Fonterra Co-operative Group Limited · NZX:FCG
Fonterra Co-operative — FY2021 Earnings Presentation
50 slides from Fonterra Co-operative's earnings presentation, Sep 23, 2021
Slide 1: Annual Results 2021
\ @ 2° 7 i % Font ~~ Annual Results 2021 ss 23 September 2021
Slide 2: Annual results highlights
¹ ² 1. Attributable to equity holders of the Co-operative, excludes non-controlling interest 2. Economic net interest-bearing debt (ENIBD) gearing ratio, refer to Glossary for definition 2
Slide 3: Strong demand for dairy lifted monthly milk price
Monthly Milk Prices Price Relativities (NZ$) (US$/MT) 9.00 4,000 7.50 3,000 6.00 FY21 H1 FY21 H2 Jun Sep Dec Mar Aug Nov Feb May Monthly Milk Price 2019/2020 Season GDT Cheddar shipment price¹ (non-reference) Monthly Milk Price 2020/2021 Season GDT WMP shipment price¹ (reference) • Strong demand for
Slide 4: Maintained milk solids utilisation while increasing product mix complexity
$100m $95m $90m 96.4% 96.4% 96.4% 95.0% 94.0% 96.2% 96.2% 91.9% $58m $58m 90.9% 91.4% 2017 2018 2019 2020 2021 2017 2018 2019 2020 2021 2017 2018 2019 2020 2021 • Maintained utilisation (yield) of milk • Consistent improvement in • $42 million improvement over solids, while increasing complexity of
Slide 5: Record shipment year despite pandemic disruptions
Record shipment year, 2.59 million tonnes shipped from New Zealand, Team effort and innovation with On a per tonne basis, our despite pandemic disruptions partners to manage a 350% increase non-shipping supply chain costs are in rework of orders driven by ongoing More than 50 other exporters shared
Slide 6: Reduced carbon emissions from coal use
Reduced carbon Over half of supplying emissions from coal use farms in New Zealand by more than 11%, with now have Farm Te Awamutu moving to Environment Plans, renewable wood pellets up from 34% at the beginning of the year Water usage at sites in water-constrained 24% reduction in regions up slight
Slide 7: Supported the wellbeing of our global workforce
Supported the wellbeing of Increased our our global workforce, employee engagement who continue to score, with significantly be affected by more teams now in the COVID-19 lockdowns top quartile Supported our Female communities, representation in including donating senior leadership up to 800+ tonnes
Slide 8: Completed divestments and asset sales
Completed sale of Completed sale of Agrigate joint venture Completed sell down of Agrifeeds joint venture Beingmate holding DPA Brazil and Hangu China Farm sale process continues Completed sale of two wholly-owned Completed sale Acquired Dairy China Farming hubs of China Farms Country in Australia j
Slide 9: Total Group financial results summary
³ ¹ ¹² ⁶ ⁴ ⁵ 1. Total Group figures for the year ended 31 July 2021. This includes Continuing and Discontinued Operations, and 4. For the year ended 31 July 2020 debt to EBITDA was 3.3x. This was reported as 3.4x in 2020. Previously, adjusted includes amounts attributable to non-controlling interest
Slide 10: Gross margin and normalised profit after tax
