FONTERRA INTERIM RESULTS 2014

Transcription

1 FONTERRA INTERIM RESULTS 2014 Market Briefing FONTERRA CO-OPERATIVE GROUP LIMITED

2 Overview John Wilson Chairman 2 Working Area Safee Copy Frame. This denotes working area and must be deleted before final print.

3 On-track for record forecast Cash Payout F Farmgate Milk Price Dividend 1. Dividend: cents per share. 2. Farmgate Milk Price: $ per kgms. 3

4 Key highlights Forecast Farmgate Milk Price Forecast Full Year Dividend Forecast Final Cash Payout $8.65kgMS 10cps $8.75 Milk Production Revenue Interim Earnings per Share 1.1bn kgms $11.3bn 13cps 4

5 Strong rebound in milk collection in New Zealand / / / Working Area Safee Copy Frame. This denotes working area and must be deleted before final print. Volume (m litres/day) Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Source: Fonterra Co-operative Group Limited 5

6 Prudent approach to dealing with extreme volatility Extreme Volatility Product Mix Milk Price Adjustment Peak Production $800m Negative impact 70 cents per kgms Adjustment Record Milk Flows Prudent Approach 1. Full confidence in underlying basis of Farmgate Milk Price Manual 2. Manual enables a high level of transparency 3. Decision in the best interest of the Co-operative 4. Prudent not to pay a Milk Price higher than what we can afford and fund via debt 5. Ensures we stay on strategy 6

7 Co-operative priorities How we can grow profitably and sustainably Profitable, resilient farmers Sustainable natural resources Enhanced community value 7

8 Performance Summary Theo Spierings CEO 8 Working Area Safee Copy Frame. This denotes working area and must be deleted before final print.

9 Interim 2014 performance summary Total sales volume¹ 2m MT -3% Total Group revenue $11.3bn +21% Normalised EBIT $403m -41% Net profit after tax $217m -53% 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 EPS 13cps -54% 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

10 Regional performance NZ Milk Products Global Ingredients sales NZ Manufacturing footprint Group Functions Oceania Australia/NZ Consumer & Foodservice Australia manufacturing footprint RD1 Asia Consumer and Foodservice in Asia, Middle East and China China Farming Hub Latin America Consumer in Chile (Soprole) DPA JV¹ Caribbean consumer operations Southern Cone Ingredients Total Group Revenue² Oceania $1.8bn Total Group Normalised EBIT³ Latin America $71m Latin America Asia $570m $1.1bn Oceania $46m Asia $32m NZMP $9.1bn NZMP $236m 1. DPA is equity accounted. 2. Total revenue for all business units. 3. This excludes eliminations. 10

11 Normalised EBIT by segments NZD million Ingredients $(176) million (176) Consumer and Foodservices Businesses $(116) million (52) (68) H1 2013¹ NZMP Oceania Asia Latin America Other H Normalised EBIT for the six months ended 31 January 2013 has been restated from NZD 693 million to NZD 683 million. The NZD 10 million normalisation adjustment relates to net foreign exchange gains. 11

12 Whole Milk Powder and cheese prices Weighted average USD GDT cheese prices vs. WMP prices (MT) USD 5,500 Cheese WMP 5,000 4,500 H ,000 H ,500 3,000 H ,500 Aug-2011 Jan-2012 Jun-2012 Oct-2012 Apr-2013 Aug-2013 Jan-2014 Source: GlobalDairyTrade 12

13 Staying on Strategy Five Priorities 1. Optimise our global ingredients sales and operations footprint 2. Grow significantly in everyday nutrition 3. Continue our foodservice growth momentum 4. Capture high margins in advanced nutrition 5. Enable growth by expanding beyond New Zealand to selectively invest in milk pools, matching demand with the best market opportunities Turning the Wheel 13

14 Financial Review Lukas Paravicini CFO 14 Working Area Safee Copy Frame. This denotes working area and must be deleted before final print.

15 Protecting the Co-operative and staying on strategy Normalised EBIT (NZD million) 1,400 1,200 1, H Protect the Co-operative 519 Milk Price Adjustment (560) NZMP Product Gross Margin (75) Liquid Milk Sales Peak Constraints (64) Peak Production and Other Costs (79) Stay on Strategy (82) Oceania Asia Latin America Other H

16 NZ Milk Products review SALES VOLUME 1.4m MT -2% $236m -43% $252m¹ 4% growth in NZ milk collection Sales volume in first quarter impacted by low start of season stock due to drought last year Record volumes shipped in second quarter NORMALISED EBIT EBIT impacted by: Product mix down $116 million Peak production costs of $76 million BUSINESS UPDATE Darfield drier Two came on stream in August 2013 Waitoa UHT plant to be operational in March Whey and lactose plant investment in Europe Announced new drier at Pahiatua 1. Capital invested. 16

17 NZMP key performance drivers Normalised EBIT (NZD million) 1,200 1, H1 2013¹ (560) Product Gross Margin (116) (76) (5) Product Mix Peak Production Costs Price Premiums 519 Milk Price Adjustment (75) Liquid Milk Other H Normalised EBIT for the six months ended 31 January 2013 has been restated from NZD 422 million to NZD 412 million. The NZD 10 million normalisation adjustment relates to net foreign exchange gains. 17

