Fonterra Co-operative Group Limited · NZX:FCG
Fonterra Co-operative — H1 FY2020 Earnings Presentation
31 slides from Fonterra Co-operative's earnings presentation, Mar 18, 2020
Slide 1: 18 March 2020
18 MARCH 2020 Confidential to Fonterra Co-operative Group
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: Interim results headline metrics
FARMGATE NET DEBT¹ • Strong milk price range MILK PRICE • Increased earnings • Reduced operating expenses per kgMS billion from $7.4b • Completed divestments from the portfolio review • Improved free cash flow and reduced debt TOTAL GROUP NORMALISED • Maintained forecast underlying earnings guidance
Slide 4: Focused on financial discipline and customer-led operating model
• On-track to meet targets • New customer-led operating model • Focused on financial discipline – updated: • Right-sized teams to fit more focused strategy • Risk Appetite Statement • Employees recognised for their expertise and • Dividend Policy and Debt Policy contribution to regional New Zealand
Slide 5: Total Group revenue, gross margin, EBIT and NPAT
REVENUE¹ GROSS OPERATING EBIT¹ NPAT¹,² MARGIN¹ EXPENSES¹ billion million million million million From $9.7bn From $1,489m From $1,232m From $312m From $72m ³⁴ ³ ³ ⁵ 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 Gross Margin EBIT Gross Margin EBIT Gross Margin EBIT G
Slide 6: Portfolio review: businesses sold and in sale process
Businesses sold – DFE Pharma and foodspring™ • $624 million of cash proceeds received and $469 million gain on sale Businesses in sale process – China Farms and DPA Brazil • Impaired asset values to align with information from sale processes: • China Farms, $63 million impairment • DPA Brazil, $71 m
Slide 7: Net cash flow and net debt
• Net cash flow improved by $1.2 billion: NET NET DEBT² • Normalised EBIT up $272 million to $584 million CASH FLOW¹ • $624 million from divestments⁵ • Favourable working capital movement of $155 million • Lower capex and interest expense million billion from $(1.0)b from $7.4b • Net debt and gearin
Slide 8: On-track to contribute to the NZ economy
On-track to contribute of providing during flooding and to the valuable NZ economy dry conditions nutrition to kids ©Stuff/ Waikato Times Inia Te Wiata Tony Wilding Harvey Indyk National high-performing Officer of the Officer of the engineering apprentice New Zealand Order of Merit New Zealand Order
Slide 9: Sustainability progress and Our Next Steps
to reduce our manufacturing energy intensity Te Awamutu site to be have engaged with ‘Our • 28 Sustainable Dairy Advisors Next Steps’ and are on • Another 1,000 Farm Environment Plans by next season track to earn rewards at the year end In six months end of the season • Launched Plant for Good Whare
Slide 10: Forecast farmgate milk price and normalised earnings
Forecast Farmgate Milk Price Forecast Normalised Earnings cents per share per kgMS • Forecast Farmgate Milk Price range of $7.00-$7.60 per • Full year underlying earnings per share range of kgMS maintained 15-25 cents maintained • Reflects ongoing uncertainties: • Reflects potential significant risk
Slide 11: Appendix
Slide 12: New Zealand milk collection
Volume (m litres/day) 90 • Season to date collection, June – January, 80 was 1,079 million kgMS, down 0.3% on last season 70 • North Island pasture growth rates impacted by dry weather 60 • Lower South Island impacted by heavy rain and flooding 50 • Favourable weather conditions across 40 Canterbury
Slide 13: Ingredients results
¹ ∆² Volume³ (‘000 MT) 1,547 1,533 (1)% • Sales volumes down 1%, 14,000 MT, due to decline in Australia Ingredients’ milk collections Revenue ($) 7,851 8,576 9% • Ingredients gross margin increased $17 million: Gross Margin ($) 796 813 2% • Steady New Zealand Ingredients gross margin Gross Margin (%
Slide 14: Ingredients regional breakdown
¹ Volume² MT MT MT From 1,449,000 MT From 175,000 MT From (77,000) MT Gross Margin From 10.4% From 0.7% $ million 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 Gross Margin EBIT Gross Margin EBIT Gross Margin EBIT 1. Ingredients’ performance restated to include China Farming joint vent
Slide 15: New Zealand Ingredients reference and non-reference products
Sales Volume (000 MT)¹ • Reference product gross margins per metric Reference 924 – 921 – tonne were stable Non-Reference 354 – 389 – • Non-reference gross margins declined Revenue¹ due to: Reference 4,304 4,658 4,759 5,167 • UHT cream and cheese had lower margin rates relative to FY19 due to Non-Re
Slide 16: Foodservice results
¹ ∆² Volume³ (‘000 MT) 228 262 15% • 2019 restated to reflect change in timing of revenue recognition for distributor sales in Greater China. Revenue ($) 1,341 1,517 13% Increases 2019 volume and revenue, and reduces gross margin Gross Margin ($) 170 260 53% and EBIT • Sales volume up 15% due to gro
Slide 17: Foodservice regional breakdown
