Post on 08-Mar-2018
transcript
FONTERRA UPDATE
Confidential to Fonterra Co-operative Group
July 2014
Page 2 © Fonterra Co-operative Group Ltd.
Fonterra overview
FY13 revenue (NZ$) 18.6 billion
FY13 normalised EBIT
(NZ$) 1.0 billion
Shareholders ~10,500
Market cap (NZ$) 9.4 billion
Credit rating:
Standard & Poor’s
Fitch
A+ stable
AA- stable
• World’s largest processor of dairy
products
• Consumer and Foodservice operations
in China, Asia, Middle East, Latin
America, Oceania
• International Farming Ventures – China
• Access to global milk pools
– Collects ~88% of New Zealand’s milk
– Processes approximately 22 billion
litres of milk per year
Page 3 © Fonterra Co-operative Group Ltd.
Foodservice and branded consumer
businesses
ASEAN/MENA
LATAM
Greater China
Page 4 © Fonterra Co-operative Group Ltd.
Fonterra global ingredients
21.6
17.1
15.0 14.9
12.0 12.0
10.1
8.2 7.8 6.9
Fo
nte
rra
Dair
y F
arm
ers
o
f A
me
rica
La
cta
lis
Ne
stlé
De
an
Fo
do
s
Arl
a F
oo
ds
Fre
isla
nd
C
am
pin
a
Dan
on
e
Kra
ft F
oo
ds
DM
K
Mil
k In
tak
e (
mil
lio
n t
on
ne
s)¹
21%
46%
28%
51%
To
tal M
ark
et
Sh
are
Wh
ole
milk
po
wd
er
Skim
milk
po
wd
er
Bu
tte
r
% o
f G
lob
al D
air
y E
xp
ort
s
The world’s largest milk processor Fonterra’s share of global dairy exports²
Note: These figures are sourced from the TAF prospectus, issued in October 2012
1. Milk intake figures above are measured in millions of tons (not billions of litres) and represent milk volume collected and commodity purchases for the company and
its subsidiaries. 50% of Dairy Partners America milk intake has been allocated to each of Fonterra and Nestle. Source: IFCN Dairy Network. Analysis is based on
the IFCN Dairy Report 2012. Data represents in most cases the year 2011 (Nestlé data represents the year 2010).
2. Figures are for the 2011 / 2012 Season. Global Dairy Exports means the market for the cross-border trade of dairy products but excludes trade among countries
within the European Union. Source: Fonterra, Global Trade Information Services.
Page 5 © Fonterra Co-operative Group Ltd.
MENA
2%
4%
10%
India²
7%
7%
China
4%
2%
LATAM
2% 2%
ANZ
1%
Nth America
1%
Europe
<1%
ASEAN
2-3%
4%
1% <1%
The outlook for global trade in dairy
products: a view to 2020
Source: Fonterra estimate
1. Current volumes are represented by the area of the circles displayed. Growth rates represent forecast compound annual growth rates.
2. Although strong growth in demand is expected in India, the ability to supply is likely to remain limited. In the 12 months to May 2012, Fonterra exported 22,300 MT
of product to India and total imports represented approximately 0.2% of consumption.
Outlook to 2020¹
Demand growth Supply growth Demand volume Supply volume
Page 6 © Fonterra Co-operative Group Ltd.
…Our strategic response
Margin squeeze in
consumer
Negative stream
returns
Precautionary recall
STAY ON STRATEGY
Turning the Wheel
STRATEGIC REVIEW
• Optionality
• Portfolio optimisation
• Multi hubs
RENEWED FOCUS ON FOOD SAFETY
AND QUALITY
A challenging year…
Page 7 © Fonterra Co-operative Group Ltd.
Improve
Value Drivers
Drive Return on
Capital (ROC)
Maximise
Shareholder Wealth
Strong focus on value creation
Earnings per Share
Milk Price
Share Price
Improve ROC
Economic Value Add
Volume Growth
EBIT Growth
Working Capital
Page 8 Confidential to Fonterra Co-operative Group Page 8 Confidential to Fonterra Co-operative Group
Strategic overview
Page 9 © Fonterra Co-operative Group Ltd.
Our journey to becoming a globally relevant
Co-op
Page 10 © Fonterra Co-operative Group Ltd.
Page 11 © Fonterra Co-operative Group Ltd.
A strong Co-operative … getting stronger
From
The world’s largest
exporter of dairy
To
A Co-op that makes a difference in the
lives of 2 billion people by 2025
Page 12 © Fonterra Co-operative Group Ltd.
Growth in
Consumer and
Foodservice volumes
Value creation by ‘Turning the Wheel’
Drive price achievement
in Ingredients
Return on Capital (ROC) >
WACC
DIRA
GDT
GDT Surge
Spot
LTSA
Foodservice
Consumer
Page 13 © Fonterra Co-operative Group Ltd.
