Fonterra Co-operative Group Limited · NZX:FCG
Fonterra Co-operative — Fonterra — H1 FY2023 Earnings Presentation
51 slides from Fonterra Co-operative's earnings presentation, Mar 16, 2023
Slide 1: Interim Results 2023
Interim Results 2023 16 March 2023 (eon ther: from one § 2 benerat tolthe ne:
Slide 2: Profit after tax up $182 million
© FONTERRA INTERIM RESULTS 2023 2 • Profit after tax up $182 million, or 50%, to $546 million due to higher margins in protein and cheese products • Interim dividend of 10 cents per share, up from 5 cents per share • Full year forecast normalised earnings increased to 55-75 cents per share • Intende
Slide 3: Key financial metrics
© FONTERRA INTERIM RESULTS 2023 3 © FONTERRA from $364m from $(849)m from 22c from 5c from 1,033m from 6.1% 1. Return on capital is calculated for the 12-months ended 31 January. Refer to Glossary for the definition
Slide 4: Global milk production and imports
© FONTERRA INTERIM RESULTS 2023 4 1 0.4% 1 0.2% • Production from the four key regions is down 0.4% and imports from the other four regions are down 1.0% • Lower milk production in New Zealand and Australia, 2 16.9% primarily due to adverse weather • Decrease in China imports driven mainly by
Slide 5: Global dairy product prices
© FONTERRA INTERIM RESULTS 2023 5 16,000 12,000 8,000 • Softening of whole milk powder prices, mainly due to lower demand in China • Higher prices for protein products, in particular 4,000 casein and caseinate, driven by strong demand combined with constrained manufacturing capacity - Whole milk pow
Slide 6: GlobalDairyTrade shipment prices
© FONTERRA INTERIM RESULTS 2023 6 6,000 4,000 US$/MT FY22 H1 FY23 H1 2,000 2017 2018 2019 2020 2021 2022 2023 Reference product shipment price1,2 Non-reference (cheese) product shipment price 1,3 Source: GlobalDairyTrade 1. The shipment price is a weighted average price of GlobalDairyTrade contracts
Slide 7: Lower milk collections for current season
© FONTERRA INTERIM RESULTS 2023 7 1,200 1,000 • Lower milk collections for current season, 800 down 1.6% as at 31 January • Produced less whole milk powder and 600 increased proportions in the higher returning product streams 400 200 - Whole milk powder Skim milk powder Cream Cheese Other
Slide 8: Operational update: storms, automation, biomass boiler
© FONTERRA INTERIM RESULTS 2023 8 • Severe storms and flooding across the North Island in January and February • Completed automation of our Crawford • The installation of this biomass boiler is exacerbated national supply chain Street cool store distribution centre to expected to reduce emissions b
Slide 9: Portfolio sales, capital structure and emissions target
© FONTERRA INTERIM RESULTS 2023 9 • We are progressing the sales of our • The transition to our new capital structure will businesses in Chile and Brazil occur on 28 March 2023 • Last year we signalled to farmers that the – in February, we received approval from • We‘ve allocated up to $300 million
Slide 10: Intend to return around 50 cents per share
© FONTERRA INTERIM RESULTS 2023 10 Intend to return around Record date intended to Will apply equally to Tax-free Structured so there is no 50 cents per share, which be in late September, with shareholders and unit return change in the number of is approximately cash received holders shares or units
Slide 11: Total Group financial highlights
© FONTERRA INTERIM RESULTS 2023 11 © FONTERRA from $10.8b from 14.9% from $1.1b from $607m Note: Figures are Total Group. This includes continuing and discontinued operations
Slide 12: Total Group normalised results
© FONTERRA INTERIM RESULTS 2023 12 ∆ Sales volume (‘000 MT) 1,921 1,994 4% Revenue ($) 10,797 13,249 23% Cost of goods sold ($) (9,190) (10,951) (19)% • Higher sales volumes reflect sell down of additional FY22 Gross profit ($) 1,607 2,298 43% year-end inventory Gross margin (%) 14.9% 17.3% • Increa
Slide 13: Normalised EBIT by segment
© FONTERRA INTERIM RESULTS 2023 13 (‘000 MT) (before unallocated costs & eliminations) Note: Prepared on a normalised continuing operations basis. Normalised EBIT contributions in the above table sum to $983 million, and do not align to reported continuing operati
