Welcome Supplier Information Session

Transcription

1 Welcme Supplier Infrmatin Sessin July 2016

2 Philip Tracy Chairman

3 Agenda seasn and Milk Supply Supprt Package recap seasn initiatives 3. Applying the Prfit Sharing Mechanism 4. Impact f the glbal market n farmgate milk pricing 5. Glbal market analysis and utlk 6. Next steps 7. Milk pricing transparency 8. FY17 pprtunities and risks 9. Q&A frum Page 3

4 JUNE MARCH APRIL FEBRUARY Challenges and change The Bard and management acknwledges and deeply regrets the difficult cnditins suppliers are facing. MG has faced an unprecedented set f circumstances: Sales revenue cntinued t indicate that milk prducts wuld mre than ffset ingredients shrtfall. Significant demand fr sachet pwder int China cntinued MG and thers faced shrtage f capacity. China imprt regulatin cnfusin and a dramatic drp in demand fr milk pwder. Glbal cmmdity pricing has never been this lw fr this lng. Our respnse: Reviewing apprach t frecasting; cmpanywide fcus n cst reductin and initiatives t minimise impact f the Milk Supply Supprt Package. The Bard is acutely aware f its cre respnsibility t achieve the strngest pssible farmgate milk price. Page 4

5 Key initiatives Senir leadership changes: New Chief Executive Officer and Chief Financial Officer recruitment underway; Chief Operating Officer appinted; Executive Leadership Team reduced and restructured t imprve crdinatin and reduce csts. Bard renewal: Multiple nminatins have been received fr the fur Supplier Directr vacancies. Whle f business review underway: Management fcus n reducing csts; generating additinal efficiencies and; imprving cash flw. Better cmmunicatin: Tday s sessin has been refreshed reflecting supplier feedback Mre time fr discussin Pst-sessin summaries Advance questin submissin Page 5

6 MSSP and ther supprt initiatives Suppliers paid an average cash farmgate milk price f $5.49 until the end f the seasn. A fair and ratinal respnse recgnising the difficult psitin the c-perative had put its suppliers in. Opprtunities have been identified t ffset the lnger term impact f the MSSP: Remval f shrt term incentive payments t Senir Management recgnising pr perfrmance fr sharehlders Immediate salary freeze fr Senir Management Senir Management team reductin Increased cst efficiencies Supplier supprt initiatives annunced. Page 6 Nte 1: At lw end f FY16 guidance (FMP f $4.75) Nte 2: Benefit t first half, recvered frm secnd half

7 Cmments Illustratin f PSM including FSP Prfit Sharing Mechanism 66% f prfit will g t supplier/sharehlders Mechanism Revenue - Ttal expenses (Other than Milk Payments and incme tax) Nte: Incremental interest cst flwing frm debt incurred t fund MSSP will be recvered frm milk payments and will nt reduce the size f the Distributable Milk Pl = Milk Pl allcated via Prfit Sharing Mechanism Distributable Milk Pl Incme tax NPAT attributable t Sharehlders and Unithlders Milk Payments Annual FSP recvery Dividends t Sharehlders Distributins t Unithlders Recvered frm Suppliers and used t retire MSSP debt 2/3rds 1/3rd The mechanism specifically retains smaller amunt fr investrs when FMP is lw The minimum amunt f 3.5% is frecast t be set aside fr NPAT in FY17 This means 96.5% f the remaining pl is retained by farmers Investrs accept this as an inbuilt supprt fr suppliers All distributable prfits get distributed with tw thirds ging t suppliers and ne third t investrs MG has always paid a dividend fr it s capital, even during the Glbal Financial Crisis In FY17, frecast apprximately $14m after tax t be distributed t investrs Page 7

8 David Mallinsn Chief Executive Officer (Interim)

9 USD/tnne FOB Dairy cmmdities remain weak 6,000 WMP (fb Oceania) 5,000 4,000 3,000 2,000 4 mnths 13 mnths 22 mnths + 1,000 Page 9 Surce: USDA, MDC, Rabbank analysis Mnths spent belw USD 3000/t

10 000 tnnes EU grwth is islated 1,600 1,400 Grwth in milk prductin vs. previus year (April 2015 t March 2016) Ireland and the Netherlands accunt fr 45% f the 5.5 billin litres f new milk 1,200 1, Page 10 Surce: ZMB, Rabbank analysis

