gea%20capital%20markets%20day%202014%20 %20robert%20spurway%20fonterra%20global%20market%20update tc

FONTERRA

MARKET UPDATE Robert Spurway – Managing Director Global Operations

© FONTERRA CO-OPERATIVE GROUP LIMITED

1

55

153

0

153

255

98

189

24

63

63

63

Text

Headings

Chart 1

Chart 2

Chart 3

© Fonterra Co-operative Group Ltd.

Presentation Outline

1. Fonterra Overview

2. Global Dairy Market Overview

3. Fonterra Strategy and Ambition

Confidential to Fonterra Co-operative Group

Fonterra Overview

1

55

153

0

153

255

98

189

24

63

63

63

Text

Headings

Chart 1

Chart 2

Chart 3


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

1

55

153

0

153

255

98

189

24

63

63

63

Text

Headings

Chart 1

Chart 2

Chart 3


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.

1

55

153

0

153

255

98

189

24

63

63

63

Text

Headings

Chart 1

Chart 2

Chart 3


Foodservice and branded consumer

businesses

ASEAN/MENA

LATAM

Greater China


Global Dairy Market Overview

1

55

153

0

153

255

98

189

24

63

63

63

Text

Headings

Chart 1

Chart 2

Chart 3


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

1

55

153

0

153

255

98

189

24

63

63

63

Text

Headings

Chart 1

Chart 2

Chart 3


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

1

55

153

0

153

255

98

189

24

63

63

63

Text

Headings

Chart 1

Chart 2

Chart 3


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


Fonterra Strategy and

Ambition

1

55

153

0

153

255

98

189

24

63

63

63

Text

Headings

Chart 1

Chart 2

Chart 3


Our journey to becoming a globally relevant

Co-op

1

55

153

0

153

255

98

189

24

63

63

63

Text

Headings

Chart 1

Chart 2

Chart 3


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

1

55

153

0

153

255

98

189

24

63

63

63

Text

Headings

Chart 1

Chart 2

Chart 3


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

1

55

153

0

153

255

98

189

24

63

63

63

Text

Headings

Chart 1

Chart 2

Chart 3


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

1

55

153

0

153

255

98

189

24

63

63

63

Text

Headings

Chart 1

Chart 2

Chart 3


Farm Source: Transforming our milk supply model

1

55

153

0

153

255

98

189

24

63

63

63

Text

Headings

Chart 1

Chart 2

Chart 3


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

1

55

153

0

153

255

98

189

24

63

63

63

Text

Headings

Chart 1

Chart 2

Chart 3


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

1

55

153

0

153

255

98

189

24

63

63

63

Text

Headings

Chart 1

Chart 2

Chart 3


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

1

55

153

0

153

255

98

189

24

63

63

63

Text

Headings

Chart 1

Chart 2

Chart 3


Investment in global multi-hubs

Milk Powders / Foodservice

Whey

Cheese / Whey / Infant Formula

UHT / Foodservice

1

55

153

0

153

255

98

189

24

63

63

63

Text

Headings

Chart 1

Chart 2

Chart 3


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

1

55

153

0

153

255

98

189

24

63

63

63

Text

Headings

Chart 1

Chart 2

Chart 3


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

1

55

153

0

153

255

98

189

24

63

63

63

Text

Headings

Chart 1

Chart 2

Chart 3


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

gea%20capital%20markets%20day%202014%20 %20robert%20spurway%20fonterra%20global%20market%20update tc

Documents