Fonterra Co-operative Group Limited · NZX:FCG
Fonterra Co-operative — H1 FY2024 Earnings Presentation
60 slides from Fonterra Co-operative's earnings presentation, Mar 21, 2024
Slide 1: 2024 Interim Results
Fonterra Co-operative Group Fonterra) 2024 Interim Results Dairy for life 21 March 2024
Slide 2: Results overview, Macro, Financial overview, Additional information
Results overview 3-7 Macro environment 8-14 Financial overview 15-25 Additional financial information 26-48 Flexible Shareholding metrics 49-53 Appendix 54-60
Slide 3: from 864m from 546m from 33c
from 864m from 546m from 33c from 8.6% from 43.3% from 10c
Slide 4: EBIT up $95m, or 11%, to $953m
• Profit after tax up $128m, or 23%, to $674m due to higher operating earnings (EBIT) and lower financing costs – EBIT up $95m, or 11%, to $953m, with $986m and $(33)m from continuing and discontinued operations, respectively – Composition of earnings between channels materially different; with lowe
Slide 5: Discontinued operations performance is lower compared to prior year
Discontinued operations performance is lower compared to prior year due to FY23 including Soprole for the first 8 months (‘000 MT) ($ million) • Continuing operations up due to • Continuing operations down due to continued focus to optimise lower margins in Ingredients, partially 295 59 252 66 inven
Slide 6: Channel performance
($ million) Underlying Consumer growth of $140m after Channel performance adjusting for $162m of impairments in FY23 (33) 6 302 986 - 953 858 - 864 (383) 203 - - - FY23 H1 Discontinued FY23 H1 Ingredients Foodservice Consumer FY24 H1 Discontinued FY24 H1 Total Group EBIT operations continuing operat
Slide 7: Continuing operations
($ million) Continuing operations Underlying operating earnings down $40m after adjusting for $162m of impairments in FY23 40 8 (40) (2) 122 714 674 546 544 33c EPS 33c EPS 43c EPS 40c EPS FY23 H1 Discontinued FY23 H1 Operating Net finance Tax FY24 H1 Discontinued FY24 H1 Total Group operations cont
Slide 8: Macro
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Slide 9: Outlook for dairy trade is positive
• Outlook for dairy trade is positive 0.8% 1.6% 9.0% – Gradual rebalance of China domestic milk production, and import demand has 0.3% – 0.0% 9.6% improved but remains volatile with a soft economy – Increasing demand from key import regions, particularly Southeast Asia, and Middle East and
Slide 10: Impact on Foodservice and Consumer channels
($ per kgMS) • Prior season milk price benefited from strong Reference Product prices leading into the season $10 before declining over the season • The lower product prices flowed into 2023/24 season, partially offset by favourable currency movements 2022/23 season monthly milk prices average to $8
Slide 11: Average price for the Reference portfolio declined USD 892 per MT
Q1 Q2 H1 Q1 Q2 H1 Average Non-Reference price 4,939 5,458 5,230 Average Non-Reference price 4,333 4,218 4,272 (USD/MT) Average Reference price 4,300 3,862 4,023 Average Reference price 3,298 3,055 3,131 Price difference 639 1,596 1,207 Price difference 1,035 1,163 1,141 6,500 5,500 4,500 3,500 2,500
Slide 12: Reference Products
(‘000 MT) • 8,000 MT less of higher value Non-Reference products due to Reference Products 857 872 15 timing of shipments Non-Reference Products 430 422 (8) • On an NZD basis, the relative price change per MT for the Reference and Non-Reference portfolio is flat (NZD) – The sales profile and allocat
Slide 13: Deliver a strong Farmgate Milk Price and earnings growth