11 Outlk: Analysis frm Glbal milk prductin is slwing and prices are shwing nly mdest recvery Figure 3: Milk prductin grwth, Big 7 exprters (actual and Rabbank frecast), f * Figure 4: WMP FOB Oceania (histric and frecast), f YOY change USD/tnne * Nte: Big 7 includes EU, US, NZ, Australia, Brazil, Argentina and Uruguay. Surce: Big 7 gvernment trade agencies, Rabbank 2016 Surce: USDA, Rabbank 2016 Page 11

12 FY17 farmgate milk pricing impacted by market cnditins fr all large exprters MG can nly pay ut the prfit it earns and elected nt t severely cut the farmgate milk price, which has been smewhat verlked when cmparing seasn prices. Over tw years the average farmgate milk price is $5.00 per kilgram f milk slids (kgms). MG FY16 MG FY17 Average farm size (1.5m litres) 112,500 kgms 112,500 kgms Frecast Final Price¹ $4.75 kgms $4.80 kgms FY16 Tp up $0.74 kgms FY17 MSSP -$0.27 kgms Ttal Price $5.49kgms $4.53kgms² Ttal Paid $615, $509, Page 12 Nte 1: $4.75 represents lwer end f MG s published guidance range fr FY16 f $ $5.00 Nte 2: Opening Price $4.31 kgms (including MSSP) r $4.45 kgms (early repayment participants)

13 Our immediate actins Maintain strng fiscal cntrl t cnslidate MG s financial strength. Drive basic business principles harder than in the past: Develping a lwer cst perating mdel detailed update at August results Fcussing n prduct ptimisatin Clearer lines f accuntability and imprved transparency Imprved supplier cmmunicatins Review the milk pricing mdel in rder t cnsider ptential fr greater transparency such as the Calitin s electin undertaking t set up a Cmmdity Price Index: Clear market signals based n cmmdity milk price index Easy t understand value-add cmpnent f milk price Recgnitin f dividend and/r retained earnings impact Page 13

14 Cmprehensive business review Wrking capital release Cntrlled exit f inventry hldings and reductin in grup net wrking capital Cst Cntrls A targeted efficiency prgram, including cst reductin acrss the business At risk cmpnents f MG s executive remuneratin fr FY16 will nt be paid Senir management pay will be frzen in FY17 Realisatin f benefits frm recent investments Cntinued imprvements t ffline distributin in China Incremental earnings are expected frm recent investments at MG s new Cbram facility The deplyment f a new SAP system acrss the business MG cntinues t build ffline distributin in China MG has recently signed seven new reginal distributrs as part f an imprved reginal distributin strategy Page 14 ASX Annuncement: Murray Gulburn sets farmgate milk pricing fr , Tuesday 28 June 2016

15 Prviding greater milk pricing transparency MG s FMP and estimated cntributin $6.02 Implied value add premium generated $1.00 $4.75 $4.80 $0.52 $0.65 Implied cmmdity stream derived frm WMP and A$/USD$ $5.02 $4.23 $4.15 FY15 FY16 1 FY17 WMP in USD ex DA 3,199 2,347 2,250 AUD:USD $0.87 $0.74 $0.74 With cntinuing lw cmmdity prices we are seeing a migratin f surplus EU milk being placed int cnsumer prducts in China (UHT & IN) impacting margins in ur premium returns. Page 15 Internal surce fr calculatins based n Dairy Australia exprt data Nte 1: $4.75 represents lwer end f MG s published guidance range fr FY16 f $ $5.00

16 FY17 key pprtunities and risks Opprtunities AUD:USD weakens against the $0.74 budget EU milk prductin reduces taking pricing pressure ff UHT milk and infant nutritin int China Cmmdity prices imprve abve the 6% budgeted imprvement Additinal cst savings are delivered China Dairy imprts cntinue t grw Risks Brexit fallut weakens the Eur t the USD, prviding incentive fr Eurpe t mve interventin stcks at lwer USD prices Brexit fallut seeing investrs take psitins n the AUD with interest rate differentials and the AUD appreciating abve the budgeted rate Page 16

17 A pst-sessin Q&A summary is available at:

18 Thank yu