Fonterra Co-operative Group Limited · NZX:FCG
Fonterra Co-operative — H1 2013 Earnings Presentation
35 slides from Fonterra Co-operative's earnings presentation, March 2013
Slide 1: Fonterra Interim Results 2013
Dairy for life PROJGRESS Fonterra Interim Results 2013
Slide 2: John Wilson - Chairman
John Wilson - Chairman © Fonterra Co-operative Group Ltd. ‹#›
Slide 3: Key highlights
Key highlights FORECAST CASH PAYOUT VOLUME: MILK COLLECTIONS $6.12 Forecast Farmgate Milk Price lifted to $5.80 6% Record milk collections in the first half. Major kgMS. The full year dividend forecast remains North Island drought is having significant impact at 32 cps on second half volumes VALUE:
Slide 4: Forecast cash payout
Forecast cash payout 7.90 0.30 6.37 6.40 6.12 0.27 0.32 0.32 (1) (1) Dividend (2) 7.60 Farmgate Milk Price 6.10 6.08 5.80 2010 2011 2012 2013 F (1) Cents per share (2) $ per kgMS. © Fonterra Co-operative Group Ltd. 4
Slide 5: Tough conditions for farmers
Tough conditions for farmers JANUARY FEBRUARY MARCH (MTD) HISTORICAL AVERAGE Soil Moisture Anomaly (mm) Soil Moisture Anomaly (mm) Soil Moisture Anomaly (mm) Soil Moisture Deficit (mm) © Fonterra Co-operative Group Ltd. 5
Slide 6: Dry conditions impacting volumes
Dry conditions impacting volumes Fonterra’s Milk Supply Curve 90 2010/11 80 2011/12 Volume (000liitres/day) 70 2012/13 60 50 40 30 20 10 0 Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Note: Volumes represent a six day moving average of daily production © Fonterra Co-operative Group Ltd. 6
Slide 7: Faster cash payments to farmers for milk
Faster cash payments to farmers for milk • Backed by our strong balance sheet and operating cash flows, we were able to increase the advance rate paid to farmers for their milk • The faster advance rate together with higher forecast milk price means on average farmer shareholders will receive around
Slide 8: Major initiatives benefitting our farmers
Major initiatives benefitting our farmers 1. A bonus issue of one for 40 – 24 April 2013 2. A further Supply Offer enabling shareholders to sell economic rights of some of their shares - May 2013 3. A Dividend Reinvestment Plan enabling g shareholders and unit holders to elect to receive dividends i
Slide 9: Theo Spierings
Theo Spierings © Fonterra Co-operative Group Ltd.
Slide 10: Strong first half
Strong first half SALES VOLUME GROWTH: Volume • Good first half volume growth • NZ Milk Products up 9% driven by record milk collections • Higher sales growth in Asia/AME & Latam 8% Total sales volume growth of • ANZ volumes impacted by Norco divestment & less private label 8% to 2.1m MT Value NORMA
Slide 11: Segment performance
Segment performance Volume Value (MT) (Normalised EBIT $m) NZ Milk 1,474 Products 422 (NZMP) 1,349 255 H1 2013 H1 2012 Consumer 844 271 businesses (combined) 826 297 © Fonterra Co-operative Group Ltd. 11
Slide 12: NZMP highlights
NZMP highlights Normalised EBIT (($m)) Volume • 9% increase to 1.5 million MT 422 Volume Growth Value 9% • Normalised EBIT margin up 2.8pp to 6.2% 255 • Keyy drivers of value: Value Growth – effective management of our product mix 65% – higher price premiums compared to dairy commodity prices H1 201
Slide 13: NZMP – Key Performance Drivers
NZMP – Key Performance Drivers 25 10 422 31 14 87 255 $M NZ$ H1 2012 Product Mix Price Quality & Global Other H1 2013 Premiums Productivity Sourcing Improvements © Fonterra Co-operative Group Ltd. 13
Slide 14: ANZ highlights
ANZ highlights Normalised EBIT ($m) Volume • 1% higher after adjusting for sale of Norco distribution business Volume 145 Growth1 Value • Normalised EBIT margin down 1.5pp to 98 1% 4 9% 4.9% Value • NZ consumer brands earnings slightly up Growth • Australian consumer brands impacted by -32% i increa
Slide 15: ANZ – key performance drivers
ANZ – key performance drivers 145 (33) (12) NZ$M M 0 1 (6) 3 98 (24) 74 Normalised Australian Milk Brands Brands New Tip Top RD1 Group Other Normalised Cororooke Reported EBIT EBIT H1 2012 Processing Australia Zealand EBIT H1 2013 Closure H1 2013 © Fonterra Co-operative Group Ltd. 15
Slide 16: Turnaround of ANZ underway
Turnaround of ANZ underway RE-SHAPE RE-ORGANISE Current Future State From Scattered Reso From: Resources rces Consumer • Number of brands • Majority of A&P on fewer brands ANZ • A&P spread across brands • Everyday Nutrition key Ingredients Brands AU Brands NZ Subsidiaries priority • New innovations
Slide 17: Asia/AME highlights
Asia/AME highlights Normalised EBIT ($m) Volume • 13% increase to 186K MT 100 Volume Value Growth 79 • Normalised EBIT margin up 1.8pp to 13% 9.5% Value • Foodservice performing strongly across Growth all key markets 27% • Malaysia M l i experienced i dddouble bl di digit it value l growth H1 2012 H
Slide 18: Latam highlights
Latam highlights Normalised EBIT ($m) Volume • 11% growth in volume to 187K MT 67 Volume V l Value 64 Growth • Normalised EBIT margin down 0.7pp to 12% 11% • Soprole performed strongly with normalised EBIT off $53 $53m, up 40% Value Growth – Product innovation with successful launch of new desserts
Slide 19: Jonathan Mason
Jonathan Mason © Fonterra Co-operative Group Ltd. ‹#›
Slide 20: Improved Gearing and Working Capital
Improved Gearing and Working Capital Half Year Gearing1 Working Capital Days2 60% 54% 49% 104 47% 103 40% 97 H1 2009 H12010 H12011 H12012 H12013 H12011 H12012 H12011 1. Gearing g is measured in terms of economic net interest bearing g debt over economic net interest bearing g debt plus equity y ((re
Slide 21: Interim dividend declared
Interim dividend declared • Board declared dividend of 16 cps 16 12 • Represents 50%of forecast dividend for the current financial year 8 • Maximum available under 40-50% range in our dividend p policy y • Reflects expectation that earnings will be weighted more to the first half of the year H1 2011
Slide 22: Supply Offer
Supply Offer •Supply Offer in May 2013 •Maximum of $475m, being the net proceeds of the original seeding of the Fonterra Shareholders’ Fund •Sell price will be based on an average of the Unit price over a 10 day period •Limit of 25 per cent of Wet Shares •More to come in late April with the Supply O
Slide 23: Theo Spierings
Theo Spierings © Fonterra Co-operative Group Ltd.
