Networkers' Business Update - NZX.com
Networkers’ Business Update December 2014
Agenda • Forecast Milk Price • Global markets • V3 Strategy • Growing our share of New Zealand milk
Confidential to Fonterra Co-operative Group
Page 2
Forecast Milk Price 110
2012/13
2013/14
2014/15
100
$4.70 KGMS
90 Volume (m litres/day)
Forecast Farmgate Milk Price
80 70 60 50 40 30 20 10 Jun
Aug
Oct
Jan
Mar
Confidential to Fonterra Co-operative Group
May Page 3
Advance Rate schedule Month June Paid July July Paid August August Paid September September Paid October October Paid November November Paid December December Paid January January Paid February February Paid March March Paid April April Paid May May Paid June July Retro August Retro September Retro October Retro Total
Current Announced Advance Rate
Capacity Adjustment Payment
$4.48 $4.48 $4.48 $4.48 $4.00 $4.00 $4.00 $4.00 $4.00 $4.00 $4.00 $4.05 $4.30 $4.60 $4.90 $5.05
$0.52 $0.52 $0.52
$5.30
Peak Period $0.52 $0.52 $0.52 $0.52 $0.52
$0.25
New Base Advance Rate $4.48 $4.48 $4.48 $4.48 $4.00 $4.00 $4.00 $3.85 $3.85 $3.85 $3.85 $3.90 $3.95 $4.35 $4.40 $4.45
Monthly Payment rate $5.00 $5.00 $5.00 $4.48 $4.00 $4.00 $4.00 $4.37 $4.37 $4.37 $4.37 $4.42
$4.70 Confidential to Fonterra Co-operative Group
Page 4
GDT WMP prices 6,000
5,000
Impact NZ Drought 2008
Impact NZ Drought 2013
Impact Cold snap/brief dry Conditions in NZ
Market Consensus of Long Run Price
4,000
3,000 Impact Strong global milk production of 2.8%
F10
F11
F12
F13
F14
Milk Price
$6.10
$7.60
$6.08
$5.84
$8.40
WMP (Weighted Average USD Shipment)
$2,905
$3,606
$3,362
$3,397
$4,827
Apr‐16
Jan‐16
Oct‐15
Jul‐15
Apr‐15
Jan‐15
Oct‐14
Jul‐14
Jan‐14
Oct‐13
Jul‐13
Apr‐13
Jan‐13
Oct‐12
Jul‐12
Apr‐12
Jan‐12
Oct‐11
Jul‐11
Apr‐11
Jan‐11
Oct‐10
Jul‐10
Apr‐10
Jan‐10
Oct‐09
Jul‐09
Apr‐09
Jan‐09
Jul‐08
Apr‐08
Jan‐08
Oct‐08
Impact Global Financial Crisis
1,000
‐
Impact Strong Supply NZ / EU / US
Apr‐14
2,000
Confidential to Fonterra Co-operative Group
Page 5
Comparison of forecast WMP Prices between the September $5.30 f/cast and December $4.70 f/cast
$4,500
$3,500
$3,000
$2,500
Aug‐15
Jul‐15
Jun‐15
May‐15
Apr‐15
Mar‐15
Feb‐15
Jan‐15
Dec‐14
Nov‐14
$2,000 Oct‐14
WMP Contract Prices (USD)
$4,000
Months NZD 5.30 Price Series
Revised NZD 4.70 Series
Confidential to Fonterra Co-operative Group
Page 6
Global supply remains strong European Union • Milk production up 5% in 2014 • Extra 5.7 billion litres • Russian trade bans impacting exports • Private Storage Aid extended until 28 Feb 2015
New Zealand • Fonterra milk production up 3.9% season to date US • Milk production up 2% in 2014 • Extra 1.2 billion litres • Prices slowly converging with global market
Australia • Milk production up 5% in 2014 • Extra 343 million litres Confidential to Fonterra Co-operative Group
Page 7
Challenging global situation in key dairy regions Russia (Demand) • Trade ban continues in place for EU’s largest dairy export market • Unlikely to change in short term
Oil price • Large dairy importers like Venezuela, Algeria and Iran, likely to feel pressures if oil price stays low.
