saputo presentation "expand abroad, innovate at home"
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Expand Abroad, Innovate at home
Growth
2007 2008 2009 2010 20110%
5%
10%
15%
20%
25%
Year
Reve
nue
Gro
wth
11%
3 YEAR PLAN
CAGR
Global Exporters
Milk Quotas
EU Acquisition
China
Emerging Market
Wheyvolution
1 Billion People
83m Cows
Significant DemandSource: IFCN
Long Term GrowthCompany knowledge
Efficiency
Future Options
Saputo Investment Criteria
#1 Dairy foodservice market leader in the UK & Ireland
Lakeland Dairies
Acquisition
Revenue: $632m #2 Ireland’s second largest diary processing co-op
Source: Lakelands
Acquisition Cost:
$158m Average: 0.20x
Dansco Dairy (2007): 0.15xCost: $84m
SKDL (2006): 0.25xCost: $29.4m
Source: Case Study
How?Debt
Debt/Equity: 0.22
Cash Flows: $90mSource: Case Study
Dairy Farmer & Herd Historic Growth
1950 1960 1970 1980 1990 2000 2010 2011 20120
0.2
0.4
0.6
0.8
1
1.2
Dairy Farmers (1000's) Dairy Herd
Nor
mal
ised
Valu
es
Lower input
Source: EDA
Milk Production & Efficiency
1950 1960 1970 1980 1990 2000 2010 2011 20120
0.5
1
1.5
2
2.5
3
Milk/Cow/Year (kg) Milk Production (1000t)
Higher Output
Source: EDA
Why?Revenue Additions
Financial & Operating Systems
Post Merger Integration
Cost Synergies
Big PictureGrowing demand
Excess supply
How?1. EU Common Market
2. EU Regulation3. EU Trade Agreements
EU Common Market
EU Common Market
EU Common Market
Why?EU Regulation Changes
2015 - Lifting of Milk Production Quota
5 Year Supply Growth
Ireland: 1.5x
Austria:1.14x Spain: 1.12x
Holland:1.21x
Germany: 1.07x
Belgium: 1.12x
Source: Eurostat
5 Year Price Decline
Ireland: 10%
Spain: 13.2% UK: 4.7%
France: 10.9%
Germany: 11.9%
Belgium: 14.3%
Source: Eurostat
New Zealand: $0.35
USA: $0.42 Germany: $0.42
Poland: $0.40
Farm Price of Milk per litre
Argentina: $0.32
China: $0.61
Source: CLAL Dairy Consultancy
Projected Farm Price of Milk
2000 2003 2006 2009 2010 2011 2012 2013 2014 2015 2016 2017 20180
10
20
30
40
50
60
Argentina Germany Poland
Year
Farm
Pric
e of
Milk
($)
EU OutlookPositive
Overall
Price
SupplyOpportunity
EU Trade Agreements
EU – China Trade Agreement
Govt. Trading
PartnershipsLakeland’s Strategic
Relationships
410g/daySource: Global Dairy Sector: Status and Trends, UN FAO
101g/day
Source: Global Dairy Sector: Status and Trends, UN FAO
140g/day
Source: Milk and Dairy Market in China, KPMG, 2008
42g/day
Source: Milk and Dairy Market in China, KPMG, 2008
Chinese Dairy Market
“The largest opportunities may lie in simply importing milk products”.