Volume¹ 000 MT 000 MT 000 MT 000 MT From 119,000 MT From 45,000 MT From 16,000 MT From 48,000 MT Gross Margin From 10.3% From 12.1% From 21.4% From 17.8% $ million 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 Gross Margin EBIT Gross Margin EBIT Gross Margin EBIT Gr
Slide 18: Consumer results
¹² ∆³ Volume⁴ (‘000 MT) 585 551 (6)% • Consumer EBIT increased $49 million due to: Revenue ($) 2,155 2,080 (3)% • Asia and Latin America improving gross margins and significant improvement in operating expenses Gross Margin ($) 530 499 (6)% • Oceania gross margin reduced following the sale of Gross
Slide 19: Consumer regional breakdown
Volume² 000 MT 000 MT 000 MT 000 MT From 45,000 MT From 104,000 MT From 169,000 MT From 267,000 MT Gross Margin From 38.7% From 25.7% From 25.0% From 20.2% ¹ $ million 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 Gross Margin EBIT Gross Margin EBIT Gross Margin EBI
Slide 20: Consumer and Foodservice results
¹ ∆² Volume³ (‘000 MT) 813 813 0% • Significant increase in EBIT of $135 million due to growth in all regions Revenue ($) 3,497 3,597 3% • Foodservice up $86 million Gross Margin ($) 701 759 8% • Consumer up $49 million Gross Margin (%) 20.0% 21.1% • Greater China – significant growth in Mainland Ch
Slide 21: Consumer and Foodservice regional breakdown
Volume² 000 MT 000 MT 000 MT 000 MT From 164,000 MT From 149,000 MT From 185,000 MT From 315,000 MT Gross Margin From 16.5% From 21.5% From 24.5% From 19.6% ¹ $ million 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 Gross Margin EBIT Gross Margin EBIT Gross Margin EB
Slide 22: China Farms results
∆¹ Volume² (‘000 MT) 9 10 15% • End-to-end perspective includes both China Farms and China Farming joint venture: Revenue ($) 110 135 23% • China Farms is classified as ‘Held for sale’ and a Discontinued Operation Gross Margin ($) (13) 11 187% • China Farming joint venture is included in Ingredients
Slide 23: Continuing, discontinued and total group income statement
¹ ² ³ ¹ ² ³ Revenue 9,428 317 9,745 10,071 352 10,423 Cost of Goods Sold (7,980) (276) (8,256) (8,483) (272) (8,755) Gross Margin 1,448 41 1,489 1,588 80 1,668 Gross Margin % 15.4% 12.9% 15.3% 15.8% 22.7% 16.0% Operating Expenses (1,164) (68) (1,232) (1,023) (69) (1,092) Other Income 51 4 55 (4) 12
Slide 24: Normalisations and impairments reconciliation
DFE Pharma 401 26 427 427 foodspring™ 68 68 68 68 China Farms (63) (63) (63) (63) DPA Brazil (71) (71) 10 (61) 30 (31) China Farming JV (65) (65) (65) (65) Sub total 469 (199) 26 296 10 306 30 336 Beingmate (21) (8) (29) (29) (29) Chile (30) (30) (30) Other¹ (45) (45) 6 (39) (39) 1. Includes costs a
Slide 25: Operating expenses by segment
¹ Selling and marketing 64 62 66 Distribution 116 119 115 • Total Group operating expenses reduced Administrative expenses 175 168 170 $140 million: Research and development 2 3 1 • Ingredients down $13 million Other expenses 34 35 22 • Consumer and Foodservice down Total 391 387 374 $90 million Sel
Slide 26: Unallocated costs breakdown
¹ ² Research & Development 29 30 20 10 – 30 Group Finance and Support 37 29 – – 29 29 IT 33 34 24 10 – 34 Farmer Services³ 32 21 21 – – 21 People & Culture 10 9 7 2 – 9 Advertising and Promotion Costs 8 8 – – 8 8 Food Safety & Quality 7 5 4 1 – 5 Property 6 5 4 1 – 5 Trade Relations and Compliance 6
Slide 27: Debt maturity profile
¹ ² NZD DCM Maturity Profile Maturity Profile 13% Drawn Facilities FY20 FY20 Bank USD DCM $0.2bn FY21 FY21 Facilities 13% 5% FY22 FY22 46% FY23 FY23 FY24 FY24 FY25 FY25 FY26 FY26 FY27 FY27 FY28 FY28 FY29 FY29 CNY DCM Undrawn FY30 FY30 4% Facilities AUD DCM $4.4bn FY31 FY31 12% 95% 0.0 0.8 1.6 2.4 0.
Slide 28: Five-year financial trends
2,324 2,131 9.8 10.4 1,880 2,003 2,075 2,037 9.2 9.7 1,752 1,668 8.8 1,659 1,489 887 908 877 813 813 1,624 1,543 1,441 1,547 1,533 2016 2017 2018 2019 2020 2016 2017 2018 2019 2020 2016 2017 2018 2019 2020 Consumer and Foodservice Revenue ($ billion) GM ($ million) Ingredients 1,305 1,232 1,263 1,23
Slide 29: NPAT, capex, gearing and free cash flow trends
² ¹ ¹ 384 521 453 367 404 413 346 283 316 242 68 244 112 68 (354) 2016 2017 2018 2019 2020 2016 2017 2018 2019 2020 2016 2017 2018 2019 2020 Normalised NPAT ($ million) Reported NPAT ($ million) Capex ($ million) 49.2 51.6 52.7 82 369 46.6 46.9 77 80 81 346 68 (417) (690) (782) 2016 2017 2018 2019 2
Slide 30: Glossary
AMF Fluid and Fresh Dairy Season Anhydrous Milk Fat The Fonterra grouping of skim milk, whole milk and New Zealand: A period of 12 months to 31 May in cream – pasteurised or UHT processed, each year. BMP concentrated milk products and yoghurt. Australia: A period of 12 months to 30 June in Butter Mi
Slide 31: Glossary: Ingredients, Consumer and Foodservice 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 producers and distributors in over 140 coun
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