Fonterra Co-operative Group Limited · NZX:FCG
Fonterra Co-operative — FY2020 Earnings Presentation
43 slides from Fonterra Co-operative's earnings presentation, Sep 18, 2020
Slide 1: Annual Results 2020
Fonterra Annual Results 2020 18 September 2020
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: Resilience demonstrated during COVID-19
• The Co-op’s resilience demonstrated during COVID-19 • Proud of how our people came together and performed • Reduced our environmental footprint ¹ • Improved underlying business performance ² • Significantly reduced debt ² • Resumed dividend 1. Reported Profit After Tax includes Continuing and Disc
Slide 4: Adapting to COVID-19
Recognising Customers can rely gives us on us getting and being confidence and allows ready to adapt to us to focus on thanks to our proven them managing COVID-19 supply chain 4
Slide 5: Improved performance highlights
China Foodservice growth Capital expenditure Operating expenses Improved Ingredients’ margin DFE Pharma foodspring® from 5.8% 5
Slide 6: Financial results summary
GROSS OPERATING PROFIT REVENUE PROFIT EXPENSES EBIT AFTER TAX¹ billion billion billion million million Up $1.1bn Up $200m Down $14m Up $67m Up $118m Capital Free Cash Flow Net Debt² Debt to EBITDA Dividend Expenditure million billion billion x cents Down $181m Up $733 million Down $1.1b From 4.4x Up
Slide 7: Profit after tax bridge
³ Gain on Impairments ² $(826)m of FY19 divestments and other costs • Improved gross margin • Impairments impairments and other • Lower interest expense • Provision costs excluded to get Normalised Profit After Tax 16 cents 24 cents 43 cents eps¹ eps¹ eps¹ FY20 Higher FY20 FY19 FY20 FY20 FY20 Operat
Slide 8: Gross profit and EBIT by segment
¹² ¹ ¹ 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 Gross Profit EBIT Gross Profit EBIT Gross Profit EBIT 2020 gross profit reflects Strong first half before COVID-19 2020 EBIT includes $57 million favourable pricing relativities of impairments Greater China rebounded in third 2019 EB
Slide 9: Net cash flow and net debt
• Net cash flow improved by $736 million: NET NET DEBT² • Normalised EBIT up $67 million to $879 million CASH FLOW¹ • $623 million from divestments⁵ • Capital expenditure down $181 million billion billion • Net debt and gearing both down: Up $736m Down $1.1b • Improved net cash flows • $266 million
Slide 10: Supporting communities and customers
INJECTING of providing ALMOST valuable nutrition into regional through KickStart communities YEARS Breakfast through milk price payments Launched billion Fonterra Brands million litres New Zealand of ethanol supplied ranked to help with hand in independent Extended production to deliver whey sanitis
Slide 11: Environmental targets delivered
Delivered on target Finalising farm-specific greenhouse to reduce energy intensity gas emissions reports. To be sent by 2020 at our NZ manufacturing to supplying farms in October 2020 sites, from a 2003 baseline Switching from of supplying coal to wood pellets farms now have at Te Awamutu site, whic
Slide 12: Delivered on our 2020 priorities
Delivered on our 2020 priorities Healthy Environment — Reduced our environmental footprint Healthy Business — Hit our financial targets = Dairy for life 12
Slide 13: Strategic priorities
Being here for Deliver on Do what’s right for farmers and employees our promises customers, communities and environment Competitive milk price Return on Capital Exceed customer expectations Participation in The Co-operative Debt/EBITDA Support communities through Difference nutrition programmes Sust
Slide 14: FY21 forecast milk price and earnings
Forecast Farmgate Milk Price Forecast Earnings cents per share per kgMS • Forecast Farmgate Milk Price range of $5.90-$6.90 per • Full year normalised earnings per share range of kgMS maintained 20-35 cents • Assumes no significant impact to product pricing from • Key assumptions include: global eco
Slide 15: Capital structure update
Capital structure update Our fundamentals Building a financially Maintaining farmer sustainable NZ Co-op ownership & control Ensuring we have a sustainable milk supply 15
Slide 16: Capital structure assessment criteria
Does the Does the Does the Does the Does the Is the transition Does the Is the structure structure structure structure structure align structure to a potential structure simple to preserve support our protect value incentives manage new structure preserve understand farmer ability to attract for cur
