For personal use only SUSTAINABLE GENERATION VALUE · 2015-06-22 · Grow with Market Australia –...

SUSTAINABLE

VALUE

GENERATION

JUNE 2015, EUROPE AND US

THEO SPIERINGS (CEO)

LUKAS PARAVICINI (CFO)

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© Fonterra Co-operative Group Ltd. Page 2

Forward Looking Statements

This presentation contains forward looking statements, and forecasts, including statements of current intention, statements of opinion

and predictions as to possible future events. Such statements are not statements of fact and there can be no certainty of outcome in

relation to the matters to which the statements relate. These forward looking statements involve known and unknown risks,

uncertainties, assumptions and other important factors that could cause the actual outcomes to be materially different from the events

or results expressed or implied by such statements. Those risks, uncertainties, assumptions and other important factors are not all

within the control of the Fonterra Group and cannot be predicted by the Fonterra Group and include changes in circumstances or

events that may cause objectives to change as well as risks, circumstances and events specific to the industry, countries and markets

in which the Fonterra Group operates. They also include general economic conditions, exchange rates, interest rates, regulatory

environments, competitive pressures, selling price, market demand and conditions in the financial markets which may cause objectives

to change or may cause outcomes not to be realised.

None of Fonterra Co-operative Group Limited or any of its respective subsidiaries, affiliates and associated companies (or any of their

respective officers, employees or agents) (Relevant Persons) makes any representation, assurance or guarantee as to the accuracy or

likelihood of fulfilment of any forward looking statement or forecast or any outcomes expressed or implied in any forward looking

statement or forecast. The forward looking statements and forecasts in this report reflect views held only at the date of this report.

Statements about past performance are not necessarily indicative of future performance.

Except as required by applicable law or any applicable Listing Rules, the Relevant Persons disclaim any obligation or undertaking to

publicly update any forward looking statements or forecasts, whether as a result of new information or future events.

No offer of securities

This presentation does not constitute investment advice, or an inducement or recommendation to acquire or dispose of any securities in

Fonterra or the Fonterra Shareholders’ Fund, in any jurisdiction.

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Fonterra at a glance Working to become the world’s most trusted source of dairy nutrition,

making a difference in the lives of two billion people by 2025

Farmer Shareholders

~10,500 in New Zealand

Unit Holders

~8,500 global investors

Milk volumes

~22 billion litres

- New Zealand

- China

- Australia

- Chile

NZ Farmgate Milk Price¹

2014 $8.40

2015F $4.40

2016F $5.25

Processing Capacity

96 million litres per day

by 2016

Global Reach

Exporting to more

than 100 countries

Sales Volume (000)

3,965 MT²

Global Partnerships

Nestlé

Beingmate

A-ware

Dairy Crest

FrieslandCampina

Abbott

Sales Revenue

$22 billion²

1. Per kgMS

2. 2014 financial year

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Global Ingredients and Operations

22

17 14

13 13 12 10 9

8 8

Fo

nte

rra

DF

A

La

cta

lis

Nestle

Arl

a F

oo

ds

Dea

n F

oo

ds

Fri

esla

nd

Cam

pin

a

Da

no

ne

Ca

lifo

rnia

Da

irie

s

Kra

ft F

oo

ds

Inta

ke

(m

illi

on

to

nn

es

)

17%

48%

15%

41%

To

tal M

ark

et S

ha

re

Wh

ole

milk p

ow

de

r

Skim

milk p

ow

de

r

Bu

tte

r

% g

lob

al e

xp

ort

s

1. Source: PM Food & Dairy Consulting, 2013.

2. Source: Fonterra, Global Trade Information Services. Note: Excludes intra-European trade, information for 2013/2014 season.

Scale and Leadership

The world’s largest milk processor¹ The world’s largest dairy exporter²

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Strong Foodservice and Consumer businesses

1. Asia comprises Fonterra’s consumer and foodservice businesses in Asia, Africa, the Middle East and Greater China.

2. 2014 financial year

Revenue² Volume²

Asia¹ $2.2b 419k MT

Oceania $3.6b 832k MT

Latin America $1.2b 387k MT

Asia

excluding

Greater

China

Greater China

Latin

America

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OVERVIEW OF

GLOBAL DAIRY

MARKET

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Challenging situation – key dairy markets

Source: Government milk production statistics / GTIS trade data / Fonterra analysis

New Zealand (supply)

• Production +11% in

2014

• Forecast for

2015/16: 0-2%

European Union (supply)

• 2014 production +4%

• 2015 forecast of +1%

• April 2015: Milk quota

removed

China (demand)