Slide 24: Strategy: Blueprint for growth
Strategy: Blueprint for growth MARGIN STRATEGIC PATHS POTENTIAL PROGRESS • New plant investments and Studholme acquisition EVERYDAY 1 Optimise NZ milk • Strong 1st half for price premiums, quality and productivity NUTRITION • New group optimisation function driving better decision making Inccreasing
Slide 25: Everyday Nutrition
Everyday Nutrition • B2B: Optimise NZ Milk • Enhance asset footprint (Darfield, Studholme, Waitoa UHT) • New group optimisation function driving better decision making • Strong first half for price achievement and cost to serve • Quality and productivity programmes delivering ahead of plan • B2C: Bu
Slide 26: Out-of-home
Ou o o e Out-of-home • First half volume growth of 11.5% • EBIT from ASEAN & China foodservice roll-out well ahead of plan • Expanding to 2nd and 3rd tier cities in China • Investing in network of chefs and front- line sales staff • Continued focus on differentiated differentiated, functional, produ
Slide 27: Advanced Nutrition
Advanced d a ced Nutrition ut t o • Growing g our p position in mobility y • China Anlene rollout on track • Vietnam rollout ahead of plan • Develop leading position in paediatrics and maternal • Expansion p of Anmum in China • New third party manufacturing contracts for paediatrics • Increased thro
Slide 28: Aligning resources with strategic priorities
Aligning resources with strategic priorities 1 Optimise p • Review of support services underway NZ milk 2 • Major re-organisation of our Asia/AME and ANZ Build and grow operations beyond our current consumer positions 3 • Tracking ahead of $60m operating cost savings Deliver on Significant target fo
Slide 29: Outlook
Outlook • Making good progress on strategy execution and positioning the business for long- term growth • Strong first half earnings are unlikely to be repeated in the second half • For the full year we expect to see total milk volumes for the season to be in line with last season • The ongoing vola
Slide 30: Supplementary Information
Supplementary Information © Fonterra Co-operative Group Ltd.
Slide 31: Interim results summary
Interim results summary 6 months to 6 months to NZD million Change 31 January 2013 31 January 2012 T t l Sales Total S l Volume V l ((million illi MT) 21 2.1 19 1.9 8% Revenue 9,334 10,026 (7%) Normalised EBIT 693 552 26% Net Profit After Tax 459 346 33% Earnings per share (cents) 29 24 21% Dividend
Slide 32: Normalised EBIT
Normalised EBIT 6 months to 6 months to 31 January 2013 31 January 2012 Reported EBIT 669 530 Costs associated with the planned closure of 24 the Cororooke site Impairment losses recorded in equity 20 accounted investees Other items 2 N Normalised li d EBIT 693 552 2 Fonterra refers to Normalised Ea
Slide 33: WMP and cheese prices
WMP and cheese prices Weighted Average USD GDT Cheese Prices vs WMP Prices 5,500 5,000 4,500 4,000 3,500 3,000 2,500 Cheese WMP © Fonterra Co-operative Group Ltd. 33
Slide 34: NZMP contribution margin
NZMP contribution margin $million H1 2013 H2 2012 Sales Volume (000MT) 1,474 1,349 Gross Margin 797 617 Selling, marketing and distribution expenses (137) (126) Contribution margin 660 491 Contribution margin per MT ($) 448 364 Growth 23% Contribution margin growth of 23% reflects the improvement in
Slide 35: Balance sheet strength
Balance sheet strength Strong Fundamentals Diversified Funding A+ Offshore DCM 38% S&P (stable outlook) Credit Bank Facilities Rating 43% AA- Fitch ( (stable outlook)) Weighted Average As at 31 3.69 years Term to January 2013 Maturity NZ DCM 19% 3,000 Debt Maturity Profile Strong Liquidity (Year End
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