FONTERRA MARKET UPDATE Robert Spurway – Managing Director Global Operations © FONTERRA CO-OPERATIVE GROUP LIMITED
FONTERRA
MARKET UPDATE Robert Spurway – Managing Director Global Operations
© FONTERRA CO-OPERATIVE GROUP LIMITED
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Presentation Outline
1. Fonterra Overview
2. Global Dairy Market Overview
3. Fonterra Strategy and Ambition
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Fonterra Overview
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Fonterra overview
FY14 revenue (NZ$) 22.3 billion
FY14 normalised EBIT
(NZ$) 503 million
Shareholders ~10,500
Market cap (NZ$) 10 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 21 billion
litres of milk per year
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Fonterra global ingredients and operations
21,6
17,1
15,0 14,9
12,0 12,0
10,1
8,2 7,8 6,9
Fonte
rra
Dairy F
arm
ers
of A
me
rica
Lacta
lis
Nestlé
Dean
Fo
do
s
Arla
Foo
ds
Fre
isla
nd
Cam
pin
a
Dano
ne
Kra
ft F
ood
s
DM
K
Mil
k In
tak
e (
milli
on
to
nn
es
)¹
17%
48%
15%
41%
Tota
l M
ark
et
Sha
re
Wh
ole
milk
pow
de
r
Skim
milk
pow
de
r
Butt
er
% 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
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 2013 / 2014 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.
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Foodservice and branded consumer
businesses
ASEAN/MENA
LATAM
Greater China
Page 7 Confidential to Fonterra Co-operative Group
Global Dairy Market Overview
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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
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Challenging global situation in key dairy regions
1. 12 months to June 2014.
2. 12 months to May 2014.
Source: Government milk production statistics / GTIS trade data / Fonterra analysis
New Zealand
(Supply)
• Fonterra milk
production up 8%²
• 2% growth
currently expected
for 2014/15
European Union (Supply)
• Milk production up 4%¹
• Russian trade bans impacting exports
China (Demand)
• Slow down in imports but still
up on previous period
• Imported milk powder
inventory levels falling but
still above normal levels
US (Supply)
• Milk production up 4%¹
• Full year growth
forecasted at 2%
Russia (Demand)
• EU’s largest dairy export market
• Trade bans on Australia, Canada, the
EU, Norway, Ukraine and the US
Australia (Supply)
• Fonterra milk
production up 2%¹
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2.000
2.500
3.000
3.500
4.000
4.500
5.000
5.500
Aug-2011 Feb-2012 Aug-2012 Feb-2013 Aug-2013 Feb-2014 Aug-2014
US
$ (
MT
)
Cheese
WMP
Extreme volatility impacting on pricing Weighted average USD GDT cheese prices vs. WMP prices
H1 2014
H2 2014
Page 11 Confidential to Fonterra Co-operative Group
Fonterra Strategy and
Ambition
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Our journey to becoming a globally relevant
Co-op
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Ambition: To build a
globally relevant
Co-op which
makes a
difference in the
lives of 2 billion
people by 2025
30
Billion
Litres
5-6 Milk
Pools
$35 Billion
Turnover
No. 1 or 2
Consumer
Business In Our 8 Strategic Markets
Top 3
Reputation
World
Class
Engagement
This is
globally
relevant
No. 1
Ingredients
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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
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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
Farm Source: Transforming our milk supply model
Invest in optionality to achieve higher less volatile returns
Invest to support turning the wheel
Investment in global multi-hubs
Organisational changes to support strategy
New approach to food safety and quality
Focus on 8 strategic and leadership markets
Focus on 6 global brands
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Farm Source: Transforming our milk supply model
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Investing in optionality to achieve higher
less volatile returns
Source: Fonterra Co-operative Group Limited
1. Coming on stream FY16/17.
• More processing options over
the peak
• Additional 8.2m litres per day¹
– Lichfield – 4.4m litres per day
– Edendale – 1.4m litres per day
– Pahiatua – 2.4m litres per day
• Investing $50 million on improving
plant capacity 10
20
30
40
50
60
70
80
90
100
110
Jun Aug Okt Jan Mrz Mai
Vo
lum
e (
m l
itre
s/d
ay) 2012/13
2013/14
2014/15
10% more capacity at peak¹
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Investing to support turning the wheel
• Waitoa UHT facility
– Commissioned with the first shipments of UHT
to China
– $126 million investment to meet Asian demand
– Will process >100 million litres a year
• Clandeboye
– $72 million investment
– Will double capacity to produce individual quick
frozen (IQF) grated mozzarella
• Eltham
– $32 million for slice-on-slice cheese
– Expected completion in mid-2015
– Used in Quick Service Restaurants
• Te Rapa
– $32 million investment for cream cheese to support
foodservice growth
– Capacity to process additional 20,000 MT
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Global brands aligned to benefit and
technology platforms
Dairy
Farming Systems
Dairy
Food Design
Dairy
Processing
Dairy
Nutrition
Technology Platforms
Natural
Energy
Growth &
Development
Mobility
Cognition U
nco
mp
rom
isin
g T
as
te, Te
xtu
re &
Sta
bilit
y
Benefit Platforms
Deliver on
Foodservice potential
Selectively invest
in milk pools
Grow
our Anlene™ business
Develop
leading positions in paed
& maternal nutrition
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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Investment in global multi-hubs
Milk Powders / Foodservice
Whey
Cheese / Whey / Infant Formula
UHT / Foodservice
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Recap – investments and acquisitions in 2014
• Whey investments
with A-Ware and
Dairy Crest
• Dairy Partners of
America reshape
• Partial offer for up to
20% of Beingmate
• Fonterra and Abbott
farming hub JV
• 9% investment in
BEGA Cheese
• Acquisition of
Tamar Valley Dairy
• $1.6b invested/
approved
since 2011
• Ingredients –
Lichfield, Edendale,
Pahiatua, Darfield
• Foodservice –
Waitoa,
Clandeboye, Te
Rapa, Eltham
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Our food safety and quality roadmap
BUILDING
TRUST IN
SOURCE
OUR FOOD SAFETY
AND QUALITY
ROADMAP
DEVELOPING
A CONSUMER
FOCUSED
CENTRE FOR
DAIRY
EXCELLENCE
OPENING UP THE
WAY THE WORLD
SEES FOOD
TOMORROW, BY
SHAPING THE WAY
FOOD QUALITY,
SYSTEMS AND
PRACTICES DEVELOP
TODAY.
2014
FOCUS 2015
DRIVE 2016
ACHIEVE 2017 AND BEYOND
LEAD Making a clear
commitment to be
accountable
Making purposeful
progress and
earning trust
Building absolute
credibility and
delivering leading
performance
Taking the initiative
with global
leadership
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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