john wilson - chairman · 1. a bonus issue of one for 40 – 24 april 2013 2. a further supply...

John Wilson - Chairman

© Fonterra Co-operative Group Ltd. ‹#›

Key highlightsKey highlightsFORECAST CASH PAYOUT VOLUME: MILK COLLECTIONS

$6.12 6%Forecast Farmgate Milk Price lifted to $5.80 kgMS. The full year dividend forecast remains at 32 cps

Record milk collections in the first half. Major North Island drought is having significant impact on second half volumes

VALUE: EARNINGS PER SHARE INTERIM DIVIDEND

29cpsN t P fit Aft T 33% t $459

16cpsI t i di id d t 50% f f tNet Profit After Tax up 33% to $459m Interim dividend represents 50% of our forecast dividend and the maximum available under the 40-50% range in our dividend policy

© Fonterra Co-operative Group Ltd. 3

Forecast cash payoutForecast cash payout

0.307.90

(1)0.27 0.32 0.32

6.37 6.40 6.12

Dividend (1)

6.107.60

6.08 5.80

Farmgate Milk Price(2)

2010 2011 2012 2013 F


(1) Cents per share (2) $ per kgMS.

Tough conditions for farmersTough conditions for farmers

JANUARYSoil Moisture Anomaly (mm)

FEBRUARYSoil Moisture Anomaly (mm)

MARCH (MTD)Soil Moisture Anomaly (mm)

HISTORICAL AVERAGESoil Moisture Deficit (mm)


Dry conditions impacting volumesDry conditions impacting volumesFonterra’s Milk Supply Curve

80

902010/112011/12

50

60

70

itres

/day

) 2011/122012/13

30

40

50

ume

(000

li

0

10

20Vol

0Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun


Note: Volumes represent a six day moving average of daily production

Faster cash payments to farmers for milkFaster cash payments to farmers for milk

• Backed by our strong balance sheet and operating cash flows, we were able to increase the advance rate paid to farmers for their milk

• The faster advance rate together with higher forecast milk price means onThe faster advance rate together with higher forecast milk price means on average farmer shareholders will receive around $100,000* earlier in the season

• Means we are getting cash to farmers faster, as they begin to dry off their herds for the winter earlier because of the drought


* As at June 2013, compared to opening advance rate schedules

Major initiatives benefitting our farmersMajor initiatives benefitting our farmers

1. A bonus issue of one for 40 – 24 April 2013

2. A further Supply Offer enabling shareholders to sell economic rights of some of their shares May 2013of their shares - May 2013

3. A Dividend Reinvestment Plan enabling shareholders and unit holders to gelect to receive dividends in the form of shares or units - later this year

4 Flexible contracts to give new and growing farmers more time and options to4. Flexible contracts to give new and growing farmers more time and options to fully back their milk production with Fonterra shares

5. New opportunities for winter milk supply contracts in the upper North Island to fuel Fonterra’s new UHT plant at Waitoa


Theo Spierings

© Fonterra Co-operative Group Ltd.

Strong first halfStrong first half

Volume SALES VOLUME GROWTH:Volume• Good first half volume growth

• NZ Milk Products up 9% driven by record milk collections 8%• Higher sales growth in Asia/AME & Latam• ANZ volumes impacted by Norco divestment & less private label Total sales volume growth of

8% to 2.1m MT

Value NORMALISED EBIT:

$693m•NZ Milk Products up 65%• Favourable product mix due to relatively higher cheese and

casein prices• Improved price premiums

$693mUp 26% on the prior periodImproved price premiums

• Asia/AME up 27%• Sustained growth in foodservice and consumer brands

• Soprole up 40%Hi h l d i i Chil

p p p


• Higher consumer sales and margins in Chile

Segment performanceSegment performance

Volume (MT)

Value(Normalised EBIT $m)

NZ Milk Products (NZMP) 255

422

1,349

1,474

Consumer

H1 2013 H1 2012

271

1,349

844Consumer businesses (combined) 297

271

826

844


NZMP highlightsNZMP highlightsNormalised EBIT ($m) Volume( )