Slide 14: Quarterly EBIT by segment
© FONTERRA INTERIM RESULTS 2023 14 (‘000 MT) 598 (before unallocated costs & eliminations) 288 313 238 258 129 57 120 28 42 23 46 37 46 9 33 (46) (127) Note: Prepared on a normalised continuing operations basis. Normalised EBIT contributions in the above table sum to $983
Slide 15: Net debt, gearing and working capital
© FONTERRA INTERIM RESULTS 2023 15 7.6 53.5 6.0 6.4 6.1 49.5 49.8 47.3 5.6 5.3 5.8 44.2 44.1 42.4 43.3 5.2 38.5 4.3 • Net debt and gearing are typically higher at half year due to the seasonal profile of working capital 2019 2020 2021 2022 2023 2019 2020 2021 2022 2023 • Net debt in-line with expect
Slide 16: Free cash flow
© FONTERRA INTERIM RESULTS 2023 16 369 (30) (632) (782) (849) 2022 Earnings Net Capex and 2023 2019 2020 2021 2022 2023 working other capital1 • Free cash flow for the first six months is typically an outflow reflecting the • Improved free cash flow reflects higher earnings and improved working capi
Slide 17: Operating expenses
© FONTERRA INTERIM RESULTS 2023 17 Cost allocated to segments Selling & marketing 266 292 • Total Group normalised operating expenses Distribution & storage 225 253 increased $315 million due to: – impairment of our New Zealand consumer Administration 286 308 business and our Asia brands, for $92 mi
Slide 18: Farmgate Milk Price forecast
© FONTERRA INTERIM RESULTS 2023 18 2020/21 2021/22 2022/23 5,000 Season Season Season Forecast per kgMS 4,000 USD/MT $9.30 $8.50 The range reflects: 3,000 $7.54 • softer demand for whole milk powder, particularly from Greater China 2,000 May-20 May-21 May-22 Jan-23 • balanced milk supply with recent
Slide 19: Normalised earnings forecast
© FONTERRA INTERIM RESULTS 2023 19 FY22 H1 FY22 H2 FY23 H1 FY23 Q3 6,000 per share 5,000 USD/MT 4,000 The increased earnings range reflects: 3,000 • strong margins in protein and cheese portfolio have continued longer than initially forecasted 2,000 Jul-21 Jan-22 Jul-22 Jan-23 Apr-23 • contract rate
Slide 20: 20
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Slide 21: Five-year trends: volume, revenue, gross profit
© FONTERRA INTERIM RESULTS 2023 21 ¹ 2,075 2,037 13.2 2,298 1,996 1,994 10.4 9.9 10.8 9.7 1,489 1,668 1,722 1,607 1,921 2019 2020 2021 2022 2023 2019 2020 2021 2022 2023 2019 2020 2021 2022 2023 ('000 MT) ($ billion) ($ million) 1,377 940 806 858 1,232 1,092 1,055 1,062 584 684 607 657 607 312 312 2
Slide 22: Five-year trends: cash flow, gearing, working capital
© FONTERRA INTERIM RESULTS 2023 22 ¹ 611 501 546 418 391 364 293 364 438 72 72 330 175 184 195 2019 2020 2021 2022 2023 2019 2020 2021 2022 2023 2019 2020 2021 2022 2023 ($ million) ($ million) ($ million) 369 (30) 97 96 (782) (632) 53.5 49.8 47.3 (849) 44.1 43.3 92 86 86 2019 2020 2021 2022 2023 20
Slide 23: New Zealand milk collections
© FONTERRA INTERIM RESULTS 2023 23 • Fonterra’s New Zealand milk collections for the period 1 June to 31 January was 1,016 90 million kgMS, down 1.6% on last season 80 2020/21 • Challenging wet weather conditions 2021/22 throughout the North Island combined with a 70 2022/23 reduction in the number
Slide 24: Normalised profit after tax bridge
© FONTERRA INTERIM RESULTS 2023 24 • Increased due to • Increased due to impairments of our New favourable margins, Zealand consumer business and Asia brands, of particularly for protein $90 million and $72 million, respectively, as well and cheese products as the impact of inflationary pressures an
Slide 25: Continuing and discontinued operations results
© FONTERRA INTERIM RESULTS 2023 25 ¹ ¹ ¹ ¹ Revenue 10,085 712 10,797 12,333 916 13,249 Cost of goods sold (8,696) (494) (9,190) (10,287) (664) (10,951) Gross profit 1,389 218 1,607 2,406 252 2,298 Gross margin 13.8% 30.6% 14.9% 16.6% 27.5% 17.3% Operating expenses (909) (153) (1,062) (1,200) (177) (
Slide 26: Normalisation adjustments
© FONTERRA INTERIM RESULTS 2023 26 Foreign exchange movements on derivatives (78) - (78) Impairment - (4) (4) EBIT (78) (4) (82) Net finance costs and tax 17 - 17 Profit after tax (61) (4) (65) Profit attributable to non-controlling interests - - - Profit after tax attributable to equity holders of