China (Demand) • Import growth slowed Ebola outbreak
• Imported milk powder inventory levels falling but still above normal levels
Middle East extremist factions South East Asia (Demand) • Increasing competition from EU / US • Currency weakening and inflationary pressure
Confidential to Fonterra Co-operative Group
Page 8
Global prices – looking forward Weighted Average Auction Results
70 Liquid Milk Equivalent (litres)
60
Weighted average price by future shipping month (RPP)
China production and consumption Net Imports LME (litres) Production LME (litres)
50 40 30 20 10 0 2006
2007
2008
References: Agrifax / IFCN / Fonterra Analysis
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Confidential to Fonterra Co-operative Group
Page 9
Ingredients is a value-adding business 1 Optimise NZ milk 2
Milk curve… NEW ZEALAND
Build and grow beyond our current consumer positions
110
3
4 Grow our Anlene™ business Develop leading positions in paed & maternal nutrition
100
2012/13
90
2013/14 2014/15
Volume (m litres/day)
Deliver on Foodservice potential
5
...delivering significant value
80
60
$3.88
$6.80
50
first 5 years
last 5 years
70
40 30 20 10
6 Selectively invest in milk pools
Jun
Aug
Oct
Jan
Mar
May
• Steep, high volume milk curve
7 Align our business and organisation
• Most efficient ingredients processor
• Average payout has increased • Driven by GDT sustained higher commodity prices • Price achievement above GDT Page 10 Confidential to Fonterra Co-operative Group
Investing in additional capacity Optionality
110
Consumer and Foodservice
10% more capacity at peak¹
100
Volume (m litres/day)
90 2012/13 2013/14 2014/15
80 70 60 50 40 30 20 10 Jun
Aug
Oct
Jan
Mar
May
• $755 million investment in Lichfield, Edendale and Pahiatua • $50 million on improving plant capacity
• Waitoa UHT facility – First shipments of UHT sent 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 – foodservice – Capacity to process additional 20,000 tonnes
Confidential to Fonterra Co-operative Group
Page 11
Consumer growth is our strategic priority
$6.3b Revenue from Consumer and Foodservice in the 2014 financial year
Confidential to Fonterra Co-operative Group
Page 12
Convergence of pricing – NZ v EU and US
Confidential to Fonterra Co-operative Group
Page 13
Maximising Farmer Returns Volume = Scale
Growth
Farmers
Value = gross margin
Less Costs
Higher EBIT lower working capital lower capex
More Cash Confidential to Fonterra Co-operative Group
Page 14
Forecast Farmgate Milk Price
Forecast Dividend Range
Forecast Cash Payout
$4.70
25-35
$4.95-$5.05
KGMS
CENTS
Confidential to Fonterra Co-operative Group
Page 15
Building a globally relevant Co-op
2010
2012
2012
2013
2014
2015
Confidential to Fonterra Co-operative Group
Page 16
Agenda • Forecast Milk Price • Global markets • V3 Strategy • Growing our share of New Zealand milk
Confidential to Fonterra Co-operative Group
Page 2
Forecast Milk Price 110
2012/13
2013/14
2014/15
100
$4.70 KGMS
90 Volume (m litres/day)
Forecast Farmgate Milk Price
80 70 60 50 40 30 20 10 Jun
Aug
Oct
Jan
Mar
Confidential to Fonterra Co-operative Group
May Page 3
Advance Rate schedule Month June Paid July July Paid August August Paid September September Paid October October Paid November November Paid December December Paid January January Paid February February Paid March March Paid April April Paid May May Paid June July Retro August Retro September Retro October Retro Total
Current Announced Advance Rate
Capacity Adjustment Payment
$4.48 $4.48 $4.48 $4.48 $4.00 $4.00 $4.00 $4.00 $4.00 $4.00 $4.00 $4.05 $4.30 $4.60 $4.90 $5.05
$0.52 $0.52 $0.52
$5.30
Peak Period $0.52 $0.52 $0.52 $0.52 $0.52
$0.25
New Base Advance Rate $4.48 $4.48 $4.48 $4.48 $4.00 $4.00 $4.00 $3.85 $3.85 $3.85 $3.85 $3.90 $3.95 $4.35 $4.40 $4.45
Monthly Payment rate $5.00 $5.00 $5.00 $4.48 $4.00 $4.00 $4.00 $4.37 $4.37 $4.37 $4.37 $4.42
$4.70 Confidential to Fonterra Co-operative Group
Page 4
GDT WMP prices 6,000
5,000
Impact NZ Drought 2008
Impact NZ Drought 2013
Impact Cold snap/brief dry Conditions in NZ
Market Consensus of Long Run Price
4,000
3,000 Impact Strong global milk production of 2.8%
F10
F11
F12
F13
F14
Milk Price
$6.10
$7.60
$6.08
$5.84
$8.40
WMP (Weighted Average USD Shipment)
$2,905
$3,606
