Fonterra Co-operative Group Limited · NZX:FCG
Fonterra Co-operative — H1 FY2019 Earnings Presentation
26 slides from Fonterra Co-operative's earnings presentation, March 2019
Slide 1: Interim Results 2019
Interim Results 2019 March 2019
Slide 2: Disclaimer
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, uncer
Slide 3: Headlines
Headlines • Forecast Farmgate Milk Price range $6.30-$6.60 per kgMS but forecast New Zealand collections flat on last year • Earnings performance reinforces need for fundamental change – full strategy review is well underway • Good progress made on three point plan – Processes well advanced (Beingma
Slide 4: Improved milk price reflects global dairy market
Improved milk price reflects Russia global dairy market EU’s largest Europe dairy export United market China +1% States 12 months Trade embargo Rest of +8% +1% -1% Global 12 months October to remains Asia 12 months Supply1 December +5% +1% October to 12 months December New Zealand Global +4% Demand2
Slide 5: Earnings performance not where it needs to be
Earnings performance not where it needs to be New Zealand Ingredients’ steady performance offset by Australia Ingredients and Consumer and Foodservice Volume LME Revenue Gross Opex Normalised Normalised Reported Net Debt Margin1 EBIT 1 NPAT 1 NPAT 10.7bn $9.7bn $1.5bn $1.2bn $323m $80m $80m $7.4bn 2
Slide 6: Good progress with three-point plan
Good progress with three-point plan Take stock, getting the basics right, more accurate forecasting Take Stock • Reduce debt by $800 million • In discussion with interested parties for Tip Top and DFE Pharma, and actively considering options for our shareholding in Beingmate • Gearing within 40-45%
Slide 7: Higher debt at half year reflects milk curve
Higher debt at half year reflects milk curve Better financial discipline but higher net debt due to higher opening debt level Net Debt² Interim Dividend Working Capital Gearing¹ $7.4bn $0 82 days 4% 0cps 2 days 52.5% Capex³ Net Cash Flow⁴ Credit Rating 0.9% $316m $(1.0)bn A A- Negative Stable 9% 16%
Slide 8: Full-year earnings guidance reduced in February
Full-year earnings guidance reduced in February Challenges at Q1 continue and margins on non-reference products have reduced Forecast 2019 Farmgate Milk Price Forecast 2019 Milk Collections Forecast EPS¹ $6.30 - $6.60 1,510 kgMS million kgMS 15-25 cents INGREDIENTS CONSUMER AND FOODSERVICE Forecast
Slide 9: What we need to do in the second half to achieve the midpoint of earnings guidance
What we need to do in the second half to achieve the midpoint of earnings guidance Consumer & Ingredients Ingredients Foodservice • $339 million second half EBIT: Forecast – Sell similar volumes to first half EBIT¹ $800m $500m – Achieve gross margin of at least 8% • Risks: – Tighter New Zealand milk
Slide 10: Full strategy review well underway to fundamentally reset the Co-op
Full strategy review well underway to fundamentally reset the Co-op Looking at all aspects of our business Strategic review – emerging themes • A globally competitive New Zealand dairy co-op • Sustainability at the heart of everything we do • Value rather than volume • Prioritise our New Zealand mil
Slide 11: Appendix
a Dairy for life APPENDIX
Slide 12: Milk collections forecast for season recently reduced
Milk collections forecast for season recently reduced Strong start to the season, collections impacted by on-farm conditions New Zealand Milk Collection 90 2016-17 • New Zealand milk collections forecast is 1,510 million 80 2017-18 kgMS 2018-19 – 1% reduction from previous forecast due to ongoing Vo
Slide 13: Ingredients
Ingredients Steady New Zealand performance, challenging environment in offshore milk pools Volume¹ EBIT Performance • New Zealand Ingredients steady performance – Sales volume and inventory up reflecting higher milk collection – Overall solid margins but non-reference margins down slightly on last y
Slide 14: New Zealand Ingredients product mix
New Zealand Ingredients product mix 2018 2019 $ million $ per MT $ million $ per MT • Increased volume Sales Volume (000 MT)¹ – Reference products due to higher first half Reference 900 – 924 – milk collections Non-Reference 277 – 354 – – Non-reference due to including intercompany Revenue¹ Foodserv