18 Oceania review SALES VOLUME 411,000 MT -9%¹ $46m -53% $56m² Australia impacted by lower exports, nutritionals and yoghurt volumes NZ volumes up 4% NORMALISED EBIT EBIT impacted by: Australia brands high input costs and lower export sales Australia ingredients lower volumes NZ higher input costs and temporary supply chain disruption RD1 performed well BUSINESS UPDATE Tamar Valley acquisition Bega investment 1. Prior year excludes Norco volumes, as business was sold in November Capital invested. 18

19 Oceania key performance drivers Normalised EBIT (NZD million) (34) H Australia Brands Australia Ingredients 46 (42) (4) NZ Other H Working Area Safee Copy Frame. This denotes working area and must be deleted before final print.

20 Reshaping our Australian business IN PROGRESS Stage 1 Review Strategic choices Stage 2 Stabilise the Business Reduce brands/ complexity Cost to serve IN PROGRESS Stage 3 Improve the Portfolio Strengthen retail relationships Grow foodservice Leverage exports Stage 4 Transform the Business Strategic partnerships & investments Grow milk hub 20

21 Asia review SALES VOLUME 192,000 MT +3% $32m -68% $91m¹ Asia volume growth impacted by Sri Lanka Excluding Sri Lanka volume growth was up 10% Increase in Foodservice, Anlene and China Farms NORMALISED EBIT EBIT impacted by: High dairy commodity input costs Sri Lanka sales down 33% Market share maintained in key markets Growth in China farms and foodservice BUSINESS UPDATE China farm hub one complete and hub two underway Anchor UHT launched in China Anmum infant formula launched in China 1. Capital invested. 21

22 Asia key performance drivers Normalised EBIT (NZD million) H Gross Margin (excluding China) $(63) million 30 2 Price Increases Volume/ Mix excl. Sri Lanka (17) Volume/ Mix Sri Lanka (63) Input Cost Increases and Mix Impact (15) 2 (7) 32 FX Other China H

23 Latin America review SALES VOLUME 188,000 MT +1% $71m +6% $18m¹ Volume growth driven by Soprole in Chile Significant growth in retail cheese category Higher milk powder sales to Government Health programme NORMALISED EBIT Performance improved due to higher contribution from Venezuela Soprole earnings lower due to higher input costs, but strong brand reduced impact Higher commodity costs in Caribbean impacted demand BUSINESS UPDATE New distribution centre in Chile $45 million new DPA warehouse in Brazil 1. Capital invested. 23

24 Latin America key performance drivers Normalised EBIT (NZD million) (1) (9) H Soprole DPA Southern Cone Other H Working Area Safee Copy Frame. This denotes working area and must be deleted before final print.

25 Working capital and cash flow Working capital days¹ Free cash flow (NZD million) H H H H H (200) (400) (600) (800) (1,000) (1,200) (861) H (253) EBIT Working Capital (84) (541) Capex Other H Excluding supplier payables. 25

26 Financing Debt to Debt plus Equity¹ 48.5% 46.9% 40.0% % H H H H Temporary capital held from issue of shares to the Fonterra Shareholders Fund $5.4 billion net debt position after hedging Higher gearing levels due to: Lower earnings this period Return of capital through Supply Offer Bega investment Strong Fundamentals Credit Rating Weighted Average Term to Maturity S&P Fitch As at 31 January 2014 (Drawn debt) A+ (stable outlook) AA- (stable outlook) 2.7 years³ 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 cashflow reserve. 2. H gearing benefited from a temporary injection of $493 million (includes transaction costs) capital from seeding Fonterra Shareholders Fund for the launch of Trading Among Farmers. 3. Bank facility restructure implemented on 7 February WATM increased to 3.1 years. 26

27 Strategy Update Theo Spierings CEO 27 Working Area Safee Copy Frame. This denotes working area and must be deleted before final print.

28 Strategic Review 100,000 foot view 10,000 foot view 1,000 foot view Approximate timing Dec-Jan Feb Mar-Jun Approach Strategic Analysis Strategic Choices Strategic Implications Activities wer Supply Milk Pools Structure Demand Trends Milk Pools Review Answ Assets Portfolio Optionality Multi-hubs wer Review Answ Capital Resources 28

29 Demand growth is driven by China and Russia 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 China Russia Mexico Japan Indonesia Saudi Arabia Iraq Philippines Algeria Venezuela 12.5% 13.4% Source: Fonterra 29

30 China supply gap widens Chinese dairy consumption by product origin Billion Litres Milk Equivalent 50 Domestic Production 45 Net Imports Import Market Share % F 2014F 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% Mar ket Share Source: China Dairy Association, China Customs, Rabobank estimates and forecasts,

