Fonterra Co-operative Group Limited · NZX:FCG
Fonterra Co-operative — H1 2012 Earnings Presentation
46 slides from Fonterra Co-operative's earnings presentation, Mar 29, 2012
Slide 1: Fonterra Strategy Refresh & 2012 Interim Results
29 March 2012 FONTERRA STRATEGY REFRESH & 2012 INTERIM RESULTS Fonterra Co-operative Group Ltd
Slide 2: Overview
OVERVIEW • 2012 INTERIM RESULTS • STRATEGY REFRESH • QUESTIONS & ANSWERS Page 2 Fonterra Co-operative Group Ltd
Slide 3: Sir Henry van der Heyden
SIR HENRY VAN DER HEYDEN Fonterra Co-operative Group Ltd
Slide 4: Highlights
HIGHLIGHTS • Net profit after tax up 18% to $346m Normalised EBIT ($m)(1) • Normalised earnings before interest and tax(1) 552 up 8% to $552m • Strong growth in NZ milk production, up 10% season-to-date 509 496 • Sales volume gains of 5%(2) were broad based, reflecting attractiveness of dairy around
Slide 5: Bumper Milk Flows
BUMPER MILK FLOWS NZ Milk Collections (million kgMS) 250 200 +10% 150 2011 100 2012 50 0 Jun Jul Aug Sep Oct Nov Dec Jan Page 5 Fonterra Co-operative Group Ltd
Slide 6: GDT Prices Relatively Flat Compared to Last Year
GDTTM PRICES RELATIVELY FLAT COMPARED TO LAST YEAR GDTTM WMP Prices 5,000 4 500 4,500 4,000 USD per metric tonne 3,500 3,000 2,500 2,000 Page 6 Fonterra Co-operative Group Ltd
Slide 7: Fonterra Co-op Challenges
FONTERRA CO-OP CHALLENGES $8.25 $6.75- $6.85 (1) 2011 Final Latest Payout (1) Payout Forecast Note: (1) Payout before retentions assumes a farmer is 100 per cent shared up (owning one share per kg MS of annual milk production). Page 7 Fonterra Co-operative Group Ltd
Slide 8: Theo Spierings
THEO SPIERINGS Fonterra Co-operative Group Ltd
Slide 9: Strong First Half
STRONG FIRST HALF 1H 2012 $m Change % External Volume 1,927 5(1) (thousand metric tonnes) Revenue 10,026 7 Normalised EBIT(2) 552 8 Normalised EBIT Margin(3) 5.5% 7 bps Profit after tax 346 18 Earnings per share(4) 24 14 Dividend per share(4) 12 50 Note: (1) Excludes the sales volumes of the Western
Slide 10: Key Drivers
KEY DRIVERS • Solid growth in total sales volume • Improved margins in Standard & Premium Ingredients • ANZ impacted by challenging trading conditions • Stronger NZD had negative impact on earnings of our Asia/AME & Latam operations Page 10 Fonterra Co-operative Group Ltd
Slide 11: Outlook
OUTLOOK • Stronger global milk production expected in 2012 • Milk powder demand appears robust but dairy commodity prices likely to remain under some pressure through to mid 2012 • Forecast Farmgate Milk Price of $6.35 per kgMS and net profit after tax guidance of 40-50 cents per share equating to $
Slide 12: Milk for Schools
MILK FOR SCHOOLS • Milk is packed with goodness for growing children • Fonterra Milk for Schools aims to give New Zealand primary-aged children the opportunity to enjoy the goodness of dairy every school day by offering free milk in schools Page 12 Fonterra Co-operative Group Ltd
Slide 13: Jonathan Mason
JONATHAN MASON Fonterra Co-operative Group Ltd
Slide 14: Standard & Premium Ingredients
STANDARD & PREMIUM INGREDIENTS External • Normalised EBIT growth of 44%(1) Normalised EBIT ($m) Volume Growth(1) • Key performance drivers: 273 - improved margins +7% 231 - swapping long-term contracts to those with Revenue 189 shorter tenure indexed to GDTTM Growth(1)(2) - strong underlying growth
Slide 15: Australia / New Zealand
