Full Year 2025 Fonterra Co-Operative Group Ltd Earnings Call Transcript

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

Question: Arie Dekker - Jarden Group Ltd - Analyst : Just first one, just on the CapEx in FY25 at $930 million. That's quite a bit above what went through the cash flow statement at $700 million. Can you just sort of talk to that and just sort of confirm that there are some timing differences that will need to be incorporated into the cash investment in FY26? 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: Arie Dekker - Jarden Group Ltd - Analyst : And that sort of -- because $200 million is a decent chunk, but I guess this was a ramp-up year, so more likely to occur. But is that reflected in the payables balance at FY25?

Question: Arie Dekker - Jarden Group Ltd - Analyst : Yes. Okay. Great. Then just on the -- I guess, the growth you've sort of signaled in EBIT through to FY28. And I guess you could put it at circa $250 million is sort of the target. Can you just sort of talk to the extent to which that's sort of an aspirational target versus like a very clear path on what needs to be done with low execution risk, which way you'd characterize it? And also talk a little bit to the key drivers of the EBIT uplift from continuing operations.

Question: Arie Dekker - Jarden Group Ltd - Analyst : That's very helpful color. I guess the one follow-up, one thing you haven't sort of addressed is, and it's a difficult one, but just, I guess, price relativities and the benefits also of sort of hedging and your risk management tools. Like is there a neutral view taken on that through -- given the benefits you've had in the last couple of years? Or are you assuming that you retain some of that?

Question: Arie Dekker - Jarden Group Ltd - Analyst : That's great. And then there's CapEx guidance provided for '26 and '27. Over the last couple of years, you've been very clear in signaling the lift in CapEx that is coming and sort of sitting at circa $1 billion through the balance of this decade. Just confirmation given the amount of decarbonization, wastewater and then your broader CapEx program that the level of investment around $1 billion for further out beyond '27 remains appropriate as sort of previously guided to?

Question: Arie Dekker - Jarden Group Ltd - Analyst : Okay. And just because of the materiality versus depreciation, so just to be clear, so from '29 onwards, you'd be signaling CapEx sort of around $600 million.

Question: Arie Dekker - Jarden Group Ltd - Analyst : Yes. Okay. No, that's helpful. And then just last question, just net debt at the end of FY26, you've provided sort of '25 starting point, excluding mainland. There's a CapEx, I guess, increase, including some of the CapEx from the previous year that needs to come through. Would you see net debt when you get to the back end of this year still being on kind of a glide path to the 2.6 level signaled for '28? Or do you think that the debt profile could be quite flat through the period through to '28?

Question: Matt Montgomerie - Forsyth Barr Ltd - Analyst : Another solid set of numbers. I might just go back to Arie's question about bridging us to FY28 in terms of operating profit target. Andrew, you made a comment about, I guess, being very comfortable on the cost element that comes out. It'd be useful if you could, I guess, quantify what portion of that, call it, $250 million bridging from FY25 to FY28 is the cost base versus, I suppose, the mix change through the ingredients and Foodservice divisions.

Question: Matt Montgomerie - Forsyth Barr Ltd - Analyst : Okay. Yes. That's helpful. And then just on fee costs. So I think you sort of signaled $250 million over '25 and '26. At what point -- do you have a number for '27? Like when -- because there's obviously still probably a couple of hundred million there left to go. Is that all happening in '27? Just I guess it would be useful to phase us into '27, '28.

Question: Matt Montgomerie - Forsyth Barr Ltd - Analyst : Yes. Perfect. Maybe one for Miles. Just on the balance sheet in terms of I've noted the change in gearing guidance commentary from 2 to 3 times to less than 3 times. I suppose if we look at the balance sheet, forecast implied we're looking at maybe 1.1, 1.2 times gearing to EBITDA in '28 using the numbers you've provided. I guess my question there is like with the comfort levels now in the business, and I suppose what I'm getting at is scope for further, I guess, special dividends over and above, I guess, paying the top end of your dividend payout policy range.