Slide 17: Capital structure review remains a key priority
The capital structure review remains a key priority for the Co-op Problems to solve Detailed analysis of options, trade- offs, risks and benefits Engagement with farmers and stakeholders a7
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Slide 19: Five-year financial summary
¹ 1,566 4,313 4,180 4,123 4,152 4,069 20.4 19.9 21.0 1,526 19.2 1,505 1,523 1,517 17.2 1,800 1,773 1,765 1,602 1,564 3,074 3,019 2,986 3,149 3,055 2016 2017 2018 2019 2020 2016 2017 2018 2019 2020 2016 2017 2018 2019 2020 Milk Collection (million kgMS) Consumer and Foodservice Revenue ($ billion) In
Slide 20: Five-year earnings, cash flow and gearing
¹ ¹ 810 734 1,431 789 781 686 1,120 1,147 382 382 262 264 (221) (17) (562) 2016 2017 2018 2019 2020 2016 2017 2018 2019 2020 2016 2017 2018 2019 2020 Reported EBIT ($ million) Normalised NPAT ($ million) Reported NPAT ($ million) ² 944 3.8 4.6 4.4 2,184 851 861 3.2 3.4 1,828 600 419 1,095 670 600 44
Slide 21: Working capital, EPS and dividend yield
¹ ² 7.3% 6.7% 9.2% 85 8.3% 83 83 6.7% 6.3% 5.8% 77 1.7% 1.3% 75 0.0% 49 49 24 16 24 2016 2017 2018 2019 2020 2016 2017 2018 2019 2020 2016 2017 2018 2019 2020 Working Capital Days EPS (cents) Dividend Yield (%) Return on Capital (%) 1. Dividend over volume weighted average share price from 1 August
Slide 22: Gross profit, margin and operating expenses
¹ ¹ ² ¹ ¹ ² Revenue 19,255 665 19,920 20,282 693 20,975 Cost of Goods Sold (16,349) (563) (16,912) (17,236) (531) (17,767) Gross Profit 2,906 102 3,008 3,046 162 3,208 Gross Margin 15.1% 15.3% 15.1% 15.0% 23.4% 15.3% Operating Expenses (2,143) (139) (2,282) (2,139) (129) (2,268) Other³ 70 16 86 (60)
Slide 23: Divestments and impairments
DFE Pharma and foodspring™ • $623 million of cash proceeds received and $467 million gain on sale China Farms and DPA Brazil • Impaired asset values to align with information from sale processes: • China Farms, $63 million impairment • DPA Brazil, $104 million¹ (After-tax split $45 million, Fonterra
Slide 24: Normalisations reconciliation
DFE Pharma 401 26 427 427 foodspring® 66 66 66 66 China Farms (63) (63) (63) (63) DPA Brazil (104) (104) 16 (88) 43 (45) China Farming JV (65) (65) (65) (65) Sub total 467 (232) 26 261 16 277 43 320 Beingmate 50 50 50 50 Chile (30) (30) (30) Other¹ 12 (55) (43) 7 (36) (36) Note: Refer to Note 2 in t
Slide 25: Impairments and other normalisations
Chesdale™ and Fonterra Brands New Zealand • $57 million impairment of intangible asset values due to uncertainty of future long-term growth in their respective markets: • Chesdale™, an Asia brand, $36 million brand impairment shared between Greater China and Asia • New Zealand Consumer, $21 million
Slide 26: Operating expenses
¹ ² Selling and marketing 128 114 142 • Total Group normalised operating Distribution 237 239 228 expenses decreased $14 million Administrative expenses 331 333 363 • 2019 benefited from not paying Research and development 3 20 24 employee performance incentives Other expenses 109 56 25 • 2020 exclu
Slide 27: Unallocated costs
¹ ² ³ ³ Research and Development 10 10 7 3 – 10 Group Finance and Support 54 59 – – 59 59 IT 63 71 48 23 – 71 Farmer Services 39 37 37 – – 37 People and Culture 21 20 13 7 – 20 Advertising and Promotion Costs 16 15 – – 15 15 Food Safety and Quality 14 9 6 3 – 9 Property 8 6 4 2 – 6 Trade Relations a
Slide 28: Debt maturity profile
¹ ² ³ NZD DCM Maturity Profile Maturity Profile 11% Drawn Facilities Bank $0.05bn USD DCM FY21 FY21 Facilities 1% 14% FY22 FY22 47% FY23 FY23 FY24 FY24 FY25 FY25 FY26 FY26 FY27 FY27 FY28 FY28 FY29 FY29 CNY DCM Undrawn FY30 FY30 2% AUD DCM Facilities FY31 FY31 14% $4.36bn 0.0 1.0 2.0 3.0 0.0 1.0 2.0
Slide 29: Capital expenditure
$ million • Capital expenditure is down $181 million to $419 million • Discretionary spend decreased from $260 million to $37 million, down $223m, partially offset by; • Essential spend increased from $340 million to $382 million, up 12% • Key drivers of the reduction: • COVID-19 impacted timing of
Slide 30: Employee numbers