Deliver a strong Farmgate Milk Price and earnings growth (kgMS millions) % milk solids manufactured FY20 H1 FY21 H1 FY22 H1 FY23 H1 FY24 H1 72.9% 71.6% 71.7% 71.5% 70.6% 735 714 691 671 677 27.1% 28.4% 28.3% 29.4% 28.5% 273 284 272 279 270 Reference Products Non-Reference Products • Limited product
Slide 14: Product mix decision to mitigate global demand risk
(kgMS millions) • FY23 and FY24 production significantly lower than prior years due to a conscious product mix decision to mitigate global demand risk by allocating away from WMP into product streams with higher value and % milk solids manufactured more stable demand FY20 H1 FY21 H1 FY22 H1 FY23 H1
Slide 15: Financial Overview
Slide 16: Operating earnings performance by reporting segment and channel
Operating earnings performance by reporting segment and channel - 561 501 289 251 226 216 208 97 110 134 85 42 116 22 51 61 (82) (147)
Slide 17: Shifting New Zealand milk into higher margin products
% milk solids sold (kgMS) FY20 H1 FY21 H1 FY22 H1 FY23 H1 FY24 H1 79.5% 78.7% 77.8% 77.1% 77.0% 560 552 574 564 520 14.5% 15.1% 12.9% 13.4% 12.6% 8.7% 9.3% 8.4% 7.1% 7.9% 90 91 98 99 111 62 66 60 52 58 Ingredients Foodservice Consumer Shifting New Zealand milk into higher margin products to deliver
Slide 18: Ingredients
EBIT ($ million) FY24 H1 13.9% 16.4% 17.6% 16.2% 850 (324) Within the regions 1000 12.5% 11.9% 20.0% 900 10.0% 800 0.0% (16) (28) (15) 700 561 -10.0% 467 600 501 -20.0% 500 -30.0% 400 289 251 -40.0% 300 226 216 -50.0% 200 -60.0% 100 -70.0% 0 -80.0% FY23 Core Volume Margin Operating FY24 FY23 Q1 FY23
Slide 19: Foodservice
EBIT ($ million) FY24 H1 29.4% Within the regions 23.3% 1000 40.0% 19.3% 21.7% 22.0% 900 14.4% 20.0% 800 700 0.0% 144 (31) 342 600 500 -20.0% 59 31 400 139 -40.0% 300 208 97 110 134 85 200 42 -60.0% 100 0 -80.0% FY23 Core Volume Margin Operating FY24 FY23 Q1 FY23 Q2 FY23 Q3 FY23 Q4 FY24 Q1 FY24 Q2 H
Slide 20: Consumer
EBIT ($ million) FY24 H1 600 25.8% 28.8% 25.2% Within the regions 23.8% 21.2% 24.0% 30.0% 500 400 10.0% 169 177 300 -10.0% 101 116 200 51 61 22 (82) 100 (147) -30.0% 0 (125) 7 25 -100 -50.0% FY23 Core Volume Margin Operating FY24 -200 -70.0% H1 EBIT Operations expenses and H1 EBIT other FY23 Q1 FY23
Slide 21: Total Group operating expenses reduced $269m
∆1 Staff expenses 467 501 7% Storage and distribution 127 128 1% Advertising and promotion 96 103 7% • Total Group operating expenses reduced $269m due to the prior year including $162m of Consumer brand impairments and Soprole’s operating expenses, Information technology 99 113 14% which was sold i
Slide 22: Free cash flow for the first six months
($ million) ($ million) 369 137 (30) (30) 663 (413) (23) (413) (632) (1,160) (849) FY23 H1 Earnings Suppliers Trade and Capex and FY24 H1 free cash flow payable other working other free cash flow FY20 H1 FY21 H1 FY22 H1 FY23 H1 FY24 H1 capital Free cash flow for the first six months is typically an
Slide 23: Net debt is $1.6b lower
($ billion) (%) • Net debt is $1.6b lower, reflecting: 6.4 6.1 49.8 47.3 – strong underlying performance of the business 5.6 5.3 5.8 44.1 42.4 43.3 5.2 44.2 4.3 4.2 38.5 34.6 – reduction in working capital during the year 3.2 28.8 – impact of divestments • Gearing ratio reduced reflecting: – lower n
Slide 24: Farmgate Milk Price forecast range
2021/22 Season 2022/23 Season 2023/24 Season Forecast 6,000 5,000 $9.30 4,000 USD/MT $8.22 3,000 per kgMS 2,000 1,000 - May-21 May-22 May-23 May-24 Fonterra Reference Product shipment price GDT only Reference Product contract shipment price Average Reference Product shipment price for the season The