AUSTRALIA /NEW ZEALAND External • ANZ’s performance after adjusting for the Normalised EBIT ($m) Volume sale of the WA business in 2011 and in Growth(1) constant currency(3): 154 -12% 12% - External E t l volume l up 4% 124 Revenue - Revenue up 2% 102 Growth(1)(2) - Normalised EBIT 16% lower - 4% •
Slide 16: Asia/Africa & Middle East
ASIA/AFRICA & MIDDLE EAST External • On a constant currency basis, Normalised EBIT ($m) Volume normalised EBIT was 5%(1)(2) lower, due Growth(1) largely to: +4% 97 96 - higher hi h sales l & marketing k ti costs t 84 Revenue - increased input costs Growth(1) • Core focus is execution of growth +7% s
Slide 17: Latin America
LATIN AMERICA External • On a constant currency basis, Normalised EBIT ($m) Volume normalised EBIT was up 6%(1)(3) Growth(1) 64 62 6 -6% 6% • Soprole p had a strong g first half in 55 constant currency terms with Revenue earnings up 15% Growth(1)(2) -5% • Normalised contribution from Dairy Partners
Slide 18: Strong Balance Sheet
Economic Gearing(1) STRONG 59.6% BALANCE 57.6% SHEET 54.3% 53.0% 48 5% 48.5% Target 46.9% Range 44.9% 45-50% 41.8% Jul 08 Jan 09 Jul 09 Jan 10 Jul 10 Jan 11 Jul 11 Jan 12 Note: (1) Gearing is measured in terms of economic net interest bearing debt over economic net interest bearing debt plus equity
Slide 19: Trading Among Farmers
TRADING AMONG FARMERS AUGUST- MARCH APRIL/MAY JUNE/JULY DECEMBER • Strategy gy Refresh • Board considers • Shareholders’ • Workshops p on the first four pre- Council considers online broker conditions and Board report and system for farmer • Interim Result prepares report to fifth pre-condition shar
Slide 20: Theo Spierings
THEO SPIERINGS Fonterra Co-operative Group Ltd
Slide 21: Strengths, Opportunities, Strategic Choices
STRENGTHS OPPORTUNITIES STRATEGIC CHOICES • Access to quality milk • Forecast global volume • Target geographies and • Efficient farms demand growth of at least nutritional needs 100 billion litres by 2020 • Ensure strong alignment g • Integrated model • NZ couldld supplyl an with vision • Strong, b
Slide 22: Emerging Markets Are Key
STRATEGIC STRENGTHS OPPORTUNITIES CHOICES Outlook to 2020 EMERGING MARKETS 7% ARE KEY 10% 4% <1% <1% Europe China <1% 1% 2% Nth America 4% India 2% 2-3% 2% MENA <1% 2% LATAM ANZ Demand Growth Milk Supply Growth Source: FAO, Euromonitor, Fonterra estimates Page 22 Fonterra Co-operative Group Ltd
Slide 23: Exciting Growth Forecasts
STRATEGIC STRENGTHS OPPORTUNITIES CHOICES EXCITING GROWTH Formal Dairy Market FORECASTS 500 bn L by 2020 (3% CAGR) Globally Traded D i M Dairy Market k t 84 bn L by 2020 (5-6% CAGR) New Zealand 375 billion litres 22 bn L by 2020 (2% CAGR) 49 17 billion Bn L litres Source: FAO, UN Comtrade, Euromonit
Slide 24: Global Megatrends Informing Strategy
STRATEGIC STRENGTHS OPPORTUNITIES CHOICES GLOBAL MEGATRENDS INFORMING STRATEGY Rising Social Rise of Increase in demand for demographics Nutrition for Increased New Emerging commodity dairy (e g Aging in (e.g. Healthy focus on technology Markets & prices & nutritional OECD & Ageing sustainability &
Slide 25: Strategy Principles
STRATEGIC STRENGTHS OPPORTUNITIES CHOICES STRATEGY PRINCIPLES Our Vision and Objectives New Business Cash Generators Growth Generators Generators What is our source of What will be the sources What are our mould- cash to generate & of our future cash flow? breaking opportunity finance our growth? ar
Slide 26: New Group Portfolio