• Demand growing 4%

average per annum

• Largest buyer on GDT

• Local milk production

easing

US (supply)

• Production +2%

in 2014

• Forecast +1%

in 2015

Middle East & Africa

(demand)

• +11% in 2014 and strong

growth forecast in 2015 Australia (supply)

• Production +4% in 2014

• High local milk prices

Russia (demand)

• EU’s largest dairy

export market

• Trade bans remain

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Price volatility in dairy commodities

0

1

2

3

4

5

6

7

8

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

EU

& U

S S

tock

s (m

illion

ton

ne

s)

WM

P P

ric

e (

US

D/M

T)

Total EU & US Stocks Milk Equivalent WMP Price Average WMP Price

1990-2005

Volatility: +/- ~30%

2006-2015

Volatility: +/- ~60%

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Global trade in dairy – key dairy markets Net trade in 2014

Note: Trade expressed in terms of tonnes of Liquid Milk Equivalent (milk standardized to 4.2% fat and 3.5% protein)

0

5

10

15

20

25

New

Zeala

nd

EU

27

United S

tate

s

Bela

rus

Arg

entina

Austr

alia

Uru

guay

India

Ukra

ine

Sw

itzerl

and

Vie

tnam

Philip

pin

es

Venezuela

Indonesia

Saudi A

rabia

Alg

eri

a

Japan

Me

xic

o

Russia

Chin

a

Milk E

qu

ivale

nt

(millio

n t

on

nes)

Net Exporters Net Importers

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STRATEGIC UPDATE

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Drive performance

1. Liquid milk equivalent

2. % change is CAGR from FY14 to FY18

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

To improve earnings & dividend

Turning the Wheel FY14 FY18

Consumer/Foodservice 17% 23%

Consumer/Foodservice

(LME)

3.9bn 5.9bn

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NEW ZEALAND

• Drive efficiency and optionality

GLOBAL BRANDS

• 5 global brands

• 8 key markets

• Foodservice potential

• Beingmate investment

MULTI-HUB STRATEGY

• Global partnerships

• Australia asset footprint

VELOCITY

• Drive free cash flow

Strategic priorities

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0

20

40

60

80

100

Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May

Vo

lum

e (

m lit

res/d

ay) 2012/13

2013/14

2014/15

New Zealand – drive efficiency and optionality

1. Relative to 2013/14 season.

2. Forecast.

Season Increase¹

2016/17² 10%

2015/16² 5%

2014/15 2%

Peak day

processing

capacity

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New Zealand – drive efficiency and optionality

2001 Clandeboye dryer 2 2009 Edendale dryer 4 2016 Lichfield dryer 1

PAHIATUA

• WMP dryer

• $235m investment

• Daily capacity up 2.4m L

• Completion: Aug 2015

EDENDALE

• AMF, MPC and reverse

osmosis plants




LICHFIELD

• WMP dryer




Lichfield

Pahiatua

Edendale

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Global brands aligned to key platforms

and markets

Strategic Cash Seeding Leadership

Self-funding

expansion B2B and B2C

beach-heads

Dairy

Farming Systems

Dairy

Food Design

Dairy

Processing

Dairy

Nutrition

Technology Platforms

Natural

Energy

Growth and

Development

Mobility

Cognition Un

co

mp

rom

isin

g T

as

te, T

ex

ture

an

d S

tab

ilit

y

Benefit Platforms






Optimise NZ milk

1

Build and grow beyond our

current consumer positions

3

2

4

5

6

Strategic Platforms Global Brands

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Foodservice ambition

260

1,100

0

200

400

600

800

1,000

1,200

FY14 FY23

Volu

me (

000 M

T)

Grow to $5bn in sales by financial year 2023

17% of milk pool

>5 billion LME

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• Fonterra has acquired 18.8% of Beingmate at 18 RMB per share

• Post the Partial Tender Offer the Beingmate stock price increased to

~23-30 RMB¹ per share

• Beingmate has significant growth potential

• Extensive distribution and sales network

– 30 branches across China

– 80,000 retail outlets

– 20,000 maternal service consultants

Beingmate investment

1. Based on trading from 1 June to 19 June 2015

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Global multi-hub strategy

Milk Powder /

Foodservice

Whey Cheese / Whey /

Infant Formula

UHT / Foodservice

EUROPE 600-800m litres

CHILE 500m litres

NEW ZEALAND 18 bn litres

AUSTRALIA 1.5 bn litres F

or p

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se o

nly


Neutral (Invest if returns significantly

exceed cost of capital over

time)