KPMG Chinese Dairy Market Report 2008
Imported Dairy Market in China
2008-2012 : 3x Growth : $2.5bn market
Source: China’s Dairy Dilemma, IATP, 2014
2012-2016 : 3x Growth : $7.5bn market
Heavily Divided between New Zealand,
Germany and others
Source: China’s Dairy Dilemma, IATP, 2014
41%
33%
14%
9%
2%
Share of Chinese Import Dairy Market
NZGermanyFranceAustraliaOther
Imported Dairy Market in China
Target Demographic
Source: Mapping China’s Middle Class, McKinsey and Co., 2012;European Dairy Association
Middle-Upper Class
Incomes: $16,960-$36,640
Population: 96.6m
Target Market
Imported Dairy Goods
2012 Growth: 19.5%
Volume: 946,000 tons
A need for quality
Poor local quality
Baby formula scandal
Preference for imported quality
Source: China’s Dairy Dilemma, IATP, 2014
Case Study:New Zealand
Milk Quality
Reputation
3-Year Growth: 128%
Source: China’s Dairy Dilemma, IATP, 2014
Exports to China: $564m
How Through acquired EU firm
Why Growing market & demand
What Sapato import to China
Summary
CEO
CFOCorpor
ate Accounting
Taxation
Treasury
CanadaSalesOperationsLogisticsAdmin/ HR
Quality Control
International
SalesOperationsLogisticsAdmin/ HR
Quality Control
USASalesOperationsLogisticsAdmin/ HR
Quality Control
BakerySalesOperationsLogisticsAdmin/ HR
Quality Control
IT Corporate HR
Management Structure
Pre-Expansion
CEO
CFOCorpor
ate Accounting
Taxation
Treasury
CanadaSalesOperationsLogisticsAdmin/ HR
Quality Control
International
SalesOperationsLogisticsAdmin/ HR
Quality Control
USASalesOperationsLogisticsAdmin/ HR
Quality Control
EUSalesOperationsLogisticsAdmin/ HR
Quality Control
IT Corporate HR
Management Structure
Post-Expansion
Innovate at home
Innovate at home
Untapped Value
IndustrialLow-margin High-margin
Retail
Residual Waste
Source: Euromonitor, April 2010
Wheyvolution$6.5bn Market
Source: Euromonitor, April 2010
9-12% Growth
5% Share
Product Proliferation
Low Cost
Product Authenticity
Critical Success Factors
Limited Downside______
Private Equity
Exit Strategies
Strategic Buyer
What Whey Sports Nutrition Market
Summary
How Existing Company Resources
Why Profit Optimisation
Timeline
April
2014Purchase Lakeland
Dairies
2015
Aug
Supply Chain Optimisation
Design Whey Protein Product
May Dec
US Marketing Campaign
May
2015
Europe CAPEX
2015
Nov
Aug
Target Chinese Market
Jan
EU Milk Quotas Removed
Canada Marketing Campaign
Whey Protein Product Launch - US
Mar
April
2016New Production Facilities
OperationalSaputo positioned to
become Global Exporter
End of 3 Year Plan
Dec
Nov
Whey Protein Market Share 5.0% - North America
Feb
Whey Product Launch- Canada
Supply
EU
Demand
China
Exporters
Global
LEGENDDAIRYPotential
ANY QUESTIONS?
Expand Abroad, Innovate at home
Appendices
Added Details
Appendix 1: EU Acquisition
Growing Demand• According to the European Dairy
Association (EDA) the population of the world is increasing by 1bn people every 12 years
• Growing dairy demand from Emerging Market’s (IFCN)
• Requirement for increased production capacity worldwide– Additional 83m cows required to meet
demand (EDA)
Sapato Situation• Currently have limited international
operations• Restricted in regulated Canada• Must expand to obtain access to
increased supply of dairy
Appendix 1: EU Acquisition
Investment Criteria • Long-term fundamentals of industry
– Continued growth
• Quality and know-how of employees• Ability to add value & efficiency• Future investment opportunities
EU Analysis• EU regulatory changes
– Future competitive pricing (Slide 69&70)– Increase in supply (Slide 71)
• EU Trade Agreements– Access to the demand
• EU Open Market • Production Efficiency (Slide 72)• Growing Farm Size (Slide 73)• Limited Waste
– Approx. 1/9th – India 75% waste– Brazil 33% waste