STRATEGIC STRENGTHS OPPORTUNITIES CHOICES NEW GROUP PORTFOLIO Our Vision and Objectives Cash Generators Growth Generators New Business ‘M t do’ ‘Must d ’ ‘C d ‘Can do’’ ‘W t to ‘Want t do’ d ’ New Zealand Milk China India Middle-east & North Africa ASEAN Advanced Nutrition (MENA) Optimise Latin Amer
Slide 27: Seven Strategic Paths
STRATEGIC STRENGTHS OPPORTUNITIES CHOICES SEVEN 1. Optimise New Zealand milk STRATEGIC PATHS 2. Build and grow beyond our current consumer positions 3. Deliver on foodservice potential 4. Grow our position in mobility 5. Develop selected leading positions in paediatrics and maternal 6. Selectively i
Slide 28: 1. Optimise New Zealand Milk
STRATEGIC STRENGTHS OPPORTUNITIES 1. CHOICES OPTIMISE NEW ZEALAND MILK • Grow with the market • Enhance asset footprint • Drive D i iimproved d price i achievement and cost to serve • Increase speed/agility of our supply chain • Expand financial risk management tools Page 28 Fonterra Co-operative Gr
Slide 29: 2. Build & Grow Beyond Current Consumer Positions
2. STRENGTHS OPPORTUNITIES STRATEGIC CHOICES BUILD & GROW BEYOND CURRENT CONSUMER POSITIONS • Leverage our leadership position in ANZ • Invest in key emerging markets - New/underpenetrated Asian markets - China - Latin America - MENA Page 29 Fonterra Co-operative Group Ltd
Slide 30: 3. Deliver on Foodservice Potential
STRATEGIC STRENGTHS OPPORTUNITIES CHOICES 3. DELIVER ON FOODSERVICE POTENTIAL • Drive cash from established & profitable businesses • Drive growth in key emerging markets - China - ASEAN - LATAM - MENA • Continue innovation investment Page 30 Fonterra Co-operative Group Ltd
Slide 31: 4. Grow Our Position in Mobility
STRATEGIC STRENGTHS OPPORTUNITIES CHOICES 4. GROW OUR POSITION IN MOBILITY • Strengthen Anlene leadership in ASEAN through portfolio expansion p and increased penetration • Drive Anlene in China across selected regions Page 31 Fonterra Co-operative Group Ltd
Slide 32: 5. Develop Selected Leading Positions in Paediatrics & Maternal
5. STRENGTHS OPPORTUNITIES STRATEGIC CHOICES DEVELOP SELECTED LEADING POSITIONS IN PAEDIATRICS & MATERNAL • Step change in focus on paediatric ingredients in China • Strengthen g our leadership p position in our branded maternal category • Enhance position in infant formula in selected Asian markets
Slide 33: 6. Selectively Invest in Milk Pools
STRATEGIC STRENGTHS OPPORTUNITIES CHOICES 6. SELECTIVELY INVEST IN MILK POOLS • Maintain strong milk supply position in New Zealand, Australia & Latam • Stage-gated g g investment in additional China farms, through partnerships • Focus on food security & safety • Pilot farms in selected markets to t
Slide 34: 7. Alignment of Business & Organisation to Enable Strategy
7. STRENGTHS OPPORTUNITIES STRATEGIC CHOICES ALIGNMENT OF BUSINESS & ORGANISATION TO ENABLE STRATEGY • Re-align overhead spend to focus on fastest growing markets • Exit unprofitable, unprofitable uncompetitive and non-core categories and markets • Improve efficiency and effectiveness of corporate c
Slide 35: Key Value Drivers
STRATEGIC STRENGTHS OPPORTUNITIES CHOICES KEY VALUE DRIVERS 2011 2010 2009 Volume (M MT) 3.9 3.8 3.7 Normalised EBIT ($M) 1,005 904 1,019 EBIT Margin1 5.1% 5.4% 6.4% Operating & Investing Cash flow 839 636 1,393 ($M) 2 Return on Capital Employed 3 9.3% 8.7% 9.2% Note 1 –Normalised EBIT (excluding no
Slide 36: Strategy Sets Platform for Growth