Volume 422

• 9% increase to 1.5 million MT

Growth

9%255

Value• Normalised EBIT margin up 2.8pp to 6.2%

• Key drivers of value:Value

Growth

65%

y

– effective management of our product mix

higher price premiums compared to

H1 2012 H1 2013

– higher price premiums compared to dairy commodity prices

• Operating costs lower on a per unit basis, despite higher activity levelsdespite higher activity levels


NZMP – Key Performance DriversNZMP Key Performance Drivers

422

31 1425 10

255

87 31 14

$MN

Z$

H1 2012 Product Mix Price Quality & Global Other H1 2013H1 2012 Product Mix Price Premiums

Quality & Productivity

Improvements

Global Sourcing

Other H1 2013


ANZ highlightsANZ highlightsVolumeNormalised EBIT ($m)• 1% higher after adjusting for sale of

Norco distribution business

Value• Normalised EBIT margin down 1.5pp to

4 9%

Volume Growth1

1%

145

98 4.9%• NZ consumer brands earnings slightly up• Australian consumer brands impacted by

i d t d d t i t i h

ValueGrowth

increased trade spend to maintain share• Australian milk processing business

impacted by intensifying competition for ilk l

-32%

H1 2012 H1 2013milk supply


1 Volume growth after adjusting for the sale of the Norco business

ANZ – key performance driversANZ key performance drivers

145 (33)

(12)

M

0 1 (6)3 98 (24)N

Z$M

74

Normalised Australian Milk Brands Brands New Tip Top RD1 Group Other Normalised Cororooke Reported EBITNormalised EBIT H1 2012

Australian Milk Processing

Brands Australia

Brands New Zealand

Tip Top RD1 Group Other Normalised EBIT H1 2013

Cororooke Closure

Reported EBIT H1 2013


Turnaround of ANZ underwayTurnaround of ANZ underway

RE-SHAPE

Current Future State

RE-ORGANISE

From Scattered Reso rcesCurrent Future State

Consumer • Number of brands

• A&P spread across brands

• Majority of A&P on fewer brands

• Everyday Nutrition key

ANZ

From: Scattered Resources

brands • Everyday Nutrition key priority

• New innovations

Milk • Under utilised assets • Higher utilisation of value

Ingredients Brands AU Brands NZ Subsidiaries

Milk Processing

• Under-utilised assets

• Competitive milk pool

• Higher utilisation of value add plants at the expense of commodity exports

Foodservice • Strong footprint in • Fast expansion of

APMEA

To: Focused Regional Operations

Foodservice • Strong footprint in Australia

• Fast expansion of foodservice operations

• Continued investment in network of chefs

Australia NZ ASEANASEAN MENAMENA


Asia/AME highlightsAsia/AME highlightsVolumeNormalised EBIT ($m)• 13% increase to 186K MT

100 Value• Normalised EBIT margin up 1.8pp to

9.5%

Volume Growth

13%79

100

• Foodservice performing strongly across all key marketsM l i i d d bl di it l

Value Growth

27% • Malaysia experienced double digit value growth

• Philippines impacted by flooding and

27%

H1 2012 H1 2013

increased competition• Growth markets like China, Middle East

& Vietnam ahead of plan


& Vietnam ahead of plan

Latam highlightsLatam highlights VolumeNormalised EBIT ($m) • 11% growth in volume to 187K MT

Value67 V l Value• Normalised EBIT margin down 0.7pp to 12%

• Soprole performed strongly with normalisedEBIT f $53 40%

64 67 Volume Growth

11%EBIT of $53m, up 40%

– Product innovation with successful launch of new desserts and yoghurts

ValueGrowth

5% – Growth in both flavoured and white milk

• DPA normalised EBIT of $13 million was 46% lower

H1 2012 H1 2013

5%

– Prior year impairment charge of $8m

– Negative impact from lower volumes in Venezuela


Venezuela

Jonathan Mason

© Fonterra Co-operative Group Ltd. ‹#›

Improved Gearing and Working CapitalImproved Gearing and Working Capital

Half Year Gearing1 Working Capital Days2Half Year Gearing

60%54%

Working Capital Days2

54%49% 47%

40%103

104

97

1. 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

H1 2009 H12010 H12011 H12012 H12013 H12011 H12012 H12011


g g g y ( g g gbalance date)

