Fonterra Co-operative Group Limited · NZX:FCG
Fonterra Co-operative — Q3 FY2022 Earnings Presentation
32 slides from Fonterra Co-operative's earnings presentation, May 26, 2022
Slide 1: Business Update Third Quarter
Fonterra Business Update Third Quarter 26 May 2022
Slide 2: Third quarter overview
• Macroeconomic and geopolitical events impacting supply chains, market volatility and putting pressure on global economic growth ¹ • Long-term outlook for dairy remains positive, announced strong opening 2022/23 forecast Farmgate Milk Price range • Continuing to deliver record milk price for the cu
Slide 3: GDT Price Index and price relativities
Reference and non-reference GDT Price Index price relativities on GDT (US$/MT) 5,000 1,500 4,000 1,000 3,000 H1 Q3 Q4 H1 Q3 FY21 FY21 FY21 FY22 FY22 2012 2014 2016 2018 2020 2022 31 Jul 20 31 Jan 21 31 Jul 21 31 Jan 22 30 Apr 22 GDT Price Index Reference product shipment price¹,² Non-reference produ
Slide 4: Russia-Ukraine, China COVID-19 and Sri Lanka impacts
• Russia-Ukraine conflict has increased disruption of supply chains, grain and oil prices, adding to global market volatility and increased uncertainty • Recent COVID-19 lockdowns in China reduced demand late in Q3 and disrupted supply chains • Expect reduced demand to continue into Q4 • COVID-19 co
Slide 5: Total Group financial results
million¹ ² ∆³ Sales volume (‘000 MT) • Increased revenue from higher product prices, partially offset by Revenue ($) lower sales volumes reflecting lower milk production and timing Cost of goods sold ($) of sales due to short-term impacts on demand Gross profit ($) • Solid gross profit given signifi
Slide 6: Normalised EBIT by quarter
¹ ¹² ¹² ³ Q1 Q2 Q3 Q4 Q1 Q2 Q3 Note: Figures are unaudited for the nine months ended 30 April 2022 1. Prepared on a normalised continuing operations basis. Normalised EBIT contributions sum to $900 million, and does not align to reported continuing operations due to excluding unallocated costs and e
Slide 7: EBIT by channel and region
² ¹ Note: Figures are unaudited and for the nine months ended 30 April and prepared on a normalised continuing operations basis. Comparative information includes re-presentations for consistency with the current period 1. Eliminations and unallocated costs 2. Includes $(81) million adverse revaluati
Slide 8: Strategy and innovation highlights
Government consultation underway, with The first of its kind in NZ & Successfully completed A low sugar cultured milk amendments to progress part of our aspiration to be trials of wood pellets at drink, with added vitamins through Parliament Net Zero by 2050 Hautapu & wood biomass and probiotics, ta
Slide 9: Farmgate Milk Price outlook
2021/2022 2019/2020 2020/2021 Season Season Season Forecast (US$/MT) per kgMS 5,000 • Strong demand for dairy and over 95% of milk 4,000 contracted for the season • Recent events have impacted global demand for 3,000 dairy products in the short-term, in particular: o China COVID-19 lockdowns 31 May
Slide 10: Forecast earnings range
FY21 FY21 FY22 FY22 H1 H2 H1 H2 (US$/MT) per share 5,000 • Maintained forecast earnings range: 4,000 o Favourable price relativities in Q4 contributing to earnings, in particular from our protein portfolio 3,000 such as casein o Incorporates Q4 seasonal profile and ongoing 31 Jul 20 31 Jan 21 31 Jul
Slide 11: Forecast Farmgate Milk Price range
• Midpoint of $9.00 per kgMS reflects: o continued demand for dairy, despite events impacting global demand in the short-term o constrained supply as growth from key milk producing regions is expected to remain low • The wide range reflects several risks, such as further impacts from: o COVID-19 per
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Slide 13: Total Group financial trends 2018-2022
3,169 16.0 17.0 3,023 3,087 3,053 2,946 14.8 14.9 15.5 2,316 2,472 2,499 2,435 2,229 2018 2019 2020 2021 2022 2018 2019 2020 2021 2022 2018 2019 2020 2021 2022 Sales Volume ('000 MT) Revenue ($ billion) Gross Profit ($ million) 1,886 1,813 1,665 1,590 1,632 1,057 975 825 815 959 825 378 574 514 (62)
Slide 14: NZ milk collection season-to-date
90 Volume (m litres/day) 80 • Fonterra’s NZ milk collection season-to-date (June – April) is 1,408 million kgMS, 3.8% 70 behind last season 60 • Cold and wet spring with lower sunshine affected collections early in the season 50 • Improved North Island collections late in the season due to favourabl
Slide 15: Group operating expenses and other items
¹ Note: Figures are unaudited and for the nine months ended 30 April 1. Consists of other operating income, net foreign exchange gains/(losses) and share of profit or loss on equity accounted investees accounted investees 15
Slide 16: Ingredients channel results
$ millions 2021 2022 Gross profit EBIT Gross profit EBIT Gross profit EBIT • Increased gross margin due to: • Improved gross margins in Chile and • Gross margin down due to in-market Australia businesses offset by higher o Strong demand in our protein sales pricing not increasing at the input costs
Slide 17: NZ reference and non-reference product sales