¹ ∆² ³ • Achieved a gross margin of 14.7%, while increasing milk payments to New Zealand farmers year on year • Gross margin of 17.4% in first half, second half significantly impacted by rising milk price with margin reduced to 12.4% • Gross profit reduced $94 million, due to lower margins across al
Slide 11: Normalised EBIT by quarter
¹ ¹² Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Note: Figures are for the year ended 31 July 2021. Comparative information has been restated for consistency with the current period, and FY21 quarterly breakdown has been restated for increased accuracy of attribution 1. Prepared on a normalised Continuing Operations ba
Slide 12: EBIT by segment
700 600 500 400 300 200 100 - ¹ Note: Figures are for the year ended 31 July and prepared on a normalised Continuing Operations basis. Comparative information has been restated for consistency with current period attribution 1. Eliminations and unallocated costs 12
Slide 13: Leverage metrics within long-term targets
¹,² ² ,³ 6.2 70.0% 4.6 4.3 5.0 5.6 5.7 60.0% 3.8 4.5 3.3 4.0 4.7 50.0% 2.7 3.5 3.0 40.0% 3.8 30.0% 2.5 2.0 20.0% 1.5 1.0 • Net debt and leverage down due to divestments 10.0% 44% 48% 49% 41% 36% 0.5 and improved earnings from operations 0.0% 0.0 2017 2018 2019 2020 2021 2017 2018 2019 2020 2021 Net
Slide 14: Farmgate Milk Price forecast range
2021/2022 2019/2020 2020/2021 per kgMS Season Season Season Forecast (US$/MT) 4,000 • Maintaining the range reflects: • Still early in the season with normal levels of 3,000 high uncontracted volume, product price and FX volatility • Ongoing uncertainty associated with COVID-19 Jun Jun Jun GDT WMP s
Slide 15: Earnings guidance per share
per share FY21 H1 FY21 H2 FY22 H1 (US$/MT) 4,000 • The range reflects: • Uncertainty of Ingredient price relativity changes through the season 3,000 • Early season range of Forecast Farmgate Milk Price, which could impact raw milk cost for value-add business • Ongoing uncertainty associated with Aug
Slide 16: 16
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Slide 17: Five-year milk collection, revenue and profit trends
4,180 4,123 4,152 4,069 4,102 20.4 19.9 21.0 21.1 1,526 1,505 1,523 1,517 1,539 19.2 2017 2018 2019 2020 2021 2017 2018 2019 2020 2021 2017 2018 2019 2020 2021 NZ Milk Collection (million kgMS) Sales Volume ('000 MT) Revenue ($ billion) ¹ ² 3,246 3,152 3,208 3,114 2,496 3,008 2,335 2,282 2,323 2,242
Slide 18: Five-year EBIT, NPAT, capex, gearing and cash flow
² ² 1,120 1,147 792 745 659 599 959 588 407 398 275 262 (196) (17) (610) 2017 2018 2019 2020 2021 2017 2018 2019 2020 2021 2017 2018 2019 2020 2021 Reported EBIT ($ million) Normalised NPAT ($ million) Reported NPAT ($ million) ³ ¹ ³ 851 861 70.0% 4.6 4.3 1,828 60.0% 3.8 1,417 3.3 600 545 50.0% 2.7
Slide 19: Working capital days, EPS and return on capital
² ,³ 91 60.00 83 83 85 49 8.0% 75 50.00 6.2% 6.6% 6.6% 40.00 34 5.6% 30.00 24 24 20.00 16 10.00 0.00 2017 2018 2019 2020 2021 2017 2018 2019 2020 2021 2017 2018 2019 2020 2021 Working Capital Days Normalised EPS (cents) Return on Capital (%) ¹ 1. Total Group figures for the year ended 31 July 2021.