Slide 25: Earnings per share guidance range
FY22 FY23 FY24 H1 6,000 5,000 4,000 USD/MT 3,000 2,000 per share 1,000 , - , Jul-21 Jan-22 Jul-22 , Jan-23 Jul-23 Jan-24 May-24 , Fonterra Non-Reference shipment price Fonterra Reference shipment price GDT only Non-Reference contract shipment price GDT only Reference contract shipment price The rang
Slide 26: Additional Financial Information
Slide 27: Five-year financial summary
13.2 2,298 2,102 2,037 1,996 1,994 11.3 1,921 10.8 1,780 10.4 9.9 1,745 1,624 1,607 2020 2021 2022 2023 2024 2020 2021 2022 2023 2024 2020 2021 2022 2023 2024 ($ million) ('000 MT) ($ billion) 1,477 1,240 1,208 1,124 1,056 953 806 858 657 674 607 501 546 391 364 2020 2021 2022 2023 2024 2020 2021 20
Slide 28: Five-year financial summary continued
940 1,019 740 684 611 584 607 418 364 330 293 265 175 184 195 2020 2021 2022 2023 2024 2020 2021 2022 2023 2024 2020 2021 2022 2023 2024 ($ million) ($ million) ($ million) 98 98 369 49.8 47.3 93 92 44.1 43.3 (30) (413) 34.6 86 (632) (849) 2020 2021 2022 2023 2024 2020 2021 2022 2023 2024 2020 2021
Slide 29: Season to date milk collections
90 2021/22 80 2022/23 • Season to date collections, 1 June – 31 January, were 1,012 million kgMS, 0.4% behind last season 2023/24 70 • The decrease in collections is due to lower collections in the North Island partially offset by improved 60 collections in the South Island 50 – Poor weather conditi
Slide 30: Group income statement
Sales volume (‘000 MT) 1,699 295 1,994 1,721 59 1,780 Revenue 12,333 916 13,249 11,085 172 11,257 Cost of goods sold (10,287) (664) (10,951) (9,049) (106) (9,155) Gross profit 2,046 252 2,298 2,036 66 2,102 Gross margin (%) 16.6% 27.5% 17.3% 18.4% 38.4% 18.7% Operating expenses (1,219) (258) (1,477)
Slide 31: Profit after tax by reporting segment and channel
Profit after tax by reporting segment and channel - 380 340 261 183 164 170 147 112 22 68 77 74 81 40 7 32 (87) (116)
Slide 32: Continuing operations income statement
32 ∆1 • Sales volumes up due to continued focus to optimise inventory levels. Sales volume (‘000 MT) 1,699 1,721 1% Higher sales volume through Foodservice and Consumer channels, partially offset by lower volumes in Ingredients Revenue 12,333 11,085 (10)% • Revenue down mainly due to lower product p
Slide 33: Operating expenses on a 12-month rolling average
‘000) $1.27 $1.30 $1.35 17 kgMS $48m $0.05 /kgMS $1.22 $1.21 $1.26 $1.02 $1.09 $1.10 23 kgMS $66m $0.12 /kgMS 2020 2021 2022 2023 2024 Actual Inflation adjusted 12 kgMS $41m $0.08 /kgMS Actual ($ million) 1,662 1,753 1,773 1,975 2,130 • Actual operating expenses on a 12-month rolli
Slide 34: Other operating expenses
Net foreign exchange - (78) (78) - - Other operating expenses (4) - (4) (66) (66) Profit before net finance costs and tax (4) (78) (82) (66) (66) Net finance costs and tax - 17 17 - - Profit after tax (4) (61) (65) (66) (66) Profit attributable to non-controlling - - - (3) (3) interests Profit after
Slide 35: Normalised profit after tax
EBIT 858 953 Net finance costs (157) (89) Tax expense (155) (190) Reported profit after tax 546 674 Normalisation adjustments 89 66 Tax on normalisation adjustments (24) - Normalised profit after tax 611 740 (Profit)/loss attributable to non-controlling interests (16) (35) Less: Normalisation adjust
Slide 36: Reported and normalised earnings per share
