Fonterra Corporate 2010

Strategic Update
September 2011
CLSA ASIA Conference
Fonterra Co-operative Group Ltd
Introducing Fonterra
Revenue - 2010
Sales by Geography
Europe 6%
• Fonterra is the world’s largest
processor of milk in the world
Consumer
33%
• Leader in consumer branded
dairy foods in Australia, New
Zealand, Chile and selected
Asian markets
• Co-operative owned by
10,500 farmers
China 9%
Asia
29%
USA 8%
Standard &
Premium
Ingredients
67%
• Enterprise value of NZ$13
billion*
• Market capitalisation of NZ$8
billion*
Rest of the
World 27%
NZ 8%
Australia
13%
• Sales to more than 140 countries
• 16,000 employees
• Rated A+/Stable by S&P and AA-/Stable by Fitch
• Approx. 25% of New Zealand’s export earnings
* Independent Valuation as at 31 May 2011
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World’s largest exporter of
whole milk powder (WMP)
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Confidential to Fonterra Co-operative Group
Worldwide locations
Joint venture to produce whey
proteins for Fonterra
JV with Royal Friesland
Campina for the supply of
pharmaceutical lactose
Partnership with DFA in manufacturing
assets within North America (9
manufacturing sites & approx.1 billion litres
of milk)
Dairy America – valued relationship with
Dairy America to export their SMP
Algeria
Egypt
Jamaica
Saudi
Arabia
Selangor & Solvite in
Malaysia
DPA Colombia
Sri Lanka
DPA Venezuela
DPA Ecuador
10 Countries
across Asia
DPA Brazil
Clover – agreement with South
Africa’s largest dairy company
to explore dairy opportunities in
Sub Saharan Africa
Milk Source
Mauritius
Processing
Australia
(12 manufacturing sites
approx. 2 billion litres of
milk)
New Zealand
(27 manufacturing
sites approx 15 billion
litres of milk)
Dairy Partners America –
alliance with Nestle to establish,
JVs in dairy businesses across
the America’s (13 manufacturing
sites & approx. 3 billion litres of
milk)
DPA Argentina
Consumer
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Market leading businesses
Standard & Premium
Ingredients
ANZ
Standard dairy ingredients
(e.g. milk powders, cheese,
butter)
Leading consumer dairy
food brands in Australia
and New Zealand
Premium dairy ingredients
(e.g. sales from innovation,
pharmaceutical lactose,
paediatric applications,
food services etc)
Manufactures standard
ingredients from milk
sourced in Australia
Asia/AME
Latam
Leading market positions in
adult nutrition and other
high margin categories
across key markets in Asia
Leading integrated dairy
business in Chile (Soprole).
Strong market position in
consumer and standard
ingredients manufacturing
Joint venture with Nestle
(Dairy Partners of America)
Joint ventures in the US
and Europe
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Sales & underlying EBIT by business segment
Segment Revenue ($m)
STANDARD &
PREMIUM
INGREDIENTS
Underlying EBIT ($m)
316
12,757
548
12,006
299
3,803
ANZ
248
3,818
ASIA/AME
166
1,537
120
1,705
LATAM
738
119
798
106
FY10
FY09
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Fonterra’s growth model
Customer
Centric
Mature
Markets
Processing of NZ
Milk to dairy
ingredients
Breadth and scale advantages
Emerging
Markets
Accelerate growth in emerging
markets
Flexibility and growth options
GlobalDairy
Trade
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Snapshot of global milk production and
consumption
88 88
74 76
149
135
135 135
Rest of Europe
USA/Canada
29 32
32
48 58
China
43
EU 27
70 73
Middle East &
North Africa
India
Rest of Asia
18 21
Rest of Africa
29
Latin America
7
ANZ
Milk Production 2009 (million MT)
Milk Consumption 2009 (million MT)
Sources: Fonterra analysis (Commercial Forecasting). Standardised Milk Equivalent (ME) basis [7.4 MT of ME = 1MT of WMP]
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Emerging markets key driver of export demand
Net Trade in Dairy, 2010
3.4
14.6
17.8
12.1
Russia
0.7
4.1
0.6
3.4
2.2
Canada
Other
Europe
0.9
0.1
India
USA
3.2
2.5
0.4
Mexico
Brazil
1.8
Source – Fonterra
Other
Africa
8.5
South Korea
Middle East
North Africa
1.0
1.4
Units – million tonnes
of milk equivalents
EU27
Japan
China
2.8
Uruguay
Other Asia
Other
Latam
Argentina
Net Exports
New Zealand
Australia
Net Imports
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Confidential to Fonterra Co-operative Group
Emerging markets demand expected to grow
over next decade
+13 +11
USA/Canada
+10
-0.4
Rest of Europe
+35 +36
+5.8 +6.3
EU 27
+42 +45
China
+8.5 +13
Middle East &
North Africa India
+12 +19
Rest of Asia
+5.6 +8.0
+16 +18
Rest of Africa
Latin America
+5.8 +1.5
ANZ
Milk Production Growth to 2019 (million MT)
Milk Consumption Growth to 2019 (million MT)
Sources: Fonterra analysis (Commercial Forecasting). Standardised Milk Equivalent (ME) basis [7.4 MT of ME = 1MT of WMP]
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Becoming the natural source of premium
ingredients for global food companies
Cultured foods
Beverages
Bars and snack foods
Paediatric nutrition
Ingredients for cheese
Cheese for meals
Medical beverages
Organics
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Well balanced portfolio of brands and
emerging/mature market exposure
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Consumer operations have strong track record
Normalised EBIT
$m
700
CAGR
19%
584
600
474
500
400
392
332
300
200
100
0
2007
1.