• Reference products sales volumes down due to ¹ lower milk production and short-term impacts on demand • The average reference product sales price per metric tonne has increased 24%, with all reference products ¹ contributing to the increase • The average non-reference product sales price per metri
Slide 18: Ingredients results by region
$ million 2021 2022 Gross profit EBIT Gross profit EBIT Gross profit EBIT Note: Figures are unaudited and for the nine months ended 30 April. Does not add to Total Group as shown on a normalised continuing operations basis and excludes unallocated costs and eliminations. Comparative information incl
Slide 19: Foodservice channel results
∆¹ ² • Improved Ingredients gross profit more than offset by a decline in Foodservice and Consumer gross profit: o Continued strong Ingredients gross margin driven by our Australian business achieving higher product prices ³ o Lower gross margins in Foodservice and Consumer due to higher cost of mil
Slide 20: Foodservice results by region
$ million 2021 2022 Gross profit EBIT Gross profit EBIT Gross profit EBIT Note: Figures are unaudited and for the nine months ended 30 April. Does not add to Total Group as shown on a normalised continuing operations basis and excludes unallocated costs and eliminations. Comparative information incl
Slide 21: Consumer channel results
∆¹ ² • Strong increase in gross profit due to: o Improved pricing and product mix in the Ingredients channel, particularly caseinate and WPC in the protein portfolio ³ o Continued volume and gross margin growth in our Chilean consumer business ⁴ • Increased operating expenses due to rising supply ch
Slide 22: Consumer results by region
$ million 2021 2022 Gross profit EBIT Gross profit EBIT Gross profit EBIT Note: Figures are unaudited and for the nine months ended 30 April. Does not add to Total Group as shown on a normalised continuing operations basis and excludes unallocated costs and eliminations. Comparative information incl
Slide 23: Sri Lanka business results
∆¹ ² • Sales volumes down due to lower volumes of GDT products purchased and impact of COVID-19 lockdowns • Improved Ingredients channel performance offset by a decline in the Foodservice channel: o Ingredients channel improved due to higher prices and ³ increased sales volumes of higher margin prod
Slide 24: Sri Lanka results by channel
$ million 2021 2022 Gross profit EBIT Gross profit EBIT Gross profit EBIT Note: Figures are unaudited and for the nine months ended 30 April. Does not add to Total Group as shown on a normalised continuing operations basis and excludes unallocated costs and eliminations. Comparative information incl
Slide 25: Working capital and inventory
• Strong balance sheet enables us to hold higher inventory to manage sales profile following ongoing COVID-19 disruptions • Working capital days have increased due to: o Unfavourable inventory days due to higher milk price and higher average inventory levels o Favourable receivables more than offset
Slide 26: Fonterra Sri Lanka business overview
packaging plants at • established as a joint our Biyagama site venture in 1987 • 1 powder plant • 100% shareholding • 1 liquid & culture products plant employees since 2000 Anchor Ratthi Anlene Newdale 26
Slide 27: Sri Lankan economic conditions
The Sri Lankan tourism industry, a significant contributor to the The Sri Lankan Rupee was unpegged and has limited economy, has been impacted by COVID-19, political turmoil capacity to be hedged. It has devalued against the USD and now the economic crisis so the amount of rupee required to meet USD
Slide 28: Board Statement of Intentions update
In accordance with the Constitution of Fonterra, the Board Statement of Intentions sets out the Board’s intentions for the performance and operations of Fonterra. The table below provides an update as of 30 April 2022, of Fonterra’s performance against these targets. FY21 FY22 Q3 YTD FY22 FY Target
Slide 29: Glossary
Represents the Ingredients, Foodservice and Consumer channels in New Zealand, Means the average price paid by Fonterra for each kilogram of milk solids Australia, Pacific Islands, South East Asia and South Asia (kgMS) supplied by Fonterra’s farmer shareholders under Fonterra’s standard terms of supp
Slide 30: Glossary (continued)
Represents the channel comprising bulk and specialty dairy products such as milk Is Total Group normalised EBIT including finance income on long-term powders, dairy fats, cheese and proteins manufactured in New Zealand, Australia, advances less a notional tax charge, divided by average capital emplo
Slide 31: Disclaimer
This presentation may contain forward-looking statements and projections. There can be no certainty of outcome in relation to the matters to which the forward-looking statements and projections relate. These forward-looking statements and projections involve known and unknown risks, uncertainties, a
Slide 32: Non-GAAP measures
Fonterra uses several non-GAAP measures when discussing financial performance. Non-GAAP measures are not defined or specified by NZ IFRS. Management believes that these measures provide useful information as they provide valuable insight on the underlying performance of the business. They may be use
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