Reported profit after tax 546 674 Less: Profit attributable to non-controlling interests (16) (35) Reported profit after tax attributable to equity holders of the Co-operative 530 639 Reported earnings per share (cents) 33 40 Normalised profit after tax 611 740 Less: Profit attributable to non-contr
Slide 37: Cash flow and net debt movement
Cash generated from operations 1,181 1,318 Net change in working capital (905) (1,402) A. Net cash flows from operating activities 276 (84) Cash flows from investing activities Divestments and asset sales 3 4 Capital expenditure and other (309) (333) B. Net cash flows from investing activities (306)
Slide 38: Return on capital
• Return on capital increased due to a $635m increase in Total Group normalised EBIT 1,324 1,959 normalised EBIT for the 12 months Finance income on long-term advances 13 8 • On a pre-tax basis, normalisations consist of a $66m Notional tax charge loss related to the sale of DPA Brazil (215) (317) •
Slide 39: Debt maturity profile
¹ Maturity Profile Maturity Profile USD DCM 17% Drawn Facilities $0.9bn FY24 FY24 Bank Facilities 22% 56% NZD DCM 7% FY25 FY25 FY26 FY26 FY27 FY27 FY28 FY28 FY29 FY29 FY30 FY30 CNY DCM FY31 FY31 2% Undrawn AUD DCM 10% Facilities 0.0 1.0 2.0 3.0 0.0 1.0 2.0 3.0 $3.1bn 78% $ billion $ billion EUR DCM
Slide 40: Ingredients performance
∆ Sales volume ('000 MT) 1,106 1,083 (2)% 1,049 1,034 848 817 279 283 (1,070) (1,051) Revenue 8,735 7,077 (19)% 7,903 6,248 6,963 5,499 2,154 1,660 (8,285) (6,330) Cost of goods sold (7,390) (6,109) 17% (7,146) (5,824) (6,484) (5,048) (2,045) (1,567) 8,285 6,330 Gross profit 1,345 968 (28)% 757 424
Slide 41: Foodservice performance
∆ Sales volume ('000 MT) 274 295 8% 171 179 141 141 137 158 (175) (183) Revenue 1,928 2,134 11% 1,034 1,036 942 925 1,128 1,277 (1,176) (1,104) Cost of goods sold (1,602) (1,573) 2% (1,020) (962) (833) (745) (925) (970) 1,176 1,104 Gross profit 326 561 72% 14 74 109 180 203 307 - - Operating expense
Slide 42: Consumer performance
∆ Sales volume ('000 MT) 319 343 8% 125 133 283 305 39 41 (128) (136) Revenue 1,670 1,874 12% 759 659 1,525 1,700 217 220 (831) (705) Cost of goods sold (1,295) (1,367) (6)% (731) (625) (1,226) (1,287) (169) (160) 831 705 Gross profit 375 507 35% 28 34 299 413 48 60 - - Operating expenses (504) (342
Slide 43: Core Operations performance
∆ Sales volume ('000 MT) 1,345 1,346 0% 1,049 1,034 171 179 125 133 Revenue 9,696 7,943 (18)% 7,903 6,248 1,034 1,036 759 659 Cost of goods sold (8,897) (7,411) 17% (7,146) (5,824) (1,020) (962) (731) (625) Gross profit 799 532 (33)% 757 424 14 74 28 34 Operating expenses (379) (387) (2)% (305) (305
Slide 44: Global Markets performance
∆ Sales volume ('000 MT) 1,272 1,263 (1)% 848 817 141 141 283 305 Revenue 9,430 8,124 (14)% 6,963 5,499 942 925 1,525 1,700 Cost of goods sold (8,543) (7,080) 17% (6,484) (5,048) (833) (745) (1,226) (1,287) Gross profit 887 1,044 18% 479 451 109 180 299 413 Operating expenses (659) (558) 15% (176) (
Slide 45: Greater China performance
∆ Sales volume ('000 MT) 455 482 6% 279 283 137 158 39 41 Revenue 3,499 3,157 (10)% 2,154 1,660 1,128 1,277 217 220 Cost of goods sold (3,139) (2,697) 14% (2,045) (1,567) (925) (970) (169) (160) Gross profit 360 460 28% 109 93 203 307 48 60 Operating expenses (162) (164) (1)% (30) (36) (60) (78) (72
Slide 46: Australia performance
∆¹ Milk collections (kgMS) 66 67 2% • Milk collections and sales volumes in line with prior year Sales volume (‘000 MT) 181 180 (1)% – Shift in volume favouring the Consumer channel, less sold through Revenue 1,253 1,165 (7)% Ingredients and Foodservice with both impacted by reduced demand Cost of g