• Efficiency and reorganisation efforts reduced FTE permanent employees by 420 • 103 FTE reduction in Australia due to Dennington closure • Increase in New Zealand Ingredients and decrease in New Zealand Consumer and Foodservice reflects realignment of R&D FTE Ingredients 10,391 10,317 10,754 8,812
Slide 31: New Zealand milk collections
Volume (m litres/day) 90 • Fonterra’s New Zealand milk collections for the 2019/20 Season were 1,517 million kgMS, 80 down 0.4% on last season 70 • North Island collections down 2.1%, impacted by dry weather 60 • South Island collections up 2.1%: 50 • Favourable weather conditions across Canterbury,
Slide 32: Ingredients segment results
¹ ∆² Volume³ (‘000 MT) 3,149 3,055 (3)% • Sales volumes down 3%, 94,000 MT, mainly due to decline in Australia Ingredients’ milk collections Revenue ($) 16,291 17,365 7% • Gross profit increased $165 million Gross Profit ($) 1,446 1,611 11% • New Zealand up $131 million, mainly due to favourable Gro
Slide 33: Ingredients regional breakdown
¹ Volume² MT MT MT From 2,951,000 MT From 328,000 MT From (130,000) MT Gross Margin From 9.1% From 0.6% $ million 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 Gross Profit EBIT Gross Profit EBIT Gross Profit EBIT 1. Ingredients’ performance restated to include China Farming joint vent
Slide 34: Reference and non-reference product pricing
5,000 • Favourable pricing relativities between Cheddar reference and non-reference products WMP 4,500 • Characterised by the price movements of WMP (Reference product) and Cheddar (Non-reference product) 4,000 Cheddar • Significant improvement in second half of financial year 3,500 WMP • WMP prices
Slide 35: Reference and non-reference product results
• Favourable product prices, increase in Sales Volume (000 MT)¹ Non-reference revenue higher compared to Reference revenue increase Reference 1,864 – 1,820 – • Milk cost of protein has increased by Non-Reference 774 – 794 – proportionally more than the milk cost of fat Revenue¹ • Non-reference produ
Slide 36: Consumer and Foodservice Foodservice results
¹ ∆² Volume³ (‘000 MT) 465 444 (5)% • Full year EBIT growth due to strong first half. Second half impacted by COVID-19, particularly fourth quarter Revenue ($) 2,673 2,652 (1)% • Strong first half in Greater China and Asia, due to a recovery in Gross Profit ($) 420 437 4% butter margins and selling
Slide 37: Quarterly Foodservice trends by region
• Strong first half • Slight improvement • COVID-19 impacted during first three early Q3 but rebounded quarters quickly • COVID-19 impacted • Q4 impacted by during Q4 Q1 Q2 Q3 Q4 COVID-19 outbreaks Q1 Q2 Q3 Q4 FY19 FY20 FY19 FY20 • Good first half • Steady first half • Impact of COVID-19 • COVID-19
Slide 38: Foodservice regional breakdown
Volume¹ MT MT MT MT From 237,000 MT From 93,000 MT From 32,000 MT From 104,000 MT Gross Margin From 13.8% From 15.8% From 22.7% From 18.9% $ million 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 Gross Profit EBIT Gross Profit EBIT Gross Profit EBIT Gross Profit EBIT
Slide 39: Consumer segment results
¹² ³ ∆⁴ Volume⁵ (‘000 MT) 1,137 1,120 (1)% • Consumer EBIT, excluding $57 million of impairments, is down 10% mainly due to challenging market conditions in Revenue ($) 4,223 4,251 1% Hong Kong and Chile Gross Profit ($) 1,078 1,001 (7)% • Gross profit declined $77 million due to: Gross Margin (%) 2
Slide 40: Consumer normalised EBIT bridge
• Our Consumer normalised EBIT declined from $227 million to $149 million, a decrease of $78 million • The $78 million year-on-year decrease includes $57 million of impairments • Excluding the impairments, FY20 Consumer EBIT is down $21 million on the prior year ¹ FY19 Greater Oceania Asia Latin Ame
Slide 41: Consumer regional breakdown
Volume² MT MT MT MT From 76,000 MT From 204,000 MT From 333,000 MT From 524,000 MT Gross Margin From 40.1% From 28.1% From 26.6% From 19.7% ¹ $ million 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 Gross Profit EBIT Gross Profit EBIT Gross Profit EBIT Gross Profit E
Slide 42: China Farms results
∆¹ Volume² (‘000 MT) 20 22 8% • China Farms’ sales volumes increased 8% due to higher productivity, and recovery from flood in Yutian Revenue ($) 247 282 14% • China Farms’ gross profit improved $47 million due to a flatter Gross Profit³ ($) (14) 33 – milk supply curve and improved milk prices Gross
Slide 43: 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
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