Fonterra Co-operative Group Limited · NZX:FCG
Fonterra Co-operative — FY2015 Earnings Presentation
37 slides from Fonterra Co-operative's earnings presentation, September 2015
Slide 1: 2015 Annual Results
2015 ANNUAL RESULTS SEPTEMBER 2015 JOHN WILSON, CHAIRMAN THEO SPIERINGS, CEO LUKAS PARAVICINI, CFO
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: John Wilson – Chairman
JOHN WILSON – CHAIRMAN Page 3 © Fonterra Co-operative Group Ltd.
Slide 4: A Tough Season for Farmers
A TOUGH SEASON FOR FARMERS 8.50 7.66 7.90 6.40 6.16 0.10 0.07 6.37 0.30 5.20 0.27 0.32 4.46 0.32 4.65 0.48 0.25 0.59 3.87 7.59 4.72 6.10 7.60 6.08 5.84 8.40 4.40 2007 2008 2009 2010 2011 2012 2013 2014 2015 Farmgate Milk Price¹ Dividend² Final Cash Payout – three-year rolling average³ 1. Farmgate Mi
Slide 5: Challenging Year Globally
CHALLENGING YEAR GLOBALLY Economic and Dairy supply/demand Fall in dairy prices geopolitical issues imbalance 6,000 USD per MT Whole Milk Powder • China Slowdown • Eurozone Demand 4,000 • Oil and mineral prices Supply 2,000 • Russian embargo • ISIS Middle East 0 Jan-14 Jul-14 Jan-15 Jul-15 • Forecas
Slide 6: Dairy Supply / Demand Imbalance
DAIRY SUPPLY / DEMAND IMBALANCE Supply Russia EU China Demand EU’s largest dairy Year to date Year to date % export market -21% US production +1 Trade embargo remains imports Year to date production +1% Asia (excl China) Year to date imports +14% Middle East & Africa New Zealand Year to date Fonterr
Slide 7: Key Drivers of Milk Price
KEY DRIVERS OF MILK PRICE Revenue, cash costs and capital costs 12.00 • Revenue has been volatile 10.00 • Dairy prices 8.00 $ per kgMS • Currency (FX) 6.00 • Costs relatively stable 4.00 • Cost of capital 2.00 • Operating costs 0.00 2011 2012 2013 2014 2015 Revenue Cash and Capital Costs Farmgate Mi
Slide 8: Milk Price Revenue
MILK PRICE REVENUE Dairy price volatility has had a significant impact on Milk Price Dairy Prices (USD per MT) Dairy Prices 6,000 • Significant volatility 2012 WMP Price USD/MT to 2015 4,000 • WMP prices fell 44% in last 2,000 12 months 0 Exchange Rate Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-1
Slide 9: Milk Price Costs
MILK PRICE COSTS Stable total cost base Milk Price Cost of Capital Milk Price Cost of Capital • Capital costs are lower 8.5% 7.7% 7.4% 6.8% reflecting lower cost of debt 6.1% • Benefited milk price by 15 cents per kgMS or $240 million to milk price in 2015 vs. 2011 2011 2012 2013 2014 2015 Milk Pric
Slide 10: We Responded by Drawing on Our Co-op Strengths
WE RESPONDED BY DRAWING ON OUR CO-OP STRENGTHS • Supporting farmer cash flows through timing of advance rate ($900 million) • Farm Source benefits – 6-month extended credit at Fonterra Farm Source stores – $4 million of Fonterra Farm Source rewards dollars taken up by 9,000 farmers – Compliance reli
Slide 11: 2016 Outlook
2016 OUTLOOK • The 2015/16 pay-out: – A forecast Farmgate Milk Price of $4.60 per kgMS – A strong forecast EPS performance of 40-50 cps • In addition 50 cents per kgMS loan to support farmers¹ • Global markets remain volatile and difficult to forecast milk price early in season • Capex for the 2016
Slide 12: Theo Spierings – CEO
THEO SPIERINGS – CEO Page 12 © Fonterra Co-operative Group Ltd.