Slide 47: Discontinued operations performance
∆ ¹ Sales volume ('000 MT) 295 59 (80)% 1 - 112 59 182 - Revenue 916 172 (81)% 11 - 291 172 614 - Cost of goods sold (664) (106) 84% (18) - (200) (106) (446) - Gross profit 252 66 (74)% (7) - 91 66 168 - Operating expenses (258) (99) 62% (6) - (62) (99) (190) - Other2 - - - - - - - - - EBIT3 (6) (33
Slide 48: Core Operations attributed to the regions
To provide a full end-to-end view of performance, Core Operations is attributed to the regions - 561 501 289 226 251 216 208 97 110 85 134 42 116 22 51 61 (82) (147)
Slide 49: Flexible Shareholding Metrics
Slide 50: Within thresholds for all three Flexible Shareholding metrics
As at 31 January 2024, the Co-operative was within the specified thresholds for all three Flexible Shareholding metrics from 12.22% from 9.23% No change • The percentage of Co-operative Shares on issue • The percentage of shares held by shareholders • The size of the Fonterra Shareholders’ Fund
Slide 51: Shareholder categories and shares on issue
Supplying Shareholders 1,365,867,566 84.88% Secondary Shareholders 3,372,726 0.21% Associated Shareholders 1,240,126 0.08% Ceased Shareholders 115,104,326 7.15% Permitted Transferees 13,831,666 0.86% Custodian shares, on behalf of the Fund 107,410,984 6.67% Custodian shares, on behalf of the Market
Slide 52: Shares to be bought and sold
To be bought 3,454,281 3,711,572 3,767,948 3,173,134 2,071,268 - - To be sold 112,445 - 26,230 86,179 - - - To be bought - - - - - - 16,178,203 To be sold - - - - - 129,010,511 129,235,365
Slide 53: Number of Shareholding Farms
# of shareholding farms 365 986 5,609 1,290 8,250 Milk Supply1 (kgMS) 66,780,386 186,685,754 1,025,335,044 156,640,319 1,435,441,503 Shareholding farms holding 33% of the 60 Milk supply at 33% of the Number of Shareholding Farms Share Standard Share Standard Milk supply at 100% of the Milk Supply1 (
Slide 54: Appendix
Slide 55: Scorecard of measures and targets
Serious harm 8 5 4 0 Gender diversity (Band 12+) 37.6% 39.5% 40.5% 39.4% Culture Measure – 79 –¹ 78 GHG emissions (Scope 1,2)² (11.2)% (14.1)% (15.6)% (20.2)% FEP adoption (New Zealand) 71% 85% 92% 89% Water Improvement Plans in place – 44.0% 100.0% On track Share of New Zealand milk collected for t
Slide 56: Source data and date ranges
• Dairy Production and Imports – 12-month production ▪ NZ, Aus, US (Jan 2023 to Jan 2024) DCANZ, Dairy Australia, USDA ▪ EU (Dec 2022 to Dec 2023) Eurostat ─ 3-month production ▪ NZ, Aus, US (Nov 2022 – Jan 2023 to Nov 2023 – Jan 2024) DCANZ, Dairy Australia, USDA ▪ EU (Oct 2022 – Dec 2022 to Oct 20
Slide 57: Glossary of defined terms
Is a Shareholder that is a Farm Lessor, Sharemilker or Contract means operations of the Group that are not discontinued operations means the average price paid by Fonterra for each kgMS supplied by Milker Fonterra’s farmer shareholders under Fonterra’s standard terms of supply. The Farmgate Milk Pri
Slide 58: Glossary of defined terms continued
represents the Ingredients, Foodservice and Consumer channels in refers to the difference in the weighted average price (in USD) means a farm where the owning entity of the farm has a minimum Greater China between the Reference Product portfolio and Non-Reference Product required shareholding of at
Slide 59: Forward-looking statements
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 titled Our Path to 2030 which is avail
Slide 60: Dairy for life
Dairy for life fonterra.com
Fonterra Co-operative Group — H1 FY2024 Earnings Presentation on 6ix