Slide 27: Unallocated costs
© FONTERRA INTERIM RESULTS 2023 27 1 • Unallocated costs have increased $50 million mainly due to a $41 million increase in ‘Other’ costs 2 • The increase in ‘Other’ costs was due to the prior period including the release of a $44 million provision following Farmer services 21 22 a final judicial in
Slide 28: Reported to normalised profit after tax
© FONTERRA INTERIM RESULTS 2023 28 364 546 Less: Profit attributable to non-controlling interests (16) (16) Reported profit after tax attributable to equity holders of the Co-operative 348 530 22 33 364 611 Less: Profit attributable to non-controlling interests (16) (16) Normalised profit after tax
Slide 29: Return on capital
© FONTERRA INTERIM RESULTS 2023 2929 Total Group normalised EBIT 875 1,324 Finance income on long-term advances 7 13 Notional tax charge (142) (215) Total Group normalised EBIT plus finance income on 740 1,122 long-term advances less notional tax charge Capital employed at 31 January 12,255 13,434 I
Slide 30: Debt maturity profile
© FONTERRA INTERIM RESULTS 2023 30 ¹ NZD DCM Maturity Profile Maturity Profile 10% Drawn Facilities Bank USD DCM 13% $1.0bn FY23 FY23 Facilities 21% 54% FY24 FY24 FY25 FY25 FY26 FY26 FY27 FY27 FY28 FY28 FY29 FY29 FY30 FY30 CNY DCM FY31 FY31 2% Undrawn Facilities AUD DCM 0.0 1.0 2.0 3.0 0.0 1.0 2.0 3
Slide 31: Total Group gross profit and EBIT
© FONTERRA INTERIM RESULTS 2023 31 $ million 2022 2023 1,347 911 760 166 370 387 83 (94) 85 417 261 335 Gross Profit EBIT Gross Profit EBIT Gross Profit EBIT Note: Figures are for the six months ended 31 January. Does not add to Total Group as shown on a normalised continuing operations basis and ex
Slide 32: Total Group segment results
© FONTERRA INTERIM RESULTS 2023 32 ∆¹ • Higher sales volumes reflect the sell down of additional inventory Sales volume (‘000 MT) 1,013 1,106 9% held at 2022 financial year-end Revenue ($) 6,848 8,735 28% • Gross profit improved 77% due to continued favourable margins in Cost of goods sold (6,088) (
Slide 33: Greater China results
© FONTERRA INTERIM RESULTS 2023 33 ∆¹ • Gross profit increased 28% mainly due to Greater China product Sales volume (‘000 MT) 276 274 (1)% prices adjusting for the higher cost of milk and reduced tariffs from the changes to the New Zealand-China Free Trade Agreement Revenue ($) 1,674 1,928 15% Cost
Slide 34: Asia Pacific results
© FONTERRA INTERIM RESULTS 2023 34 ∆¹ • Gross profit improved 5% due to non-reference price products, Sales volume (‘000 MT) 334 319 (4)% particularly cheese, increasing relative to reference products that informs the cost of milk Revenue ($) 1,563 1,670 7% • Operating expenses increased mainly due
Slide 35: Reference and non-reference products
© FONTERRA INTERIM RESULTS 2023 35 • The average product price per metric tonne increased: – 11% for reference products ¹ – 31% for non-reference products Reference products 793 857 • Cost of milk increased for reference products Non-reference products 415 430 and non-reference products by 16% and 6
Slide 36: Gross profit and EBIT
© FONTERRA INTERIM RESULTS 2023 36 $ million 2022 2023 836 878 714 501 217 215 89 345 362 342 279 267 Gross Profit EBIT Gross Profit EBIT Gross Profit EBIT 1. Figures are for the six months ended 31 January. Does not add to total group as shown on a normalised continuing operations basis and exclude
Slide 37: Ingredients channel results
© FONTERRA INTERIM RESULTS 2023 37 ∆¹ • Higher sales volumes reflect the sell down of additional inventory Sales volume² (‘000 MT) 1,264 1,345 6% held at 2022 financial year-end Revenue ($) 7,705 9,691 26% • Gross profit up $494 million due to favourable price relativities between reference and non-
Slide 38: Gross profit and EBIT
© FONTERRA INTERIM RESULTS 2023 38 $ million 2022 2023 764 147 493 348 (11) 31 (46) (6) 41 (12) 5 14 Gross Profit EBIT Gross Profit EBIT Gross Profit EBIT Note: Figures are for the six months ended 31 January. Does not add to Total Group as shown on a normalised continuing operations basis and exclu
Slide 39: Global Markets results