2. Excluding suppliers payable

Interim dividend declaredInterim dividend declared

• Board declared dividend of 16 cps 16

• Represents 50%of forecast dividend for the current financial year

8

12

• Maximum available under 40-50% range in our dividend policy

8

p y

• Reflects expectation that earnings will be weighted more to the first half of the year H1 2011 H1 2012 H1 2013weighted more to the first half of the year H1 2011 H1 2012 H1 2013


Supply OfferSupply Offer

•Supply Offer in May 2013

•Maximum of $475m, being the net proceeds of the original seeding of the Fonterra Shareholders’ Fund

•Sell price will be based on an average of the Unit price over a 10 day period

•Limit of 25 per cent of Wet Shares

•More to come in late April with the Supply Offer•More to come in late April with the Supply Offer Booklet


Theo Spierings


Strategy: Blueprint for growthStrategy: Blueprint for growthSTRATEGIC PATHS PROGRESS

MARGINPOTENTIAL

Inc

• New plant investments and Studholme acquisition• Strong 1st half for price premiums, quality and productivity• New group optimisation function driving better decision making

Optimise NZ milk1EVERYDAY NUTRITION

creasing M

• Reshape Australia & New Zealand brands (refer slide 16)• Taskforce developing a prioritised view of markets, products and brands

• ASEAN & China roll-out ahead of plan • Continued focus on product innovation for both pastry and hot kitchen

Deliver on f d i t ti l

Build and grow beyond our current consumer positions

2

3OUT-OF-HOME M

argin

Continued focus on product innovation for both pastry and hot kitchen• $100m UHT plant investment supports expansion

• China, Vietnam Anlene roll-out on track• Greenfields plant in the Netherlands to process whey and lactose into

premium nutrition dairy ingredients

Grow our position in mobility

foodservice potential3

4ADVANCEDNUTRITION premium nutrition dairy ingredients

• Expansion of Anmum in China • New third party manufacturing contracts for paediatrics• Increased through-put from paediatric plant in Australia

Develop selected leading position in paediatrics & maternal

5

• Signed agreements to complete our first farming hub in China• China farms on track to produce 69,000 MT of milk by end of 2013

Selectivelyinvest in milk pools

Alignment of b siness and organisation

6

7

ENABLERS

• Rightsizing of Europe and US operations complete• Restructure ANZ, ASEAN & MENA


business and organisation7 ,• Support review underway

Everyday NutritionEveryday Nutrition

• B2B: Optimise NZ Milk• B2B: Optimise NZ Milk • Enhance asset footprint (Darfield, Studholme,

Waitoa UHT)

• New group optimisation function driving better decision making

• Strong first half for price achievement and cost to serve

• Quality and productivity programmes delivering ahead of plan

• B2C: Build and grow beyond our current consumer positions

• Everyday Nutrition Taskforce developing aEveryday Nutrition Taskforce developing a prioritised view across products and brand

• Reshape Australia & New Zealand brands

Focused growth ASEAN/MENA


• Focused growth ASEAN/MENA

Out-of-homeOu o o e

• First half volume growth of 11.5%• EBIT from ASEAN & China foodservice

roll-out well ahead of planroll-out well ahead of plan• Expanding to 2nd and 3rd tier cities in

China

• Investing in network of chefs and front-line sales staffContinued focus on differentiated• Continued focus on differentiated, functional, product innovation for both pastry and hot kitchens

• $100m investment in Waitoa UHT plant will help support Foodservice expansion


Advanced Nutritiond a ced ut t o• Growing our position in mobilityg p y

• China Anlene rollout on track• Vietnam rollout ahead of plan

• Develop leading position in paediatrics and maternal

• Expansion of Anmum in Chinap• New third party manufacturing contracts for

paediatrics• Increased through-put from paediatrics plant• Increased through-put from paediatrics plant

in Australia• Greenfields plant in the Netherlands to process

h d l t i t i t iti d iwhey and lactose into premium nutrition dairy ingredients


Aligning resources with strategic priorities

• Review of support services underwayOptimise

1

Aligning resources with strategic priorities

• Major re-organisation of our Asia/AME and ANZ operations

pNZ milk

Build and growbeyond our current consumer positions

2

• Tracking ahead of $60m operating cost savings target

consumer positions

Deliver on foodservice potential

3

Significant investment

• Improved alignment of operating costs with strategic priorities (refer graph below)Grow our position in

mobility

4

5Critical

required to deliver

1,116

21 6 1,143

21 1,164Develop selected leading positions in paeds & maternal

Selectively

6

Critical enabler

MSelectivelyinvest in milk pools

Alignment of business and

i ti

7

NZ$

M


H1 2012 Total Opex

China Growth (A+P and staff

costs)

