Fonterra Co-operative Group Limited · NZX:FCG
Fonterra Co-operative — H1 FY2021 Earnings Presentation
40 slides from Fonterra Co-operative's earnings presentation, Mar 17, 2021
Slide 1: 17 March 2021
17 March 2021
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: Half year highlights
• Increased forecast Farmgate Milk Price range, on track for one of the highest milk prices • Total Group normalised gross margin improved from 16.0% to 17.4%, contributing to normalised profit after ¹ tax increasing $125 million to $418 million, up 43% • Narrowed earnings guidance - heavily weighte
Slide 4: To create superior value for our customers and our Co-operative
To create superior value Unlock greater value from for our customers and our scale efficiency and our Co-operative focus on execution To do what is right for the long term good and meet consumer and community needs
Slide 5: Volume to Value: strategic shift
Volume Value Prioritise New Zealand Milk Global Milk Pools + complementary components Maximum volume into consumer Focus on key categories to deliver superior value Dairy only Supplement with non-dairy where makes sense Partner with cash investments Partner with IP and skills and lift R&D Debt funde
Slide 6: Operating highlights: Asia Pacific
• New Zealand Consumer turnaround on track • Launched Anchor carbonzero TM milk range • Australia Consumer brands’ growth outpaced their market categories, but Ingredients requires further improvement • Relaunched the Anlene brand in Malaysia, building a strong foundation for future innovations and
Slide 7: Operating highlights: Greater China
• Cream cheese and mozzarella sales volumes up, increasing utilisation of Darfield and Clandeboye sites • Launched ambient cream for Foodservice customers • Expansion of Foodservice into 22 new cities, bringing total to 372 cities • Awarded ‘Best Work Place’ in Greater China and ‘Top Employer’² • Pr
Slide 8: Operating highlights: AMENA
• Launched Milk Phospholipids 70 which helps mental wellbeing in adults • Improved performance in Chile, with increased market share • Lower volume and margins for Ingredients products in Europe, Africa and North Asia • Actively expanding our product portfolio to include more higher margin products
Slide 9: Operations highlights
• Introducing The Co-operative Difference payment to encourage farmers to adapt to changing customer expectations • Milk vat monitoring, increases collection efficiency with less truck units and benefits to milk quality • Investing in sustainability, e.g. waste water treatment at Whareroa and Clande
Slide 10: Total Group financial performance
¹ ∆² • Sales volumes similar with strong demand. Minor delays in shipments expect to be recovered in second half • Gross profit increased reflecting strong margin growth in Greater China Foodservice, and improved margins in Asia Pacific Consumer • Reduced gross profit in AMENA’s Ingredients business
Slide 11: Debt, gearing, working capital and opex
7.4 52.7 7.1 48.5 47.1 6.1 5.8 41.4 • Debt level and gearing continue to reduce • Debt and gearing are higher at half year due to seasonal profile of working capital 2017 2018 2019 2020 2021 2019 2020 2021 Net Debt ($ billion) Half Year Full Year • Target for gearing to be below 40% at year-end • Wo
Slide 12: EBIT contribution by region
¹ ¹ ²³ 1. Prepared on a normalised Continuing Operations basis. Does not align to reported Continuing Operations due to excluding unallocated costs and eliminations 2. Normalised EBIT contributions sum to $730 million, which does not align to reported Continuing Operations due to excluding unallocat
Slide 13: Channel performance: Consumer, Ingredients, Foodservice
$ millions 2020 2021 Gross Profit EBIT Gross Profit EBIT Gross Profit EBIT • 62% of EBIT from Consumer • 73% of EBIT from Ingredients • 60% of EBIT from Foodservice channel, which increased $29 million channel, which decreased $57 million channel, which increased $79 million • Strong gross margin im
Slide 14: Channel performance: Ingredients, Foodservice, Consumer