Appendix 1: EU AcquisitionTable: Farm Price of Milk for Selected Countries
Source: IFCN
Farm Price of Milk ($)
China Argentina New Zealand USA Germany Poland
2000 22 11 11 28 28 18
2003 22 13 19 30 37 19
2006 26 15 20 28 42 28
2009 39 24 35 39 49 41
2010 39 24 35 30 49 49
2011 45 26 35 40 42 47
2012 54 27 35 42 43 46
2013 61 28 35 43 42 40
Country Price Decrease
Ireland 10%
Belgium 14.30%
France 10.90%
Spain 13.20%
Germany 11.90%
UK 4.70%
Table: Estimated 5-year Milk Price DecreaseSource: EU
Appendix 1: EU AcquisitionProjected Farm Price of Milk
Source: EDA
2000 2003 2006 2009 2010 2011 2012 2013 2014 2015 2016 2017 20180
10
20
30
40
50
60
Argentina Germany Poland
Year
Farm
Pric
e of
Milk
($)
Appendix 1: EU Acquisition
Country Supply Increase
Ireland 1.5x
Belgium 1.12x
Austria 1.14x
Germany 1.07x
Holland 1.21x
Spain 1.12x
Table: Estimated 5-year Milk Price IncreaseSource: EU
20%
17%
9%8%
8%
7%
31%
2011 European Production of Milk by Country
Source: Eurostat
GermanyFranceUnited KingdomPolandNetherlandsItalyOthers
Table: European Production of MilkSource: Eurostat
Appendix 1: EU AcquisitionMilk Production Efficiency
Source: EDA
1950 1960 1970 1980 1990 2000 2010 2011 20120
0.2
0.4
0.6
0.8
1
1.2
Dairy Farmer & Herd Historic Growth
Dairy Farmers (1000's) Dairy Herd
Nor
mal
ised
Valu
es
1950 1960 1970 1980 1990 2000 2010 2011 20120
0.5
1
1.5
2
2.5
3
Milk Efficiency & Production
Milk/Cow/Year (kg) Milk Production (1000t)
Nor
mal
ised
Valu
es
Appendix 1: EU Acquisition
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 20120
200400600800
100012001400160018002000
Poland Farm Size Change
Small Medium Large
Year
Cow
s per
her
d siz
e cla
ss 1
000'
s
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 20120
500100015002000250030003500
France Farm Size Change
Small Medium Large
YearCow
s pe
r her
d si
ze c
lass
100
0's
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 20120
100200300400500600700
Denmark Farm Size Change
Small Medium Large
YearCow
s pe
r her
d si
ze c
lass
100
0's
European Farm Size• Larger farms makes it easier and more
attractive from an organisation, efficiency and quality perspective
• Source: EDA
Appendix 1: EU Acquisition
Lakeland Diaries Brief Overview• Ireland’s second largest dairy processing co-op• Manufacturer of superior quality dairy foodservice
products and functional food ingredients• Provides agri-business products to farms• Presence in 70 countries with 170 branded
products– Including EM’s such as China
• Dairy foodservice market leader in the United Kingdom and in Ireland
• Recognized high-tech food services division• Made significant CAPEX investments ahead of
2015 regulation change
P&L Account 2012 2011
Turnover 473 472
Operating Costs (462) (463)
Operating Profit 11 9
Net Interest Payable (0.7) (1.1)Other Financial Charges (2.1) (1.3)
Profit before Tax 8.0 6.9
Tax (1.2) (0.9)
Profit 6.8 6.0
Appendix 1: EU AcquisitionLakeland Diaries Acquisition• Highly valuable intangibles:
– Relationships with China– Position in EU
• Highly valuable tangibles– Additional revenues– Cost savings
• Average Saputo acquisition multiple: 0.20x revenue• Estimated cost of acquisition: $128m
Company (Year) Country Acquisition Price ($’m) Revenue ($’m) Revenue Multiple
SKDL (2006) Germany 7 28 0.25
Dansco Dairy Wales 12 80 0.15
Average 0.20
“[On the topic of milk prices] The jump in demand came as milk production in China and Russia has been declining, underpinning a surge in dairy imports. Chinese demand was exceptionally buoyant, said analysts.”
Financial Times February 6, 2014
Chinese Dairy Market
Appendix 2: Emerging Markets
Chinese Dairy Market
“China’s imports of dairy products have more than doubled in the past five years, reaching over US$1.9 billion in 2010.”