© FONTERRA INTERIM RESULTS 2023 39 ∆¹ • Higher sales volumes reflect the sell down of additional inventory Sales volume² (‘000 MT) 1,075 1,272 18% held at 2022 financial year-end Revenue ($) 6,545 9,424 44% • Normalised EBIT down $12 million, due to: Cost of goods sold (5,831) (8,546) (47)% – Consum
Slide 40: Gross profit and EBIT
© FONTERRA INTERIM RESULTS 2023 40 $ million 2022 2023 480 187 91 101 87 319 332 5 21 304 297 (86) Gross Profit EBIT Gross Profit EBIT Gross Profit EBIT Note: Figures are for the six months ended 31 January. Does not add to Total Group as shown on a normalised continuing operations basis and exclude
Slide 41: Australia results
© FONTERRA INTERIM RESULTS 2023 41 • Lower milk collections due to unseasonably wet spring ∆¹ conditions impacting peak milk production Milk collections (kgMS) 68 66 (2)% • Gross profit and EBIT increased due to: Sales volume (‘000 MT) 172 181 5% – Ingredients channel ability to capture favourable g
Slide 42: Greater China channel results
© FONTERRA INTERIM RESULTS 2023 42 • Lower sales volumes, particularly WMP, due to softer demand ∆¹ • Gross profit increased $17 million, mainly driven by improved Sales volume (‘000 MT) 566 455 (20)% performance in the Foodservice channel, reflecting: Revenue ($) 3,499 3,496 - – in-market product p
Slide 43: Gross profit and EBIT
© FONTERRA INTERIM RESULTS 2023 43 $ million 2022 2023 181 204 126 151 103 109 83 86 61 49 8 (22) Gross Profit EBIT Gross Profit EBIT Gross Profit EBIT Note: Figures are for the six months ended 31 January. Does not add to Total Group as shown on a normalised continuing operations basis and excludes
Slide 44: Milk solids allocation by channel
© FONTERRA INTERIM RESULTS 2023 44 • The higher allocation to GDT and Core Ingredients mainly reflects the sell down of additional inventory held at 2022 year-end • Less milk solids allocated to the: 49.2% 50.5% • Active Living portfolio was impacted by lower demand from USA due to customers’ curren
Slide 45: Continuing and discontinued operations results
© FONTERRA INTERIM RESULTS 2023 45 Revenue 9,004 1,081 10,085 10,939 1,394 12,333 Cost of goods sold (7,761) (935) (8,696) (9,092) (1,195) (10,287) Gross profit 1,243 146 1,389 1,847 199 2,046 Gross margin 13.8% 13.5% 13.8% 16.9% 14.3% 16.6% Operating expenses (832) (77) (909) (1,114) (86) (1,200) O
Slide 46: Other segment results
© FONTERRA INTERIM RESULTS 2023 46 ¹ Revenue 13 196 503 11 291 614 Cost of goods sold (15) (136) (343) (18) (200) (446) Gross profit (2) 60 160 (7) 91 168 Gross margin (15.4)% 30.6% 31.8% (63.6)% 31.3% 27.4% Operating expenses (6) (45) (102) (1) (62) (114) Other² - (1) - (1) - 2 Normalised EBIT (8)
Slide 47: Sustainability scorecard key metrics
© FONTERRA INTERIM RESULTS 2023 47 Key Metrics FY21 FY22 FY23 Scorecard FY23 H1 YTD Providing a safe, healthy and inclusive place to work. Able to attract and retain the best talent in the world. Continuously developing people’s skills for meaningful careers within Serious harm 9 8 5 3 the ever-chan
Slide 48: Glossary
© FONTERRA INTERIM RESULTS 2023 48 Represents ingredients & solutions sold to businesses who cater to Is profit before net finance costs and tax consumers’ health and wellness needs. It addresses three dimensions of wellbeing (Physical, Mental, Inner), extending to meet the nutrition needs of medica
Slide 49: Glossary
© FONTERRA INTERIM RESULTS 2023 49 Is adjusted net debt divided by total capital. Total capital is equity excluding Is calculated as total borrowings, plus bank overdraft, less cash and cash hedge reserves, plus adjusted net debt equivalents, plus a cash adjustment for 25% of cash and cash equivalen
Slide 50: This presentation may contain forward-looking statements
© FONTERRA INTERIM RESULTS 2023 50 This presentation may contain forward-looking statements, financial targets and ambitions (“Forward Statements”), each of which is based on a range of assumptions, including (in the case of our 2030 strategy) the assumptions noted in the Appendix of the booklet tit
Slide 51: Non-GAAP measures
© FONTERRA INTERIM RESULTS 2023 51 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 performan