Fonterra Co-operative Group Limited · NZX:FCG

Fonterra Co-operative — Q1 FY2016 Earnings Presentation

21 slides from Fonterra Co-operative's earnings presentation, November 2015

  1. Slide 1: Business Update November 2015

    BUSINESS UPDATE NOVEMBER 2015

  2. 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

  3. Slide 3: Fundamentals for dairy remain strong – 2025 view

    Fundamentals for dairy remain strong – 2025 view 32 5 6 17 Russia 23 11 12 6 Europe United States China 7 19 0 13 20 India 12 Asia (excl China) 28 Production 2025 Middle East and Africa 20 Consumption 2025 2 3 Net surplus 2015 Net surplus 2025 Australia New Zealand Net deficit 2015 Notes: • Forecast

  4. Slide 4: Dairy supply/demand imbalance reducing

    Dairy supply/demand imbalance reducing China Supply EU Russia Demand Year to date imports EU’s largest dairy export • Imports up in Year to date +1% market -15% production past 2 months Trade embargo remains (YTD up from -21%) US Asia (excl China) Year to date production +1% Year to date imports +11

  5. Slide 5: China dairy fundamentals remain strong

    China dairy fundamentals remain strong China Dairy Production and Tracked Customer Inventory² Consumption Gap¹ 300 70 250 Volume bn LME 60 50 200 Volume 40 150 30 100 20 10 50 0 0 2000 2005 2010 2015 2020 2025 Oct Dec Feb Apr Jun Aug Consumption Production Estimated inventory Long term normal level

  6. Slide 6: New Zealand milk supply down

    New Zealand milk supply down Monthly Change in Milk Supply • Lower milk collections 20% – October 4% down1 10% – Season to date 5% down2 0% • 2015/16 season collection forecast -10% Jun Jul Aug Sep Oct Nov Dec – 5% down compared to the 2014/15 Season to Date Change season Lower Collections Reflected

  7. Slide 7: Optimising sales in line with tightening inventory

    Optimising sales in line with tightening inventory Month End Inventory¹ • Strong sales performance Q1 Volume (MT) – Sales contracted rates strong and in Inventory line with last year Jul Aug Sep Oct • FY16 Q1 closing inventory volume in line with last year FY15 FY16 Inventory Profile¹ • FY16 year-en

  8. Slide 8: 2016 Q1 performance summary

    2016 Q1 performance summary VOLUME (MT) REVENUE GROSS MARGIN OPEX CAPEX 945K MT $3.6BN 22.7% $628M $258M 0.6% 1 17.6% 1 FROM 14.1% 1 3.5% 1 36.5% 1 Ingredients Consumer and International Farming Foodservice Volume Change2 2% Volume Change2 3% Volume Change2 56% Gross Margin3 % 15% Gross Margin3 % 28

  9. Slide 9: Optionality and product mix in NZ ingredients

    Optionality and product mix in NZ ingredients Milk Supply versus Installed Capacity Positive Stream Returns in Q1 100 6,000 FY13 FY14 FY15 FY16 90 Volume m litres / day 5,000 80 4,000 USD (MT) 70 FY16 increased 3,000 60 free capacity 2,000 50 FY15 no free 40 capacity 1,000 30 0 Aug Sep Oct Nov Aug 1

  10. Slide 10: Consumer and foodservice growth in Q1

    Consumer and foodservice growth in Q1 Asia Latin America Volume¹ Gross Margin2 Volume¹ Gross Margin2 +4% +1% 69 72 161 159 33% 35% Q1 15 Q1 16 Q1 15 Q1 16 Oceania Greater China Volume¹ Gross Margin2 Volume¹ Gross Margin2 +0% +19% 162 162 37 31 19% 27% Q1 15 Q1 16 Q1 15 Q1 16 1. Volume (000s MT) 2. T

  11. Slide 11: Financial strength and discipline

    Financial strength and discipline Solid credit rating reflects strong Financial discipline continued fundamentals • Lower capex following planned investment cycle Fitch A (stable • Advance rate within guidelines outlook) Credit Rating • Leverage reduction progressing to A- (stable S&P plan outlook)

  12. Slide 12: Strategy delivering – shifting volume to higher value

    Strategy delivering – shifting volume to higher value 1 Optimise NZ milk DIRA Consumer 2 Build and grow beyond our current GDT consumer positions • Volume off GDT and 3 Foodservice increased sales Deliver on Foodservice potential through bilateral 4 Grow customer agreements our Anlene™ business 5 •

  13. Slide 13: Strong global partnerships key to our strategy: Beingmate

    Strong global partnerships key to our strategy: Beingmate Platform to grow whey specialty ingredients • Heerenveen factory commissioned Access to fast growing $18bn infant Utilise high formula market quality Australian • Investment in nutritional assets Beingmate, #1 • Darnum JV domestic infant appr

  14. Slide 14: China #1 market – dynamic and significant opportunities

    China #1 market – dynamic and significant opportunities Forces shaping China: We have a plan to deliver: 1. Demographics • Ambition $10bn business – #1 dairy player – 1-2 child policy • 60% ingredients, 20% consumer, 20% – 400m-500m middle class foodservice 2. Technology / e-Commerce • #1 preferred

  15. Slide 15: Business Transformation

    BUSINESS TRANSFORMATION Page 15 © Fonterra Co-operative Group Ltd.

  16. Slide 16: Our focus is on both performance and mindset

    Our focus is on both performance and mindset Performance… …Mindset • Driving performance weekly • Clarity of expectations • Maximising cash • Personal ownership and − Milk Price accountability − EBIT − Balance sheet • Shared learning − Cash flow Total shareholder return Page 16 © Fonterra Co-operati

  17. Slide 17: A changed pace at which we track progress

    A changed pace at which we track progress A big picture effort… …with weekly focus 24 months Velocity Office with dedicated Velocity COO 14 workstreams Rigorous weekly performance reviews, locally and centrally 2,000 initiatives Challenging our pace and 4,000 employees ambition on performance (finan

  18. Slide 18: We are looking at the whole of Fonterra

    We are looking at the whole of Fonterra Optimising outcome through business and functional focus Business Leaders Global Global New Australia LATAM GC, Asia Farm Example: ~$5m Ops Ingredients Zealand & MEA Source New product development Commercial Consumer time reduced by 12 months Commercial stripp

  19. Slide 19: Strong pipeline of initiatives

    Strong pipeline of initiatives Velocity Initiative Pipeline No. of Initiatives Yet to be implemented Implemented initiatives ~1,600 ~1,500 ~1,300 ~1,000 ~700 >200 Q1 Q2 Q3 Q4 Q1 Q2 FY16 FY17 Actuals Forecast Page 19 © Fonterra Co-operative Group Ltd.

  20. Slide 20: Transformation delivering cash benefits

    Transformation delivering cash benefits Estimated FY16 Transformation Cash Benefits¹ $ million 440 340 170 110 Recurring² One-time Recurring² One-time Q1 Half-Year No. of Initiatives ~200 ~50 ~600 ~80 1. The estimated FY16 cash benefits of business transformation initiatives implemented in Q1 and ha

  21. Slide 21: Outlook

    Outlook • Good operating performance well ahead of last year • Our business transformation is delivering • Forecast 2015/16 total available for pay-out to be increased: – A forecast Farmgate Milk Price of $4.60 per kgMS – A strong forecast EPS performance of 45-55 cps • At this stage of the season,

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