Other Normalised H1 2013 Opex

Cororooke closure costs

H1 2013 Total Opex

organisation

OutlookOutlook • Making good progress on strategy execution and positioning the business for long-

term growth• Strong first half earnings are unlikely to be repeated in the second half • For the full year we expect to see total milk volumes for the season to be in line with• For the full year we expect to see total milk volumes for the season to be in line with

last season• The ongoing volatility in dairy commodity markets could have a negative impact on

d t i fit bilitproduct mix profitability • In many of our consumer markets, we are expecting intensified competition in the

second half – particularly in Australia – and in Asia we are seeing signs of demand slowing

• Based on our best judgement the current expectation for the full year Milk Price is $5.80 kgMS and an earnings per share range of 45 to 50 cps$5.80 kgMS and an earnings per share range of 45 to 50 cps

• The dividend per share forecast of 32 cps remains unchanged


Supplementary Information


Interim results summaryInterim results summary

NZD million 6 months to 31 January 2013

6 months to 31 January 2012 Change

T t l S l V l ( illi MT) 2 1 1 9 8%Total Sales Volume (million MT) 2.1 1.9 8%

Revenue 9,334 10,026 (7%)

Normalised EBIT 693 552 26%

Net Profit After Tax 459 346 33%

Earnings per share (cents) 29 24 21%

Dividends per share (cents) 16 12 33%


Normalised EBITNormalised EBIT

6 months to 31 January 2013

6 months to 31 January 2012

Reported EBIT 669 530Costs associated with the planned closure of the Cororooke site 24

Impairment losses recorded in equityImpairment losses recorded in equity accounted investees 20

Other items 2

N li d EBIT 693 2Normalised EBIT 693 552

Fonterra refers to Normalised Earnings/Normalised EBIT, EBIT, constant currency variances, Normalisation Adjustments and payout when discussingfinancial performance These are non-GAAP financial measures and are not prepared in accordance with IFRS Management believes that these measuresfinancial performance. These are non-GAAP financial measures and are not prepared in accordance with IFRS. Management believes that these measuresprovide useful information as they provide valuable insight on the underlying performance of the business. They are used internally to evaluate theunderlying performance of business units and to analyse trends. These measures are not uniformly defined or utilised by all companies. Accordingly, thesemeasures may not be comparable with similarly titled measures used by other companies. Non-GAAP financial measures should not be viewed in isolationnor considered as a substitute for measures reported in accordance with IFRS.


WMP and cheese pricesWMP and cheese pricesWeighted Average USD GDT Cheese Prices vs WMP Prices

5,000

5,500

4,000

4,500

3,000

3,500

2,500

Cheese WMP


NZMP contribution marginNZMP contribution margin

$million H1 2013 H2 2012Sales Volume (000MT) 1,474 1,349Gross Margin 797 617Selling, marketing and distribution expenses (137) (126)Contribution margin 660 491Contribution margin 660 491Contribution margin per MT ($) 448 364Growth 23%

Contribution margin growth of 23% reflects the improvement in:Contribution margin growth of 23% reflects the improvement in: • The operational performance of the business and • The benefit of product price relativities


Balance sheet strengthBalance sheet strengthStrong Fundamentals Diversified Funding

CreditRating

S&P A+ (stable outlook)

Fitch AA-(stable outlook)

Offshore DCM 38% Bank Facilities

43%( )

WeightedAverage Term to Maturity

As at 31 January 2013 3.69 years

NZ DCM

2 500

3,000 Debt Maturity Profile (Year Ending January)

NZ DCM 19%

Strong LiquidityDrawn Facilities

1,500

2,000

2,500

D m

illio

ns Bank Facilities

Debt Capital Markets

Drawn Facilities $705m

20%

0

500

1,000NZD

Undrawn Facilities $2,800m

80%


john wilson - chairman · 1. a bonus issue of one for 40 – 24 april 2013 2. a further supply...

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