to Fonterra Co-operative Group Page 9
Slide 10: Performance has been strong
Performance has been strong VOLUME REVENUE GROSS MARGIN 12.6BN LME $8.8BN 21% 8% 9% Up from 16% NORMALISED EBIT NET PROFIT AFTER TAX INTERIM DIVIDEND PER SHARE $506M $665 $409M 20CPS 77% 123% 100% Ingredients¹ Consumer and Foodservice International Farming Volume (LME) 6% chg Volume (LME) 10% chg Vo
Slide 11: Ingredients
Ingredients Delivered a strong performance Volume (m LME) Volume +6% • Higher sales of non-reference products 11,158 11,826 • Late season inventory from 2015 cleared Value • Investments in NZ capacity – efficiencies, 31 Jan 2015 31 Jan 2016 better yields • NZ ingredients Normalised EBIT ($m)¹ – No p
Slide 12: Global dairy market – strong long-term fundamentals
Global dairy market – strong long-term fundamentals New Zealand Globally Traded Dairy Market1,3 Formal Dairy Market2,3 • Significant participant in • Global export/import market • Reflects total dairy demand tradable market • Informs Farmgate Milk Price 21b L 66b L 406b L 25bn L (2% growth4) 91bn L
Slide 13: Changes in the globally traded market impacting prices
Changes in the globally traded market impacting prices Significant change in imports and exports EU – more than Russia – China – imports at Asia and Middle 25 2.6bn litres embargo more normal levels East imports additional milk increasing in 2015 (higher in growing steadily 20 since 2013 volume of E
Slide 14: New Zealand ingredients market reach
New Zealand ingredients market reach Past 18 months lower sales to China offset by higher volume into other markets 28% China North Asia Europe & MEA 814K 245K 11% MT MT Amsterdam Chicago Americas Tokyo Mexico City Dubai Shanghai 560K 924K MT 18% MT SEA Singapore 1,047K 294K 9% 13% 9% MT MT Major sa
Slide 15: Consumer and foodservice
Consumer and foodservice Strong volume and margin growth – generating higher value demand Volume (m LME) Volume +10% • 235 million of additional LME 2,249 2,484 • More volume higher up the value chain • Strong foodservice volume growth 31 Jan 2015 31 Jan 2016 Value Normalised EBIT ($m) • Continued t
Slide 16: Consumer and foodservice
Consumer and foodservice Strong performance across the business – generating higher volume demand Asia Greater China Volume¹ Normalised EBIT Volume¹ Normalised EBIT +7% +24% 783 108 440 68 733 355 56 15 H1 2015 H1 2016 H1 2015 H1 2016 H1 2015 H1 2016 H1 2015 H1 2016 Oceania Latin America Volume¹ Nor
Slide 17: Australia – cheese, whey and nutritionals focus
Australia – cheese, whey and nutritionals focus A clear plan and progress made on returning business to profitability Review Fix leaks Improve Transform Portfolio Business In progress A profitable business • Multi-hub strategy • Maintain milk • Stanhope rebuild • Profitable end • Integrated mo
Slide 18: International farming ventures
International farming ventures Key to integrated dairy business Volume (m LME) Volume +54% • New farms coming on stream 103 67 • Two hubs complete – 10 farms in total • Access to secure, high quality milk supply Value 31 Jan 2015 31 Jan 2016 • Scale achieved to capture downstream value Normalised EB
Slide 19: International farming ventures
International farming ventures Roadmap to integrated business in China following major industry change Key milestones #1 strategic A Clear Plan, Support Test, Build and Learn Scale and Efficiency Downstream value market 2008 2009-13 2014-15 2016-18 Integrated China • Trigger point – • Developed Hub
Slide 20: Strong financial discipline delivering results
Strong financial discipline delivering results Working capital improvements and strong cash flow Reduced working capital days¹ 104 97 97 • Key focus of transformation 87 76 • Supply chain improvements and inventory volumes lower • Improved terms for receivables and payables 31 Jan 31 Jan 31 Jan 31 J
Slide 21: Financial strength of the Co-op
Financial strength of the Co-op Strong balance sheet and solid credit rating Gearing¹ • Reduced gearing achieved after 46.9% 44.6% 50.7% 49.2% – Paying a higher dividend 40.0% – Funding Beingmate acquisition – Completion of expansion capex • Lower net debt of $6.9bn, higher earnings and equity 31 Ja
Slide 22: Transformation – delivering cash benefits
Transformation – delivering cash benefits Transformation Cash Benefits¹ $ million 730 500 410 430 Milk Price EBIT Balance sheet Recurring2 One-time Revenue and costs Working capital Cash flow Half-year 1. The estimated FY16 cash benefits of business transformation initiatives implemented in H1. 2. R
Slide 23: Supplementary Slide
SUPPLEMENTARY SLIDE Confidential to Fonterra Co-operative Group Page 23
Slide 24: Normalised EBIT reconciliation
Normalised EBIT reconciliation Six months to Six months to $ million 31 January 2016 31 January 2015 Profit after tax 409 183 Add: Net finance costs 266 303 Add/(less): Taxation expense/(credit) 77 (3) Total EBIT 752 483 Less: Gain on DairiConcepts sale (68) - Add: Impairment of assets in Australia
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