$ millions 2020 2021 Gross Profit EBIT Gross Profit EBIT Gross Profit EBIT • Lower volumes in AMENA, as shifted • Growth in higher value products in • Increased demand as consumers milk to higher value product channels Greater China stayed at home during lockdowns • Reduced margins due to • 120+ new
Slide 15: Forecast milk price and earnings guidance
per kgMS cents per share • Lifted the forecast Farmgate Milk Price range with • Narrowed full year forecast normalised earnings per midpoint of $7.60 per kgMS share range of 25-35 cents • Dairy continues to prove resilient in a Covid-19 • Earnings heavily weighted towards the first half due to; worl
Slide 16: 16
16
Slide 17: Financial results over five years
9.8 9.7 10.4 9.9 2,131 9.2 1,752 1,722 2,003 2,075 2,037 1,996 1,659 1,668 1,489 2017 2018 2019 2020 2021 2017 2018 2019 2020 2021 2017 2018 2019 2020 2021 Sales Volume ('000 MT) Revenue ($ billion) Gross Profit ($ million) 1,232 1,263 1,232 806 607 684 1,092 1,055 584 644 657 458 312 312 (176) 2017
Slide 18: NPAT, capex, gearing and free cash flow
418 501 391 346 389 418 316 244 293 248 72 147 112 72 (348) 2017 2018 2019 2020 2021 2017 2018 2019 2020 2021 2017 2018 2019 2020 2021 Normalised NPAT ($ million) Reported NPAT ($ million) Capex ($ million) 52.7 90 369 51.6 80 81 82 68 46.6 47.1 45.2 (417) (690) (782) (632) 2017 2018 2019 2020 2021
Slide 19: New Zealand milk collection
90 Volume (m litres/day) • Season to date collection, June – January, 80 was 1,071 million kgMS, down 0.8% on 70 last season • Good start to the season impacted by poor 60 pasture conditions across New Zealand in 50 November and dry conditions in January, especially in South Island and upper North 4
Slide 20: Normalised EBIT and profit reconciliation
¹ ¹ ² ¹ ¹ ² ³ 1. Refer to Note 1a and 2b of the FY21 Interim Financial Statements 2. Total Group includes Continuing Operations and Discontinued Operations 3. Consists of other operating income, net foreign exchange gains and losses, share of profit or loss on equity accounted investees 20
Slide 21: Normalisation adjustments
Note: Refer to Note 2 in the FY21 Interim Financial Statements for further details 21
Slide 22: Profit after tax and earnings per share
¹ ² ² ¹ ² ² 1. Includes amount attributable to non-controlling interests 2. Attributable to equity holders of the Co-operative 22
Slide 23: Operating expenses
¹ • Total Group normalised operating expenses decreased $37 million • $10 million decrease in Continuing Operations • $27 million decrease in Discontinued Operations, predominantly due to lower cost in DPA Brazil, benefiting from a weaker local currency ² • Unallocated costs increased due to a relea
Slide 24: Unallocated costs
¹ • Unallocated costs have increased $17 million predominantly driven by ‘Other’ • The increase in ‘Other’ is mainly due to a release from the Foreign Currency Translation Reserve following the liquidation of an entity no longer in use. This is a non-cash expense 1. Refer to Glossary, page 38, for d
Slide 25: Debt funding and maturity profile
¹ ² NZD DCM 13% Drawn Facilities FY21 FY21 Bank USD DCM $0.6bn FY22 FY22 Facilities 13% 13% 46% FY23 FY23 FY24 FY24 FY25 FY25 FY26 FY26 FY27 FY27 FY28 FY28 FY29 FY29 CNY DCM Undrawn FY30 FY30 4% Facilities AUD DCM $3.8bn FY31 FY31 12% 87% 0.0 1.0 2.0 3.0 4.0 0.0 1.0 2.0 3.0 4.0 EUR/GBP $ billion $ b
Slide 26: Asia Pacific results
∆¹ ² • Asia Pacific EBIT improved $16 million due to a strong performance in Consumer and Foodservice • Lower volumes due to Australia impacted by China trade relations, contraction of Daigou channel and shipping delays • Gross margin up, Consumer and Foodservice benefiting from COVID-19 with “stay
Slide 27: Asia Pacific channel results
$ millions 2020 2021 Gross Profit EBIT Gross Profit EBIT Gross Profit EBIT Note: Does not add to Total Group as shown on a normalised Continuing Operations basis and excludes unallocated and eliminations. 27
Slide 28: Australia and New Zealand results