Slide 20: NZ milk collections for the 2020/21 season
90 Volume (m litres/day) 80 • Fonterra’s NZ milk collections for the 2020/21 season reached 1,539 million kgMS, an 70 increase of 1.5% on last season’s collection • Good start to the season was driven by 60 favourable mild conditions, supporting 50 pasture growth • From October to January, increasin
Slide 21: Total capital invested
• Total capital invested comprised of $545 million capital expenditure and $63 million of other investments • Capital expenditure increased $126 million to $545 million, largely due to projects delayed by COVID-19 in FY20 being completed this year • Capital expenditure of $545 million comprised $466
Slide 22: Free cash flow
¹ • Free cash flow of $1.4 billion reflects strong operating performance and assets sale proceeds: • Net cash flows from operating activities of $1.2 billion • Net cash flows from investing activities of $0.2 billion, with proceeds from divestments of $0.8 ² billion, less capital invested of $0.6 bi
Slide 23: Working capital: receivable, payable and inventory days
• Receivable days are favourable due to improved customer collection management and overdue debtors have reduced • Higher payables days due to increased capital expenditure • Inventory days are unfavourable due to: • Higher than average inventory throughout the year as a result of sales slippage due
Slide 24: Return on capital
• Increase in normalised EBIT has been ¹ offset by increase in notional tax rate used to calculate after tax operating earnings • Notional tax rate applied increased to 16.1% from 8.4% due to a change in our dividend policy and realised tax rates • Average capital employed was stable year on year ²
Slide 25: Debt funding and maturity profile
¹ ² NZD DCM 12% Drawn Facilities3 FY22 FY22 Bank USD DCM $0.03bn Facilities 1% FY23 FY23 15% 47% FY24 FY24 FY25 FY25 FY26 FY26 FY27 FY27 FY28 FY28 FY29 FY29 CNY DCM Undrawn FY30 FY30 2% Facilities4 AUD DCM $3.8bn FY31 FY31 10% 99% 0.0 1.0 2.0 3.0 4.0 0.0 1.0 2.0 3.0 4.0 EUR/GBP $ billion $ billion 1
Slide 26: Operating expenses
¹ • Total Group normalised operating expenses decreased $81 million • $41 million decrease in Continuing Operations • $40 million decrease in Discontinued Operations, predominantly due to lower cost in DPA Brazil, benefiting from a weaker local currency • Unallocated costs decreased $18 million main
Slide 27: Unallocated costs
¹ ² • Unallocated costs are favourable $18 million predominantly due to ‘Other’ • ‘Other’ decreased $12 million, mainly due to a reduction in provisions held at Group level 1. Refer to Glossary for definition 2. Normalised basis 27
Slide 28: Segment gross profit and EBIT
$ millions 2020 2021 Gross profit EBIT Gross profit EBIT Gross profit EBIT Note: Figures are for the year ended 31 July. Does not add to Total Group as shown on a normalised Continuing Operations basis and excludes unallocated costs and eliminations. Comparative information has been restated for con
Slide 29: Segment gross profit and EBIT
$ millions 2020 2021 Gross profit EBIT Gross profit EBIT Gross profit EBIT Note: Figures are for the year ended 31 July. Does not add to Total Group as shown on a normalised Continuing Operations basis and excludes unallocated costs and eliminations. Comparative information has been restated for con
Slide 30: EBIT of $305 million, up $66 million
∆¹ ² • EBIT of $305 million, up $66 million • Strong performance in Consumer and Foodservice, partially offset by a decline in Ingredients: • Consumer increased gross margins • Foodservice increased sales volume and improved gross margins ³ • Ingredients margins adversely impacted by pricing ⁴ arran
Slide 31: Segment gross profit and EBIT
$ millions 2020 2021 Gross profit EBIT Gross profit EBIT Gross profit EBIT Note: Figures are for the year ended 31 July. Does not add to Total Group as shown on a normalised Continuing Operations basis and excludes unallocated costs and eliminations. Comparative information has been restated for con
Slide 32: EBIT increased $20 million to $74 million
¹ ∆² ³ • EBIT increased $20 million to $74 million, due to a strong performance in the Consumer channel • Lower sales volume due to optimising the portfolio to a higher returning product mix and global shipping delays • Gross profit increased due to strong margins in the Consumer and Foodservice cha
Slide 33: EBIT of $336 million, down $129 million
∆¹ ² • Lower volumes in Ingredients as sales volume was allocated to higher value markets • Gross profit reduced due to lower sales volume and lower gross margin in Ingredients channel, impacted by the lag on the sale price on longer dated sales contracts • Consumer gross margins and EBIT improved s