Agriculture and Agri-Food CanadaJanuary 2012
Appendix 2: Emerging Markets
Consumption trends in
China
• The former Premier Wen Jiabao called for “one Jin” (c.500g) of milk consumed by every citizen per day in China.– Would push China to become the largest dairy
market in the world• Official government guidelines in 2009
recommended 300g/day of milk• With improved education and wealth more
and more Chinese are buying dairy and increasing dairy consumption – through cheese, packaged milk and yoghurts
Source: McKinsey; Reuters
Appendix 2: Emerging Markets
Indian Dairy Market opportunity• World’s largest dairy market (E26bn)• Low levels of processed dairy, especially by the organized sector• Growth may lead to an increase in value added, milk based products such as cheese,
butter, sour milk and ice cream• Only 35% processed • 8% YoY growth since 2008• Imports needed during domestic production shortfalls
Source: Processed Food and Agribusiness: Opportunities for Investment in India, KPMG, 2007
Appendix 2: Emerging Markets
India - favourable demographics• Population: 1.23 billion• Very young population
– 31,2% is under 15 years – 63,6% is 15-64 years
• Very low income– Raise of $4200 per capita expected during
the next decade
Source: CIA World Factbook
Appendix 2: Emerging Markets
African Dairy Market Opportunity• Lowest consumption region relative to the world
– 37 litres/capita – 101 g/day
• Low income per capita• By 2020, market will grow by 50% from 15 bn litres to 25 bn litres (Tetra Pak)• Efficiency issues
– Majority small farms– Opportunity to enter market and implement best practices– Efficiency per cow is a fraction of EU (EDA)
• An entry mode of taking over large dairies may prove lucrative• Population is large and diverse
– Diversification possible
Source: Africa.com; CIA world factbook
Appendix 2: Emerging Markets
Latin America Market Opportunity• High Dairy Consumption
– Diversified by market• Argentina : Net Exporter into the future
– Will produce 1.7% of world’s expected milk production– Most cost efficient production
• Brazil and Mexico will become large importers over time– Brazil produces 4,3% of worlds dairy– Mexico produces 1.4% of worlds dairy
• Some countries consume record amounts of dairy – Argentina, Costa Rica, Uruguay: over 150 kg/capita
Source: Global Dairy Outlook 2012, Global Dairy Farmers; UN FAO
Appendix 2: Emerging Markets
CEO
CFOCorpor
ate Accounting
Taxation
Treasury
CanadaSalesOperationsLogisticsAdmin/ HR
Quality Control
International
SalesOperationsLogisticsAdmin/ HR
Quality Control
USASalesOperationsLogisticsAdmin/ HR
Quality Control
BakerySalesOperationsLogisticsAdmin/ HR
Quality Control
IT Corporate HR
Management StructurePre-Expansion
• Alter Management Structure to enable greater management of new geographic footprint
Appendix 3: Further Detailed Canadian/US Market
CEO
CFOCorpor
ate Accounting
Taxation
Treasury
CanadaSalesOperationsLogisticsAdmin/ HR
Quality Control
International
SalesOperationsLogisticsAdmin/ HR
Quality Control
USASalesOperationsLogisticsAdmin/ HR
Quality Control
EUSalesOperationsLogisticsAdmin/ HR
Quality Control
IT Corporate HR
Management StructurePost-Expansion• Result is greater accountability
in line with Saputo’s company ethos
Innovate at home
Innovate at home
Untapped ValueResidual Waste
IndustrialLow-margin High-margin
Retail
Source: Euromonitor, April 2010
• Innovate in existing North American business by creating a whey protein brand for the sports nutrition market
• Use residual waste – Low Risk/ High Reward venture
Wheyvolution$6.5bn Market
Source: Euromonitor, April 2010
9-12% Growth5% Share
• Innovate in existing North American business by creating a whey protein brand for the sports nutrition market
Product ProliferationLow Cost
Product Authenticity
Critical Success Factors
Consumers want the following in a sports nutrition product:
Source: Euromonitor, April 2010
Limited Downside______
Private Equity
Exit Strategies
Strategic Buyer• If Saputo does not gain a 5% share of the combined US and Canadian whey protein sports
nutrition market, exit opportunities exist.• PE firms and pharma companies are buying and selling whey protein companies. Eg. Darwin
Capital sold Maximuscle to GlaxoSmithKline in 2012 for $162m
Source: Case Study
Appendix 4: DCF Analysis $'000 $'000 $'000 $'000 $'000 $'000 $'000DCF Analysis 0 0.5 1.5 2.5 3.5 4.5 2011 2012 2013 2014 2015 2016 TVRevenue 6,025,470 6,326,744 6,643,081 7,711,586 8,559,860 9,587,043 COS 5,200,000 5,460,000 5,733,000 6,306,300 6,936,930 7,630,623 Gross Profit 825,470 866,744 910,081 1,405,286 1,622,930 1,956,420 Less Operating Expenses 300,000 306,000 312,120 318,362 324,730 331,224 EBIT 525,470 560,744 597,961 1,086,923 1,298,200 1,625,196 Depreciation 20,000 20,400 20,808 21,224 21,649 22,082 Less Capital Expenditure 20,000 21,000 22,050 35,000 61,500 41,250
Less Inc in Working Capital 3,500 1,500 1,500 3,000 4,000 5,000 Less Taxes 70,000 70,000 70,000 70,000 70,000 70,000 EBITDA 451,970 488,644 525,219 1,000,147 1,184,349 1,531,027 10,717,192 WACC 7.5% NPV of Free Cash Flows 451,970 451,995 449,390 791,570 867,055 1,036,792 4,048,772 NPV of Terminal Value 7,257,544 Enterprise Value 11,306,316 Net Debt 599,578 Equity Value 10,706,738
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