$3,362
$3,397
$4,827
Apr‐16
Jan‐16
Oct‐15
Jul‐15
Apr‐15
Jan‐15
Oct‐14
Jul‐14
Jan‐14
Oct‐13
Jul‐13
Apr‐13
Jan‐13
Oct‐12
Jul‐12
Apr‐12
Jan‐12
Oct‐11
Jul‐11
Apr‐11
Jan‐11
Oct‐10
Jul‐10
Apr‐10
Jan‐10
Oct‐09
Jul‐09
Apr‐09
Jan‐09
Jul‐08
Apr‐08
Jan‐08
Oct‐08
Impact Global Financial Crisis
1,000
‐
Impact Strong Supply NZ / EU / US
Apr‐14
2,000
Confidential to Fonterra Co-operative Group
Page 5
Comparison of forecast WMP Prices between the September $5.30 f/cast and December $4.70 f/cast
$4,500
$3,500
$3,000
$2,500
Aug‐15
Jul‐15
Jun‐15
May‐15
Apr‐15
Mar‐15
Feb‐15
Jan‐15
Dec‐14
Nov‐14
$2,000 Oct‐14
WMP Contract Prices (USD)
$4,000
Months NZD 5.30 Price Series
Revised NZD 4.70 Series
Confidential to Fonterra Co-operative Group
Page 6
Global supply remains strong European Union • Milk production up 5% in 2014 • Extra 5.7 billion litres • Russian trade bans impacting exports • Private Storage Aid extended until 28 Feb 2015
New Zealand • Fonterra milk production up 3.9% season to date US • Milk production up 2% in 2014 • Extra 1.2 billion litres • Prices slowly converging with global market
Australia • Milk production up 5% in 2014 • Extra 343 million litres Confidential to Fonterra Co-operative Group
Page 7
Challenging global situation in key dairy regions Russia (Demand) • Trade ban continues in place for EU’s largest dairy export market • Unlikely to change in short term
Oil price • Large dairy importers like Venezuela, Algeria and Iran, likely to feel pressures if oil price stays low.
China (Demand) • Import growth slowed Ebola outbreak
• Imported milk powder inventory levels falling but still above normal levels
Middle East extremist factions South East Asia (Demand) • Increasing competition from EU / US • Currency weakening and inflationary pressure
Confidential to Fonterra Co-operative Group
Page 8
Global prices – looking forward Weighted Average Auction Results
70 Liquid Milk Equivalent (litres)
60
Weighted average price by future shipping month (RPP)
China production and consumption Net Imports LME (litres) Production LME (litres)
50 40 30 20 10 0 2006
2007
2008
References: Agrifax / IFCN / Fonterra Analysis
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Confidential to Fonterra Co-operative Group
Page 9
Ingredients is a value-adding business 1 Optimise NZ milk 2
Milk curve… NEW ZEALAND
Build and grow beyond our current consumer positions
110
3
4 Grow our Anlene™ business Develop leading positions in paed & maternal nutrition
100
2012/13
90
2013/14 2014/15
Volume (m litres/day)
Deliver on Foodservice potential
5
...delivering significant value
80
60
$3.88
$6.80
50
first 5 years
last 5 years
70
40 30 20 10
6 Selectively invest in milk pools
Jun
Aug
Oct
Jan
Mar
May
• Steep, high volume milk curve
7 Align our business and organisation
• Most efficient ingredients processor
• Average payout has increased • Driven by GDT sustained higher commodity prices • Price achievement above GDT Page 10 Confidential to Fonterra Co-operative Group
Investing in additional capacity Optionality
110
Consumer and Foodservice
10% more capacity at peak¹
100
Volume (m litres/day)
90 2012/13 2013/14 2014/15
80 70 60 50 40 30 20 10 Jun
Aug
Oct
Jan
Mar
May
• $755 million investment in Lichfield, Edendale and Pahiatua • $50 million on improving plant capacity
• Waitoa UHT facility – First shipments of UHT sent 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 – foodservice – Capacity to process additional 20,000 tonnes
Confidential to Fonterra Co-operative Group
Page 11
Consumer growth is our strategic priority
$6.3b Revenue from Consumer and Foodservice in the 2014 financial year
Confidential to Fonterra Co-operative Group
Page 12
Convergence of pricing – NZ v EU and US
Confidential to Fonterra Co-operative Group
Page 13
Maximising Farmer Returns Volume = Scale
Growth
Farmers
Value = gross margin
Less Costs
Higher EBIT lower working capital lower capex
More Cash Confidential to Fonterra Co-operative Group
Page 14
Forecast Farmgate Milk Price
Forecast Dividend Range
Forecast Cash Payout
$4.70
25-35
$4.95-$5.05
KGMS
CENTS
Confidential to Fonterra Co-operative Group
Page 15
Building a globally relevant Co-op
2010
2012
2012
2013
2014
2015
Confidential to Fonterra Co-operative Group
Page 16