Slide 13: Strong Rebound in Profitability
STRONG REBOUND IN PROFITABILITY VOLUME¹ REVENUE² NORMALISED EBIT 4.3M MT $18.8BN $974M 9% 15% 94% NET PROFIT AFTER TAX DIVIDEND PER SHARE RETURN ON CAPITAL³ $506M 25 CPS 8.9% 183% 150% Ingredients Consumer and Foodservice International Farming Volume 3.0m MT Volume⁵ 1.7m MT Volume 0.2m MT Normalised
Slide 14: Strengthening of Performance in the Second Half
STRENGTHENING OF PERFORMANCE IN THE SECOND HALF Volume¹ (000 MT) Normalised EBIT ($m) 4,303 974 3,965 2,114 598 1,977 503 100 1,988 2,189 403 376 2014 2015 2014 2015 First Half Second Half First Half Second Half 1. Volume includes 324,650 MT from DPA consolidation. Excluding this, volume increased 0
Slide 15: Strategic Investments for the Future
STRATEGIC INVESTMENTS FOR THE FUTURE Led to higher financing costs New Zealand $900m China Other Advance Offshore rate timing $750m Incremental debt Beingmate $450m Accelerated Additional $360m Capacity financing $690m China Farms • Pahiatua costs of Depreciation • Edendale 6 cps and retained Essent
Slide 16: Lukas Paravicini – CFO
LUKAS PARAVICINI – CFO Page 16 © Fonterra Co-operative Group Ltd.
Slide 17: Profit Available for Dividend
PROFIT AVAILABLE FOR DIVIDEND Total Dividend of 25 cents per share Profit Available for Dividend Non Cash Adjustments 100 (427) 974 (26) 621 (138) (77) 60 466 Normalised DPA Interest Other Adjusted Financial Australia DPA & Profit EBIT NPAT Instruments YDD Hyperinflation to Shareholders Cents per Sh
Slide 18: Ingredients
INGREDIENTS A solid result driven by New Zealand ingredients Normalised EBIT¹ ($m) • NZ ingredients: Volume $264 million gross margin higher -2% 973 – Improved stream returns Normalised – Optimised product mix to pricing 679 EBIT Growth – Lower peak costs 674 +43% 387 • Australian ingredients: ($92)
Slide 19: New Zealand Ingredients
NEW ZEALAND INGREDIENTS Solid performance over last 5 years¹ Gross Margin ($ per MT) 530 454 461 443 $ per MT 366 2011 2012 2013 2014 2015 Normalised EBIT² ($ million) 699 501 $ million 494 420 280 2011 2012 2013 2014 2015 1. Comparatives reflect business structures at the time and have not been res
Slide 20: Consumer and Foodservice
CONSUMER AND FOODSERVICE Strong volume and margin growth Volume (m LME)1 • Asia and Greater China – record performance 4,501 • Lower input costs for NZ sourced product +14% 3,934 • Australia margins impacted by yoghurt and dairy desserts • Solid performance from Latin America 2014 2015 • Return on C
Slide 21: Asia Consumer and Foodservice
ASIA CONSUMER AND FOODSERVICE Record Performance Volume (m LME) Volume 1,558 • Sri Lanka recovery grew volumes 1,234 +26% • Foodservice growth of 11 per cent – Targeting Italian kitchen and Asian bakeries 2014 2015 – Growth in butter and UHT Normalised EBIT ($m) Value 202 • Pricing strategy delivere
Slide 22: Latin America Consumer and Foodservice
LATIN AMERICA CONSUMER AND FOODSERVICE Solid growth in normalised EBIT Volume (m LME) Volume +18% 603 • Consolidation of DPA 511 • New products launched in Brazil • Increased consumer prices in Chile 2014 2015 Normalised EBIT ($m) Value +17% 110 • Driving market share through product innovation 94 •
Slide 23: Oceania Consumer and Foodservice
OCEANIA CONSUMER AND FOODSERVICE Progress in Australian reshape and driving product innovation in NZ Volume (m LME) Volume -1% • Lower volume in NZ due to UHT production 1,760 1,749 moving into ingredients • Australian domestic foodservice up 10 per cent 2014 2015 Normalised EBIT ($m) Value 51 • Gro
Slide 24: Taking Decisive Steps to Turnaround Australian Performance