2.
2008
2
2009
2010
Combined ANZ/AME/Latam segment Normalised EBIT (adjusted for non-recurring items and impairment of equity accounted
investees).
12 month period (unaudited, sourced from management information).
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Capital Structure Evolution
• At a special meeting in June 2010, shareholders voted in favour to changes to the Cooperative’s constitution that allow steps to be taken to implement Trading Among
Farmers
• Under Trading Among Farmers, farmers will be able to buy and sell shares from one
another rather than via Fonterra
• The market will be a registered exchange in New Zealand owned by Fonterra
• Additionally, the public will be able to invest in a limited number of units that have the
same economic entitlement as shares, but will have no voting rights in respect of the
Co-operative
• Shareholders have given the Fonterra Board a mandate to implement Trading Among
Farmers subject to the satisfaction of certain pre-conditions
• Trading Among Farmers also requires legislation to be introduced by the New Zealand
Government
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Summary
• Breadth and scale advantages
– investing to achieve unmatched efficiencies
– largest and most efficient milk powder plants in the world
– streamlining our global supply chain
• Accelerate growth in emerging markets
– milk consumption expected to outstrip local production in emerging markets
– proven ability to grow in dynamic fast growing emerging regions
• Flexibility and growth options
– reshaping the way standard dairy ingredients are traded globally (GlobalDairyTrade)
– commitment to dairy-based research puts us at the forefront of breakthrough uses of
dairy
– building product optimisation and risk management capabilities
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Supplementary Information
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FY10 financial result snapshot
2010 $m
2009 $m
(restated1)
Revenue
16,726
16,035
691
4%
Cost of Milk2
(7,664)
(5,793)
(1,871)
(32%)
Other purchases/inventory
movement/supplier premiums
(6,311)
(7,424)
1,113
15%
Operating expenses
(1,999)
(2,036)
(37)
(2%)
277
119
158
133%
EBIT3
1,078
990
88
9%
Net finance costs
(313)
(448)
(135)
(30%)
Tax
(80)
681
(148)
N/A
Profit after tax
685
610
75
12%
Other operating income
1.
2.
3.
Movement
$m
Movement
%
The Group has changed its accounting policy to recognise the tax effect of distributions to shareholders within the tax expense line in the income
statement. As a result of this change, the tax effect of distributions to Shareholders of $177 million recognised in equity for the year ended 31 July
2009 is now presented on the income statement.
The milk season runs from 1 June to 31 May. The Cost of Milk sold represents the Cost of Milk collected from suppliers for the season. Adjustments
for the 1 June to 31 July period to align the milk season with the financial year are made in the other purchases and inventory movement line.
Operating Profit, plus share of equity accounted earnings (2010: $56m; 2009: $129m) less impairment of equity accounted investees (2010: nil;
2009: $61 million).
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FY10 Normalised EBIT
2010 $m
2009 $m
Reported EBIT1
1,078
990
Non-recurring items
(174)
(32)
–
61
904
1,019
Impairment of equity accounted investees
Normalised EBIT
1.
Reported EBIT includes non-recurring items and impairment of equity accounted investees.
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27 sites around New Zealand
• Annual milk volume of:
– 15 billion litres
• Over 70 million litres of milk per day at peak:
• 2.4 million tonnes of product made per year in
New Zealand
• New greenfields site in the South Island under
construction
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GlobalDairyTrade trade weighted index
Price Index (March 2010 = 1000)
1,750
1,500
1,250
1,000
750
500
250
GDT-TWI™
Real GDT-TWI™
10 Year Average Real GDT-TWI
Sources: GlobalDairyTrade, Global Trade Atlas, USDA DMN, USDL BLS
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GDT TWI compared to other commodities
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Milk Price Calculation
• Sample of Fonterra’s actual sales prices of Reference Commodity Products scaled up to
reflect milk price volumes for period (moving to increasing/sole reliance on globalDairyTrade)
• Key inputs include product streams and sales phasing
• Operating costs calculated as manufacturer’s specification of resource usage for modern
powder plants but with Fonterra’s unit costs, collection costs and supply chain costs (supply
chain costs assume that Milk Price business doesn’t have offshore network)
• Overheads are based on Fonterra’s costs, but reflect narrower scope of Milk Price Business
OPERATING
&
OVERHEAD
COSTS
REASONABLE RATE
OF RETURN
EXISTING
ASSETS
ASSET BASE
CAPITAL
EXPENDITURE
REVENUE
DEPRECIATION, NET
OF REVALUATIONS
CAPITAL
RECOVERY
Annual
Aggregate
Milk Price
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Gearing has improved substantially
59.6%
60%
•
57.6%
48.5% at 31 Jan 11 vs 54.3% at
31 Jan 10
•
54.3%
55%
53.0%
Half year comparison more
relevant than full year because
of seasonality factors
KEY DRIVERS
50%
48.5%
44.9%
45%
•
Share issues
•
Dividend Policy
•
Interim profit recorded
40%
Jul-08
Jan-09
Jul-09
Jan-10
Jul-10
Jan-11
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).
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Confidential to Fonterra Co-operative Group