¹ ∆² ³ • Improved Consumer performance offset by challenges in Australia Ingredients business • Lower volumes due to Ingredients’ exports impacted by China trade relations, contraction of Daigou channel and shipping delays • Gross margin improved through allocating milk to high value products in the
Slide 29: AMENA results
∆¹ ² • Lower volume in Ingredients as milk moved to higher value products and markets • Gross margin improved in Foodservice and Consumer, but partially offset by lower Ingredients margin • Gross profit declined $61 million due to lower sales ³ volumes in Ingredients’ business ⁴ • Operating expenses
Slide 30: AMENA channel results
$ millions 2020 2021 Gross Profit EBIT Gross Profit EBIT Gross Profit EBIT Note: Does not add to Total Group as shown on a normalised Continuing Operations basis and excludes unallocated and eliminations. 30
Slide 31: Latin America results
¹ ∆² ³ • Sales volume increased 17,000 MT, driven by new product development and government stimulus in Chile • Gross margin decreased due to higher raw milk costs as competition for milk increased ⁴ • Operating expenses were steady despite additional costs relating to workforce safety under COVID-1
Slide 32: Greater China results
∆¹ ² • EBIT increased $94 million to $339 million, with $79 million contributed from Foodservice growth • Foodservice gross margin increased from 20.3% to 28.2% as it shifted milk into higher value products ³ • Sales volume increased, benefiting from a robust economy and China Government endorsed da
Slide 33: Greater China channel results
$ millions 2020 2021 Gross Profit EBIT Gross Profit EBIT Gross Profit EBIT Note: Does not add to Total Group as shown on a normalised Continuing Operations basis and excludes unallocated costs and eliminations. 33
Slide 34: Global channel results
$ millions 2020 2021 Gross Profit EBIT Gross Profit EBIT Gross Profit EBIT Note: Does not add to Total Group as shown on a normalised Continuing Operations basis and excludes unallocated costs and eliminations. Refer to reconciliation in Appendix, page 20 34
Slide 35: Reference and non-reference product sales
¹ • Relative to prior year, lower reference and higher non-reference sales volumes reflect strong Foodservice and Consumer demand ¹ • Year on year, reference product price per MT declined slightly more than non-reference • Lower revenue from reference products due to reduced sales volume and price p
Slide 36: Group financial summary
¹ ² Note: For the six-months ended 31 January 1. Normalised basis 2. Consists of other operating income, net foreign exchange gains and losses, share of profit or loss on equity accounted investees 36
Slide 37: Board Statement of Intentions
The Board Statement of Intentions sets out the Board’s intentions for the performance and operations of Fonterra for FY21. In accordance with the Constitution of Fonterra, Fonterra is required to provide a regular overview to the Fonterra Co-operative Council of actual achievements, compared with th
Slide 38: Glossary: regions and channels
Represents the Ingredients, Foodservice and Consumer businesses in New Zealand, Represents the channel selling to businesses that cater for out-of-home Australia, Pacific Islands, South East Asia, South Asia and Fonterra Farm SourceTM consumption; restaurants, hotels, cafes, airports, catering compa
Slide 39: Glossary: definitions
New Zealand: A period of 12 months to 31 May in each year. Australia: A period of 12 months to 30 June in each year. Return on capital is calculated as EBIT less a notional tax charge, divided by China: A period of 12 months to 31 July in each year. capital employed including certain intangibles (br
Slide 40: Non-GAAP financial measures
Fonterra uses several non-GAAP measures when discussing financial performance. These measures include normalised Profit After Tax, normalised EBIT, EBIT, normalised earnings per share and normalisation adjustments. Total Group measures present the combined financial performance of the Group’s contin
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