Strategic priorities
Deliver on
Foodservice
potential
Selectively invest
in milk pools
Grow our
Anlene business
Develop leading
positions in paed &
maternal nutrition
Optimise
NZ milk
1
Align our business
and organisation
Build and grow
beyond our current
consumer positions
3
2
4
5
6
7
Redefine milk supply model
Invest in optionality to achieve higher less volatile returns
Investment in global multi-hubs
Organisational changes to support strategy
Food safety and quality
Focus on strategic and leadership markets
Focus on 5 global brands
Page 14 © Fonterra Co-operative Group Ltd.
Investing in optionality to achieve
less volatile returns
DEEPER FINANCIAL (FUTURES) MARKETS
MIX OPTIMISATION
ASSET OPTIONALITY
Expand
capacity
Plant
productivity Advance investment
Review
constraints
Centralised
management
Asset-backed
trading
Develop WMP
futures market
B
C
A F15 F16 F17 F18 F19+
Maintain
flexibility
Physical
trading
Grow
WMP futures
volumes
Page 15 © Fonterra Co-operative Group Ltd.
Optimising our asset footprint to support
premium growth platforms
Neutral Invest if returns significantly exceed
cost of capital over time
Accelerate Investment
Reduce Immediately
Grow with Market
Supports Earnings Stability / Growth High Low
Su
pp
ort
s V
3 S
trate
gy
High
Low
Nutritionals
UHT Mozzarella
Cream Cheese
Butter / AMF
WMP / SMP
Natural
Cheese
Casein
Page 16 © Fonterra Co-operative Group Ltd.
Strategic priorities
Deliver on
Foodservice
potential
Selectively invest
in milk pools
Grow our
Anlene business
Develop leading
positions in paed &
maternal nutrition
Optimise
NZ milk
1
Align our business
and organisation
Build and grow
beyond our current
consumer positions
3
2
4
5
6
7
Redefine milk supply model
Invest in optionality to achieve higher less volatile returns
Investment in global multi-hubs
Focus on strategic and leadership markets
Focus on 5 global brands
Organisational changes to support strategy
Food safety and quality
Page 17 © Fonterra Co-operative Group Ltd.
93 consumer markets 8 leadership and strategic markets
Top 3 in attractive scale segments
<15% ROC consumer & foodservice >20% ROC consumer & foodservice
60+ brands, different positioning 5 global brands, consistent
proposition
Silos, limited synergies Pan-Fonterra integrated approach,
repeatable models
Focus on strategic and leadership markets
From To
Page 18 © Fonterra Co-operative Group Ltd.
Focusing on 5 global brands, with clear links
to our strategy
Deliver
on Foodservice potential
Grow
our Anlene™ business
Develop
leading positions in paed.
and maternal nutrition
Optimise
New Zealand milk
1
Build and grow
beyond our current
consumer positions
3
2
4
5
Page 19 © Fonterra Co-operative Group Ltd.
Our nutritional benefit platforms
address key developing trends…
Natural energy
Growth and
development
Mobility
Cognition
Un
co
mp
rom
isin
g t
aste
,
textu
re a
nd
sta
bil
ity
Nutrient deficiencies
Consumer trends
Fonterra strengths
Benefit platforms
Page 20 © Fonterra Co-operative Group Ltd.
Strategic priorities
Deliver on
Foodservice
potential
Selectively invest
in milk pools
Grow our
Anlene business
Develop leading
positions in paed &
maternal nutrition
Optimise
NZ milk
1
Align our business
and organisation
Build and grow
beyond our current
consumer positions
3
2
4
5
6
7
Redefine milk supply model
Invest in optionality to achieve higher less volatile returns
Investment in global multi-hubs
Organisational changes to support strategy
Food safety and quality
Focus on strategic and leadership markets
Focus on 5 global brands
Page 21 © Fonterra Co-operative Group Ltd.
Multi-hub strategy will match demand
growth to our best source of supply
Page 22 © Fonterra Co-operative Group Ltd.
NZ
Milk Powder
preference
EU
Cheese/Whey/
Nutritionals
preference
AU
Cheese
preference
Global Demand
Fonterra Group US
SMP
preference
Single-hub
Focus
Latam
Mostly
Inter-region
Global multi-hubs to support global growth
platforms
From Single Hub To Multi-Hub
Global Demand
NZ
AU EU US China Latam
Page 23 © Fonterra Co-operative Group Ltd.
Our group structure supports our
strategic priorities
Group Functions
Global Ingredients
APMEA
Latin America
Greater China
Strategic Regions Inter-national Farming
Global Operations
Page 24 © Fonterra Co-operative Group Ltd.
A new approach to food safety and quality
supports our purpose
Think, Act and
Live Quality
Right First Time
Every Time
Deliver on
our Promises
Page 25 Confidential to Fonterra Co-operative Group Page 25 Confidential to Fonterra Co-operative Group
Example of Strategy in Action –
Fonterra in China
Page 26 © Fonterra Co-operative Group Ltd.
Significant growth ambitions in China
1. Liquid Milk Equivalents
2014
4bn Litres¹
2020
8bn Litres¹
China Ingredients
Sales – NZ origin
China Food Service
Global Accounts & QSR
China Brands
Taiwan & Hong Kong Farms
China Food
Service
Global
Accounts
& QSR
China
Brands
Taiwan &
Hong Kong
Farms
China
Ingredients
Sales – NZ
origin
China Ingredients
Sales – non-NZ
Page 27 © Fonterra Co-operative Group Ltd.