Slide 34: Segment gross profit and EBIT
$ millions 2020 2021 Gross profit EBIT Gross profit EBIT Gross profit EBIT Note: Figures are for the year ended 31 July. Does not add to Total Group as shown on a normalised Continuing Operations basis and excludes unallocated costs and eliminations. Comparative information has been restated for con
Slide 35: EBIT up 79% to $75 million
∆¹ ² • EBIT up 79% to $75 million as a result of higher sales volume and gross margins • Sales volume increased, driven by new product development and government stimulus in Chile • Gross margin increased due to improved product mix and pricing in our Chilean Consumer channel ³ • Operating expenses
Slide 36: EBIT increased $37 million to $403 million
∆¹ ² • EBIT increased $37 million to $403 million, driven by higher sales volume and improved margin in the Foodservice channel • Foodservice gross margin increased from 22.3% to 24.7%, as it shifted product into higher value products • Ingredients’ gross margin reduced, impacted by the lag on ³ the
Slide 37: Segment gross profit and EBIT
$ millions 2020 2021 Gross profit EBIT Gross profit EBIT Gross profit EBIT Note: Figures are for the year ended 31 July. Does not add to Total Group as shown on a normalised Continuing Operations basis and excludes unallocated costs and eliminations. Comparative information has been restated for con
Slide 38: Shift from reference to non-reference product sales volume
¹ • Shift in sales volume from reference products to non-reference product reflects growing demand in Foodservice and Consumer channels ¹ • Average reference product price declined, despite the Farmgate Milk Price increase, due to: • Some longer dated sales contracts are not included in the Farmgate
Slide 39: Price relativities between WMP and Cheddar
Price Relativities FY20 FY21 (US$/MT) • Unfavourable Ingredients price relativities between reference and non-reference products during the 4,000 second half of the year: • Illustrated by the relative price movements of WMP (reference product) and Cheddar (non-reference product) • Over the second ha
Slide 40: Financial statement reference table
Note: Refer to Note 2 in the FY21 Financial Statements for further details 40
Slide 41: Profit attributable to equity holders
¹ ² ² ¹ ² ² 1. Includes amount attributable to non-controlling interests 2. Attributable to equity holders of the Co-operative 41
Slide 42: Total dividend of 20 cents per share
¹ ¹ • Total dividend of 20 cents per share • Interim dividend of 5 cents ² • Final dividend of 15 cents • 3 cents of the 15 cents per share final dividend reflects the addition of abnormal gains³ ³ • Final dividend of 15 cents per share will be paid on 15 October, with interim dividend of 5 cents pe
Slide 43: Normalised to reported reconciliation
¹ ¹ ¹ ¹ ³ ²³ 1. Refer to Note 1a and 2c of the FY21 Financial Statements 2. Consists of other operating income, net foreign exchange gains/(losses) and share of equity accounted investees 3. Impairments of intangible assets not included in the strategic review for the 2020 Financial Year ($55 millio
Slide 44: Normalised Continuing Operations reconciliation
¹ ² 1. Figures are prepared on a normalised Continuing Operations basis 2. Consists of other operating income, net foreign exchange gains/(losses) and share of equity accounted investees 44
Slide 45: Board Statement of Intentions: FY21 performance
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 46: Board Statement of Intentions: FY22 targets
In accordance with the Constitution of Fonterra, the Board Statement of Intentions sets out the Board’s intentions for the performance and operations of Fonterra. The table below outlines the targets for the year ended 31 July 2022. FY20 FY21 FY22 SOI Total recordable injury frequency rate (TRIFR) p
Slide 47: Glossary
Is economic net interest-bearing debt, excluding long-term advances, plus borrowings Represents the channel of branded consumer products, such as powders, attributable to disposal groups held for sale, less cash and cash equivalents yoghurts, milk, butter, and cheese attributable to disposal groups
Slide 48: Glossary
Means the average price that Fonterra pays for milk supplied to it in New Zealand Represents the channel comprising bulk and specialty dairy products such for a season. The season refers to the 12-month milk season of 1 June to 31 May. as milk powders, dairy fats, cheese and proteins manufactured in
Slide 49: 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 50: Non-GAAP 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, normalisation adjustments and total Group measures. Total Group measures present the combined financial performance
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