31 Global structure for global growth platforms Strategic Choices Global Opportunities Strategic Analysis Strong Demand China Russia Mexico Japan Indonesia Saudi Arabia Iraq Philippines Algeria Venezuela China Growth Volatility 12.5% 13.4% EVERYDAY NUTRITION OUT-OF-HOME ADVANCED NUTRITION ENABLERS Optimise NZ milk Build and grow beyond our current consumer positions Deliver on foodservice potential Grow our position in Anlene Develop selected leading position in paediatrics and maternal Selectively invest in milk pools Alignment of business and organisation 1. Greater Optionality 2. Portfolio 3. Multi-hubs Ingredients Global Ingredients Asset Optionality Mix Optimisation Financial markets Consumer Brands and Foodservice Align product portfolio to support Brands and Foodservice expansion Hubs Strategic Markets Build integrated model in key strategic markets Match demand growth with most attractive milk pools 31

32 Outlook In the short-term earnings will continue to be impacted by: Higher input costs which make it harder to drive value growth in brands and foodservice Negative impact on product mix margins which is unlikely to be recovered in the second half Second half result is likely to be lower than first half 2014 Volatility in commodity prices is expected to continue plans in place to manage an benefit from the volatility over time Programme to enhance operational flexibility means fast-tracking some investments alongside an additional $ million additional capital over the next three years 32

33 Supplementary Information 33 Working Area Safee Copy Frame. This denotes working area and must be deleted before final print.

34 Annual results summary NZD million 6 months ended 31 January months ended 31 January 2013 Change Total volume (billion MT) (4)% Revenue 11,292 9,334 21% Normalised EBIT¹ (41)% Net profit after tax (53)% Earnings per share (cents)² (54)% Dividend per share (cents) 5 16 (69)% 1. Normalised EBIT for the six months ended 31 January 2013 has been restated from NZD 693 million to NZD 683 million. The NZD 10 million normalisation adjustment relates to net foreign exchange gains. 2. Earnings per share for the six months ended 31 January 2013 has been restated for the impact of the non-cash Bonus issue of Shares, issue date 24 April

35 Normalisation adjustments NZD million 6 months ended 31 January months ended 31 January 2013 Time value of options (13) (10) Costs associated with closure of Cororooke plant in Australia 24 Total normalisation adjustments (13) 14 35

36 NZ Milk Products NZD million 6 months ended 31 January months ended 31 January 2013 Change Total volume¹ ( 000 MT) 1,441 1,474 (2)% Revenue 9,117 6,762 35% Gross margin (23)% Gross margin percentage 6.8% 11.8% Operating expenses (480) (442) 9% Other % Normalised EBIT² (43)% Normalised EBIT percentage 2.6% 6.1% 1. Total volume includes intercompany volumes. 2. Normalised EBIT for the six months ended 31 January 2013 has been restated from NZD 422 million to NZD 412 million. The NZD 10 million normalisation adjustment relates to net foreign exchange gains. 36

37 NZMP contribution margin NZD million 6 months ended 31 January months ended 31 January 2013 Sales volume ( 000 MT) 1,441 1,474 Gross margin Selling, marketing and distribution expenses (137) (137) Contribution margin Contribution margin per MT Growth (26)% 37

38 Oceania NZD million 6 months ended 31 January months ended 31 January 2013 Change Total volume¹ ( 000 MT) (13)% Revenue 1,825 2,018 (10)% Gross margin (19)% Gross margin percentage 18.8% 21.0% Operating expenses (311) (357) (13)% Normalised EBIT (53)% Normalised EBIT percentage 2.5% 4.9% 1. Total volume includes intercompany volumes. 38

39 Asia NZD million 6 months ended 31 January months ended 31 January 2013 Change Total volume¹ ( 000 MT) % Revenue 1,054 1,049 Gross margin (23)% Gross margin percentage 26.6% 34.5% Operating expenses (281) (280) Normalised EBIT (68)% Normalised EBIT percentage 3.0% 9.5% 1. Total volume includes intercompany volumes. 39

40 Latin America NZD million 6 months ended 31 January months ended 31 January 2013 Change Total volume¹ ( 000 MT) % Revenue % Gross margin Gross margin percentage 26.0% 26.5% Operating expenses (101) (94) 7% Normalised EBIT % Normalised EBIT percentage 12.5% 12.0% 1. Total volume includes intercompany volumes. 40

41 Balance sheet strength Strong Fundamentals Diversified Funding Sources Credit Rating Weighted Average Term to Maturity S&P Fitch Debt Maturity Profile (Year Ending January) NZD million 3,500 3,000 2,500 2,000 1,500 1, As at 31 January 2014 (Drawn debt) A+ (stable outlook) AA- (stable outlook) 2.7 years¹ Bank Facilities - Total Limits Debt Capital Markets Offshore DCM 32% Strong Liquidity Drawn Facilities $1.7bn 35% NZ DCM 20% Bank Facilities 48% Undrawn Facilities and Cash $3.2bn 65% 1. Bank Facility Restructure implemented on 7 February WATM increased to 3.1 years. 41

42 Capital expenditure NZD million H H H H NZMP Oceania Asia Latin America 42 Working Area Safee Copy Frame. This denotes working area and must be deleted before final print.