Full Year 2024 Fonterra Co-Operative Group Ltd Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Nick Mar - Macquarie Group - Analyst : Just in terms of the guidance, obviously, the fourth quarter margins in foodservice and consumer were impacted by rising cost of milk, which will continue into FY25 given the milk price outlook. Can you just talk through what gives you confidence that you can deliver sort of stable to slightly growing earnings across the foodservice and consumer channels in FY25?

Question: Nick Mar - Macquarie Group - Analyst : That's good. And is a lot of that pricing already sort of put through into the market and has stuck accordingly? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies.

Question: Nick Mar - Macquarie Group - Analyst : That's great. And then some of these sort of growth projects that you've announced, the three of them, obviously, interesting projects. And you're sort of pretty excited about them. What kind of incremental return on capital are you looking for across that spend sort of against the 11.3% you delivered this year?

Question: Nick Mar - Macquarie Group - Analyst : That's great. And then on the IT spend, sort of really helpful you're starting to split out that spend with the digital transformation. We've had some discussions about what it looks like in FY25, which is quite a material step-up. Can you just talk about the sort of duration and profile from here of that spend and whether or not you expect to get some return on that investment to some degree through cost savings or betterment of the systems?

Question: Nick Mar - Macquarie Group - Analyst : That's great. And then last one for me, on the tax changes, can you just talk about what the effective tax rate will be going forward for the business taking account the sort of offshore earnings piece that will be coming through as well?

Question: Nick Mar - Macquarie Group - Analyst : Yes. And therefore, what percentage do you expect to be able to impute the dividend as the combination of New Zealand?

Question: Arie Dekker - Jarden - Analyst : Just the first question was just in relation to the in-scope businesses, just under $300 million of EBIT for FY24 and well up on the PCP. You have made reference to your expectations for improved margins in consumer, and they obviously dominate those in-scope businesses. But yes, is there any additional color you can give in terms of -- within your guidance? What you're expecting the in-scope businesses to deliver in terms of EBIT in FY25?

Question: Arie Dekker - Jarden - Analyst : Sure. Great. That's good. And then just in terms of capital investment, other capital invested of $106 million in the notes. So I see the fund investment or Ki Tua, I think it is, up to $61 million. Could you just talk a little bit about where the investment is being targeted there? And I see that stepped up from '23 to '24. Are you expecting to continue to increase the investment intensity in Ki Tua into '25 and '26?

Question: Arie Dekker - Jarden - Analyst : Yes. And then I mean, I guess, the nature of your investment and minority stakes can have positives as well in the venture space and those governance arrangements you talked about. Like does that include really clear hurdles? And is there a preparedness to -- if they're not meeting your expectations to just step away and not fund follow-ons rather than just stay the course? Any examples of that yet?

Question: Arie Dekker - Jarden - Analyst : No, that's great. On to the next one, just the dividend, and I see that you clearly highlighted a special dividend. I mean if I look at the balance sheet, it's well below in terms of gearing where you expect it to be when you presented the LTA three years ago. Should we expect to see the payout ratio increase given your increased confidence in your ability to fund the sustainability and growth investment versus where you were three years ago?

Question: Arie Dekker - Jarden - Analyst : Yes. And then just the last one for me. And I imagine just given the significance of the consumer non-core review that it's not on the immediate horizon. But is buyback still something that is in the arsenal for the Co-op when it's looking at allocating its capital?

Question: Arie Dekker - Jarden - Analyst : Great. Great result.

Question: Marcus Curley - UBS - Analyst : I just wonder if we could start with the ingredients business. Miles, I just wonder if you could talk to what are you assuming. What was the benefit from stream returns in your calculations in the result? How are you thinking about those into the guidance of '25?

Question: Marcus Curley - UBS - Analyst : Could you call out what lactose price assumption is baked in the '25 at this stage?

Question: Marcus Curley - UBS - Analyst : Okay. Can we just talk about operating cost for a second? So just one point of clarification, have you called out the total amount for the IT transformation spend in FY25?

Question: Marcus Curley - UBS - Analyst : Okay. And what's the risk in relation to changing those systems over or upgrading those systems?

Question: Marcus Curley - UBS - Analyst : Miles, is that an upgrade of an existing system or a brand-new system?

Question: Marcus Curley - UBS - Analyst : Okay. And then -- sorry, just talking about operating costs, excluding IT transformation, can you give us any color in terms of what cost pressure you think is going to be in the business? Obviously, you've been streamlining staff. How are you thinking about the overall OpEx budget in '25?

Question: Marcus Curley - UBS - Analyst : Okay. And then finally for me, I just wondered if you could talk anything about -- it sounds like you're about to make an announcement next week with regard to the sale of the consumer business. Is that the right interpretation of what's been said today?

Question: Marcus Curley - UBS - Analyst : Yes.

Question: Marcus Curley - UBS - Analyst : I just wondered if you talk a little bit about the China volume outlook. So obviously, we're hearing, I suppose, pretty subdued messages out of the China consumer at the moment. Specifically, what are you seeing at the moment in terms of foodservice demand? And do you think there's scope for any substantive growth in volume sales there heading into '25?

Question: Marcus Curley - UBS - Analyst : Okay. And while I've got you, any views on the level of milk production growth this year? It looks -- obviously, the season is off to an okay start. Is it a year where you could actually see some reasonable growth?