Question: Matt Montgomerie - Forsyth Barr Ltd - Analyst : Yes, makes sense. Then one more, Miles, just obviously you and the Board and management team have done a fantastic job over the last seven or eight years, I guess, what do we call tidying up the low-hanging fruit and clearly, the consumers are the last major jewel, but I'd be interested around, I guess, any further, call it, low-hanging fruit you see. Like I note, China consumer, in particular, obviously, a reasonable drag still over the last couple of years, which is now included in food service profitability. So that feels like one. But I suppose, comments on that, plus anything else that you see from your point of view?

Question: Joshua Dale - Craigs Investment Partners - Analyst : Well done on a very solid set of numbers yet again. First question, your return on capital target is 10% to 12%. It looks like you could probably get higher return than that by just buying back your own shares given where your balance sheet is at or is going to be at, a buyback something you're considering?

Question: Joshua Dale - Craigs Investment Partners - Analyst : Got it. And again, in light of the strength of your balance sheet, it was sort of interesting to note that you've kept your dividend policy payout range at 60% to 80%. In what scenario do you think we could be looking at a 60% payout?

Question: Joshua Dale - Craigs Investment Partners - Analyst : And last question, the existence of the Fonterra shareholders' fund. Does the strength of your balance sheet lead you to take another look at whether it's worth keeping that in its current state?

Question: Marcus Curley - UBS AG - Analyst : I just wondered if we could go back to the stream returns. Could you give us some sort of color in terms of how you would sort of quantify that in terms of the benefit in the FY25 year? And by the look of things in the presentation, you're sort of expecting a similar number for FY26, if that's correct?

Question: Marcus Curley - UBS AG - Analyst : And what was the number in '24?

Question: Marcus Curley - UBS AG - Analyst : Okay. So $120 million benefit going to, broadly speaking, a $20 million benefit. So $100 million headwind back into the guidance for the continued operations in FY26?

Question: Marcus Curley - UBS AG - Analyst : And so could you then provide a little bit of color in terms of where, let's say, the underlying growth in the business is coming from in FY26 against the backdrop of that $100 million headwind?

Question: Marcus Curley - UBS AG - Analyst : So those one-off costs of $80 million were normalized out in the FY25 result?

Question: Marcus Curley - UBS AG - Analyst : Okay. Where did those run-off costs occur?

Question: Marcus Curley - UBS AG - Analyst : What line items were the one-off costs in FY25?

Question: Marcus Curley - UBS AG - Analyst : Second question, just on the guidance. Does that incorporate the benefit of the lower net debt in that continued operations EPS?

Question: Marcus Curley - UBS AG - Analyst : And you mentioned briefly or was just acknowledged that the China consumer business is still loss-making. Could you talk a little bit about what sits in behind that? I know, Miles, you briefly talk to it and what the plan is around that?

Question: Marcus Curley - UBS AG - Analyst : And Miles, does that include exiting some of the products, for example, like UHT?

Question: Nick Mar - Macquarie Group Ltd - Analyst : Just on the guidance, just talk through what the main drivers of the bottom end and the top end of the guidance range will be over the year.

Question: Nick Mar - Macquarie Group Ltd - Analyst : No, that's helpful. And then just talking about the mainland investment and the sort of numbers there. If we were to sort of adjust for the divestment costs, it looks like it's been sort of $368 million of EBIT, which is sort of quite a lot higher than we were probably thinking and if we sort of go back to the original presentation, we were sort of $200 million of kind of in scope of EBIT before some of the changes and the perimeter and whatnot. Can you just talk through what's been the driver from that $200 million to say $368 million where it's landed?

Question: Nick Mar - Macquarie Group Ltd - Analyst : And then the underlying growth piece, sort of how much is that being year on year and what's driven the majority of that? 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: Arie Dekker - Jarden Group Ltd - Analyst : Just quickly on capital management. Could you just talk to the ability to tax effectively distribute post the $2 return? And I guess, just comment on how much available subscribe capital will be left post that $2 return?