Slide 15: Consumer and Foodservice
Consumer and Foodservice Tighter margins in Consumer and lower volumes and margins in Foodservice Volume¹ EBIT Performance • Improved sales volume in Q2 but down for the half year due to strong sales at end of last year • Localised challenges in Greater China, Chile and Sri Lanka resulted in a decli
Slide 16: Consumer and Foodservice by region
Consumer and Foodservice by region Challenges in China Foodservice and Latin America Consumer outweigh growth in Australia Greater Latin Asia Oceania China America Volume¹ 524m -13% 733m -4% 388m +5% 843m +3% Gross Margin $163m -11% $200m -5% $185m -16% $218m +4% from from from from 24% 25% 21% 23%
Slide 17: Consumer
Consumer Growth in Australia and Malaysia but challenges in Latin America Gross Performance Volume¹ Margin • Volume growth up in all regions, particularly in 27% – Australia (liquid milk and spreads) 25% – Malaysia (Fernleaf powders) which has flowed through to positive gross margins in these market
Slide 18: Consumer
Consumer Steady performance across the regions except Latin America Greater Latin Asia¹ Oceania China America Volume² 81m +29% 461m +5% 334m +4% 630m +3% Gross Margin³,⁴ 39% from 41% 26% from 29% 25% from 30% 20% from 20% +4% -3% -18% +2% $74 $77 $171 $166 $207 $170 $168 $171 2018 2019 2018 2019 201
Slide 19: Foodservice
Foodservice Challenges in Greater China and Asia impact on Foodservice performance Gross Performance Volume¹ Margin • Volume down due to Greater China and parts of Asia – Impacted by challenges in butter category 17% 16% – Both displayed improved Q2 sales on Q1 • Strong sales in UHT cream and bevera
Slide 20: Foodservice
Foodservice Greater China volumes and margin down due to challenges in butter category Greater Latin Asia Oceania China America Volume¹ 443m -17% 272m -16% 54m +17% 213m +2% Gross Margin²,³ 18% from 20% 12% from 13% 21% from 23% 18% from 16% -21% -13% +13% +15% $13 $15 $108 $85 $40 $35 $41 $47 2018
Slide 21: Operating expenses
Operating expenses Improved operating expenses despite bringing Anmum in-house from Beingmate $ million as at 31 January 2017 2018 2019 Ingredients Selling and marketing 56 64 62 • Distribution and administration up in Distribution 116 116 119 Consumer and Foodservice due to taking Administrative ex
Slide 22: Diversified and prudent funding position
Diversified and prudent funding position Strong liquidity and access to funds Diversified Profile¹ Prudent Liquidity USD DCM 14% Bank Facilities NZD DCM 14% Drawn Facilities Undrawn $2.01b 47% Facilities 39% EUR/GBP 10% $3.19b 61% CNH DCM 3% AUD DCM 12% Bank Facility Maturity Profile DCM Maturity Pr
Slide 23: Key financial metrics for half year
Key financial metrics for half year Sales Volumes¹ Volume to Higher Value² Reported Revenue Ingredients Consumer and Foodservice Advanced Ingredients (LME m) $ million $ per LME Consumer and Foodservice (LME m) As % of Total LMEs³ 9,746 9,839 9,746 LME (billion) LME (million) 13.3 14.3 13.7 43% 44%
Slide 24: Key financial metrics for half year
Key financial metrics for half year Normalised NPAT¹,² Reported NPAT¹,² Capital Expenditure³ 409 418 389 763 $ million $ million $ million 372 183 80 248 453 346 316 244 70 80 (348) 2015 2016 2017 2018 2019 2015 2016 2017 2018 2019 2015 2016 2017 2018 2019 Gearing Working Capital Days Free Cash Flow
Slide 25: Glossary
Glossary Acronyms and Definitions AMF Fluid and Fresh Dairy Reference Products Anhydrous Milk Fat The Fonterra grouping of skim milk, whole milk and The dairy products used in the calculation of the cream – pasteurised or UHT processed, concentrated Farmgate Milk Price, which are currently WMP, SMP,
Slide 26: Glossary
Glossary Fonterra Strategic Platforms Ingredients The Ingredients platform comprises bulk and specialty dairy products such as milk powders, dairy fats, cheese and proteins manufactured in New Zealand, Australia, Europe and Latin America, or sourced through our global network, and sold to food produ
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