15%
FY12 FY13 FY14
31%
19%
Total volume sales (k MT) % of Fonterra NZ milk (LME) imported into
China FY12
FY14
Strong growth in ingredient sales to China
FY13
China ingredients Others
+31%
Page 28 © Fonterra Co-operative Group Ltd.
Foodservice and consumer roll-out on target
• Launched Anchor™ UHT
• Launched Anmum™ infant
formula
• Expansion of Anlene™ in
mainland China
• Continued success in
Foodservices expansion
Page 29 © Fonterra Co-operative Group Ltd.
Investing in China milk pool
• Investing in farms that will integrate
with downstream positions
• Strong platform to launch from –
pipeline of livestock, sites, capability
• Adopting a hub approach, starting with
Yutian, supplying Beijing
– Hub: 4-5 farms in one region
– Allows flexibility in developing
downstream partnerships
• Further expansion, pursued through
partnership
Growing to one billion litres by 2020
Our focus is to roll out a new farming hub every 12-18 months
Page 30 Confidential to Fonterra Co-operative Group Page 30 Confidential to Fonterra Co-operative Group
Supplementary Slides
Page 31 © Fonterra Co-operative Group Ltd.
Global supply and demand overview
• China and Russia are the two top importers of dairy by a significant margin
– China imports 1.5 MT of dairy products, or 13.4% of global imports
– Russia imports 1.4 MT of dairy products, or 12.5% of global imports
Source: Fonterra; China Dairy Association, China Customs, Rabobank estimates and forecasts 2014.
Global dairy importers Chinese dairy consumption – by product origin
13.4%
12.5%
China
Russia
Mexico
Japan
Indonesia
Saudi Arabia
Iraq
Philippines
Algeria
Venezuela 0%
20%
40%
60%
80%
100%
0
10
20
30
40
50
2000 2003 2006 2009 2012
Mark
et S
hare
Billio
n L
itre
s M
ilk E
qu
ivale
nt
Domestic Production
Net Imports
Import Market Share
Page 32 © Fonterra Co-operative Group Ltd.
Commodity
price volatility
Nutrition for
the young
Food safety
and quality
Consistent consumer trends influencing our
business
Route to Market
Rise of emerging
markets
Nutrition for
the old
Page 33 © Fonterra Co-operative Group Ltd.
Interim 2014 performance summary
• Strong ingredients demand – driven by higher sales to China
• Record first half Group revenue of $11.3 billion
• Challenges in Ingredients and Consumer/Foodservice margins
– NZMP normalised EBIT percentage down to 3% from 6% last year
– Consumer and Foodservice normalised EBIT percentage down to 4% from 7%
last year
1. Prior year excludes Norco volumes, as business was sold in November 2012.
Total sales
volume¹
2m MT -3%
Total Group
revenue
$11.3bn +21%
Normalised
EBIT
$403m -41%
Net profit
after tax
$217m -53%
EPS
13cps -54%
Page 34 © Fonterra Co-operative Group Ltd.
Protecting the Co-operative and staying on
strategy
683
519
(560) (75)
(64) (79)
(82) 0
61 403
0
200
400
600
800
1,000
1,200
1,400
H1 2013 Milk Price
Adjustment
NZMP Product Gross Margin
Liquid Milk
Sales
Peak Production and Other
Costs
Oceania Asia Latin America
Other H1 2014
Normalised EBIT (NZD million)
Protect the Co-operative Stay on Strategy Peak
Constraints
Page 35 © Fonterra Co-operative Group Ltd.
1. Bank Facility Restructure implemented on 7 February 2014. WATM increased to 3.1 years.
Balance sheet strength
0
500
1,000
1,500
2,000
2,500
3,000
3,500
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
NZ
D m
illi
on
Bank Facilities - Total Limits
Debt Capital Markets
Strong fundamentals Diversified funding sources
Debt maturity profile (Year ending January)
Strong liquidity
Credit Rating
S&P A+
(stable outlook)
Fitch AA-
(stable outlook)
Weighted
Average Term
to Maturity
As at 31 January 2014
(Drawn debt) 2.7 years¹
Offshore DCM
32%
NZ DCM 20%
Bank Facilities
48%
Undrawn Facilities
and Cash
$3.2bn
65%
Drawn Facilities
$1.7bn
35%
Page 36 © Fonterra Co-operative Group Ltd.
Overview of capital structure
• Can trade Units
• Units can be converted into Co-op shares
by farmers
• No Voting Rights in Co-op
• Institutional and Retail investors
• Listed on NZX and ASX
• Can trade Co-op shares
• Voting Rights
• Restricted to dairy farmers
• Market maker operates
• Operated by NZX
Fonterra Farmers Investors
Key features
Fonterra
Co-operative
Group
Co-op Shares Units
Fonterra Shareholders’
Market
Fonterra Shareholders’
Fund
Key features
Exchangeable by Permitted Persons