Accelerate

Investment

Solve

Grow with Market

Australia – asset footprint Multi-Hub strategy in action – Australia Ingredients

High Low

High

Cheese

Infant Formula

Yoghurt SMP

UHT

Supports Earnings

Stability/Growth

Support

s V

3 S

trate

gy

Australia Ingredients

Milk Powder /

Foodservice

Whey

Cheese / Whey /

Infant Formula

UHT / Foodservice

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Global partnerships Multi-hub – strategy in action

Europe

• A-ware/Dairy Crest

partnerships to grow whey

specialty ingredients

• Higher whey exports to

Asia/China

China

• Global Fonterra and

Beingmate partnership

• Anmum™ distribution

agreement

New Zealand

• Higher Anmum™ infant

formula exports to China

Australia

• Fonterra and Beingmate

JV to acquire Darnum

• Higher infant formula

exports to China

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CAPITAL INVESTMENT

AND BALANCE SHEET

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12 13 14 15 16 17 18 19 20

M&A Capital spend

Litres of milk (000s)

Invest in optionality and growth Financial year 2015

Essential

$400m

Net Beingmate

Investment

$650m

Consumer &

Foodservice

$300m

International

Farming

$350m

Capacity

$500m

42,500 60,000

110,000 225,000

1,000,000






Optimise NZ milk

1

Align our business and organisation

Build and grow beyond our current

consumer positions

3

2

4

5

6

7

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Balance sheet – gearing

• Higher gearing levels due to:

– Lower equity retentions in 2014

– Higher capital expenditure

– Increased investment in growth

– Higher advance payment as a

proportion of the Farmgate Milk

Price

1. Gearing is measured in terms of economic net interest bearing debt over economic net interest bearing debt plus equity (reflecting the effect of debt hedging in place at balance date) and

equity excludes the cash flow reserve.

2. First half 2013 gearing benefited from a temporary injection of $493 million capital from seeding Fonterra Shareholders’ Fund for the launch of Trading Among Farmers.

Economic debt to debt plus equity¹

48.5% 46.9%

40.0%² 44.6%

50.7%

31 Jan 2011

31 Jan 2012

31 Jan 2013

31 Jan 2014

31 Jan 2015 F

or p

erso

nal u

se o

nly


Credit Rating

Fitch AA-

(stable outlook)

S&P A

(stable outlook)

Weighted Average

Term to Maturity As at 31 May 2015 4.4 years

Strong fundamentals Prudent liquidity

DCM maturity profile¹ At 31 May 2015

Bank facility maturity profile² At 31 May 2015

1. Excluding commercial paper

2. Includes subsidiaries’ short term working capital facilities

Balance sheet strength

Undrawn Facilities

$1.98bn

40%

Drawn Facilities

$2.97bn

60%

0

500

1,000

1,500

2,000

2015 2016 2017 2018 2019 2020 2021 2022 2023

$ m

illi

on

0

500

1,000

1,500

2,000

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2026 2029

$ m

illi

on

F

or p

erso

nal u

se o

nly


DRIVING

PERFORMANCE

CULTURE

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Costs

Growth

Cash

Volume = Scale

Value = Gross

Margin

Higher EBIT

Lower Working Capital

Lower Capex

Owners

Velocity = Cash

Cash is king

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Revenue

EBIT

Gross Margin

Return on Capital

Free Cash Flow

~$1bn 20-50% uplift

11% 13% +

Incremental $500m - $1bn¹

15% 20% +

0.9 $/LME 1.2 $/LME

3 - 5

years

5+

years

From (TAF) Ambition

Sustainable value generation Based on clear, focused strategy

1. Prior to Velocity

Based on a weighted average Farmgate Milk Price of $6.50

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Due diligence to establish

full potential

Mid-April

8-10 weeks

Bankable transformation

plan owned by line

leaders

Early June

6-8 weeks

Driving value to bottom-

line and iterating to add

new ideas

~12-18 months

Create bottom up plan Top-down diligence Implementation

Velocity – drive free cashflow

What

How

1 2 3

Change management

Performance infrastructure Ensure execution and bottom line impact

Tactical action to establish leadership, mindsets and

behaviors to drive and sustain the transformation 4

5

Execution

Quick

wins

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Velocity workstreams

Central workstreams BU workstreams

Commercial

Manufacturing

Procurement

Working Capital

Capex

Overheads

Change Management

Velocity Transformation Office (VTO)

Planning & Delivery

Consumer

4

5

6

3

2

7

Global

Operations

8

Farm

Source

Farm Source

13

New

Zealand

9

Australia

10

LATAM

11

Greater

China, Asia

& MEA

12

Global

Ingredients

1A

Ingredients

1B

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