STRATEGIC STRENGTHS OPPORTUNITIES STRATEGY CHOICES SETS PLATFORM FOR GROWTH Drive Dri e Ret Return rn on Improve Impro e Shareholder Improve Value Drivers Capital (ROCE) Value • Volume growth • Value growth Farmer Improve Return on Income • Strong operating Capital Employed & investing cash flow Val
Slide 37: Summary
SUMMARY 1. Growth – volume and value Multiple milk pools Integration back End-to-end business • Global exports of home milk to the farm • B2B Ingredients; and • Local milk pools • B2C Branded 2. Focuses on our strengths 3. Clear Choices 4. Executable Page 37 Fonterra Co-operative Group Ltd
Slide 38: Supplementary Information
SUPPLEMENTARY INFORMATION Fonterra Co-operative Group Ltd
Slide 39: Interim Result
INTERIM RESULT 1H 2012 ($m) 1H 2011 ($m) Change ($m) Change % Revenue 10,026 9,356 670 7.2 Profit after tax 346 293 53 18.1 Normalised EBITDA(1) 795 752 43 5.7 Normalised EBIT(2) 552 509 43 8.4 Earnings per share(3) 24 21 3 14.3 Operating cash flow (442) (189) (253) (133.9) Economic gearing(4) 46.9%
Slide 40: Normalised EBIT
NORMALISED EBIT 1H 2012 ($m) 1H 2011 ($m) Operating Profit 516 452 Plus share of profit of equity accounted investees 14 40 EBIT 530 492 Add back non-recurring items - Impairment losses recorded in equity accounted investees 20 - Impact of Christchurch earthquake 3 - Costs associated with sale of We
Slide 41: Standard & Premium Ingredients
STANDARD & PREMIUM INGREDIENTS 6 months to 6 months to % Change 31 Jan 2012 31 Jan 2011 Volume (000 MT) 1,234 1,151 7.2 Total Revenue ($M) 7,965 7,231 10.2 External Revenue ($M) 7,097 6,358 11.6 Normalised EBIT ($M) 273 189 44.4 Operating Margin(1) 3.4% 2.3% Normalised EBITDA ($M) 463 378 22.5 EBITD
Slide 42: Australia/New Zealand
AUSTRALIA/ NEW ZEALAND 6 months to 6 months to % Change 31 Jan 2012 31 Jan 2011 Volume (000 MT) 413 468 (11.8) Total Revenue ($M) 1,996 2,081 (4.1) External Revenue ($M) 1,597 1,708 (6.5) Normalised EBIT ($M) 124 154 (19.5) Operating Margin(1) 6.2% 7.4% Normalised EBITDA ($M) 162 195 (16.9) EBITDA M
Slide 43: Asia/Africa & Middle East
ASIA/AFRICA & MIDDLE EAST 6 months to 6 months to % Change 31 Jan 2012 31 Jan 2011 Volume (000 MT) 132 127 39 3.9 Total Revenue ($M) (1) 947 887 6.8 Normalised EBIT ($M) 84 97 (13.4) Operating Margin(2) 8.9% 10.9% Normalised EBITDA ($M) 88 101 (12.9) EBITDA Margin(3) 9.3% 11.4% Notes: (1) Nil Inters
Slide 44: Latin America
LATIN AMERICA 6 months to 6 months to % Change 31 Jan 2012 31 Jan 2011 Volume o u e (000 MT)) 148 8 157 5 (5.7)) (5 Total Revenue ($M) 385 406 (5.2) External Revenue ($M) 385 403 (4.5) Normalised EBIT ($M) 62 64 (3.1) Operating Margin(1) 13.8% 11.1% Normalised EBITDA ($M) 73 73 - EBITDA Margin(2) 19
Slide 45: Cashflow Summary
CASHFLOW SUMMARY 6 months to 6 months to 31 Jan 2012 31 Jan 2011 ($m) ($m) C h flflows ffrom operating Cash ti activities ti iti (442) (189) Cash flows from investing activities (294) (257) Cash flows from financing activities 621 724 Net cash (outflow)/inflow (115) 278 Page 45 Fonterra Co-operative
Slide 46: Gearing
GEARING 31Jan 2012 31 Jan 2011 31 July 2011 ($m) ($m) ($m) Net Interest bearing debt position Total borrowings 5,802 5,854 4,650 Cash and cash equivalents (684) (831) (785) Interest bearing advances included in other non-current assets (126) (117) (122) Bank overdraft 27 29 23 Value of derivatives u
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