TAKING DECISIVE STEPS TO TURNAROUND AUSTRALIAN PERFORMANCE Review Fix leaks Improve Transform Portfolio Business In progress In progress A profitable business • Multi-hub strategy • Maintained milk • # 1 supplier • END GAME • Integrated model supply Coles/Woolworths • A Profitable • Cheese/whey/
Slide 25: Greater China Consumer and Foodservice
GREATER CHINA CONSUMER AND FOODSERVICE Record Performance Volume (m LME) Volume 591 • Growth driven by foodservice and Anchor™ +38% 429 • Foodservice business rolled out to 13 new cities to total of 40 2014 2015 Normalised EBIT ($m) Value +463% 45 • Lower inputs costs improved margins • Distribution
Slide 26: International Farming
INTERNATIONAL FARMING Important part of our strategy to build an integrated dairy business in China Ying Hub in Ying County Capacity 200 million litres Yutian Beijing (玉田) Milking cows 7,000 (北京市) Normalised EBIT ($44m) Young stock 13,400 Ying Hangu Yield 28.5 litres per (应县) Hebei (汉沽) • Chinese mi
Slide 27: Operating Expenses Controlled
OPERATING EXPENSES CONTROLLED Growing at a slower rate than milk collection NZ Milk Solids collected Operating Expenses¹ • Higher operating (m kgMS) ($m) expenses of $177m in 2015 comprise: 4.6% 3.0% 1,614 – One-off costs of 1,584 2,387 $100 million relating to yoghurt and dairy 1,493 1,463 2,238 2,
Slide 28: Financial Strength and Discipline
FINANCIAL STRENGTH AND DISCIPLINE Working Capital Days Gearing 105 106 103 49.7% 3.3% 46.4% 98 39.6% 42.3% 87 2011 2012 2013 2014 2015 2013 2014 2015 Advance 2015 Rate Adjusted Timing¹ $900m Strong fundamentals Fitch AA- (stable outlook) Credit Rating S&P A (credit watch) Debt Weighted Average As at
Slide 29: Diversified and Prudent Funding Profile
DIVERSIFIED AND PRUDENT FUNDING PROFILE Diversified profile¹ Prudent liquidity USD DCM 16% Drawn Facilities Bank $1.7bn Facility NZD DCM 14% 35% Undrawn 47% Facilities $3.2.bn AUD DCM 11% 65% CNY DCM 7% GBP DCM 6% Bank facility maturity profile² DCM maturity profile³ At 31 July 2015 ($ billion) At 3
Slide 30: Theo Spierings – CEO
THEO SPIERINGS – CEO Page 30 © Fonterra Co-operative Group Ltd.
Slide 31: Drive Performance
DRIVE PERFORMANCE Shifting volume to higher value 1 CAGR Optimise (FY14-FY18) NZ milk 3% 13% GDT -2.4% 2 Build and grow Ingredient Sales +4.9% 3% beyond our current 12% 23% consumer positions Foodservice +16.3% 3 3% 10% 12% 28% Deliver Consumer +8% on Foodservice potential 7% 30% 4 6% Grow Total FY1
Slide 32: On-going Transformation
ON-GOING TRANSFORMATION CASH + MINDSET = PERFORMANCE Page 32 © Fonterra Co-operative Group Ltd.
Slide 33: Business Transformation
BUSINESS TRANSFORMATION Recurring and one-off savings building over 24 months Transformation Scope Cash Impact Sales mix / pricing Operations Milk Price Procurement Earnings Total Shareholder Supply Chain Returns Balance Sheet Overheads Working Capital Cash flow Capex Page 33
Slide 34: Executing Our Strategy to Deliver Superior Performance
EXECUTING OUR STRATEGY TO DELIVER SUPERIOR PERFORMANCE From (2015) Ambition $0.8 / LME $1.2 / LME Revenue $10 / kgMS $14 / kgMS Gross Margin 17% 20%+ Normalised EBIT $974m 50%–100% uplift Return on Capital 8.9% 11%–13% Gearing¹ 45%–50% 40%–45% 1. Fonterra’s target is to maintain its strong investmen
Slide 35: Stronger Together
STRONGER TOGETHER Page 35 © Fonterra Co-operative Group Ltd.
Slide 36: Supplementary Slide
SUPPLEMENTARY SLIDE Page 36 © Fonterra Co-operative Group Ltd.
Slide 37: Normalisation Adjustments
NORMALISATION ADJUSTMENTS Year ended Year ended $ million 31 July 2015 31 July 2014 Total EBIT 942 503 Gain on Latin America strategic realignment (129) - Impairment of assets in Australia 108 - Restructuring and redundancy provisions 33 - Time value of options 20 Total normalisation adjustments 32
Fonterra Co-operative Group — FY2015 Earnings Presentation on 6ix