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Warrnambool Cheese and Butter
Warrnambool Cheese and Butter Factory Company Holdings Limited1
Supplier Presentation 2011Supplier Presentation 2011
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Schedule
11am Arrival
11.15am Welcome and Introductions
11.20am Chairman’s address – Frank Davis
11 25am Deputy Chairman’s address Terry Richardson11.25am Deputy Chairman’s address – Terry Richardson
11.30am Global Overview – John Williams
11 45am Consumer Products Richard Lange11.45am Consumer Products – Richard Lange
12noon CEO / MD address – David Lord
12.15pm Questions12.15pm Questions
12.30pm (approx) Lunch
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Frank Davis - Chairman
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Key Issues
• Industry Structure Issues• Supermarket Pricing• Carbon Tax• 2010/2011 Performance Expectations
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Terry Richardson – Deputy Chairman
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Supplier Relationship
Communication
Consultation
Representation Representation
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Milk Pricing
Transparency
Equityq y
Announced Pricing Announced Pricing
Long term interests Long term interests
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Sales & Marketing – Global OutlookJohn Williams - General Manager Sales Marketing & InnovationJohn Williams - General Manager, Sales Marketing & Innovation
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The second commodity price “boom”
A firm market outlook but with some weakness in the second half
Dairy Commodity Export Prices
5,000
6,000 Cheese
WMP
SMP
Butter
3,000
4,000
US
D/T
Butter
Whey Powder
1,000
2,000
U
-
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Food & Agribusiness Research and AdvisorySource: USDA, RabobankFor
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High food prices are back on the agenda
A structural change to agri-commodity complex
Food price gains since the 2009 troughFood price gains since the 2009 trough
190
210
150
170
002‐20
04=100
GFCtrough
Meat Index 53%
Cereals Index 50%
Sugar Index 94%
Veg Oil Index 101%
Dairy Index 107%
90
110
130
Inde
x: 20
Does this line pin point
70
Food Price Index
Does this line pin-point structural change?
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Source: FAO
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Demand growth still attractive
World dairy market returning to an annual growth rate of 2.5%
Absolute dairy consumption growth
20000
25000
Absolute dairy consumption growth between 2009 and 2014
10000
15000
ln lt
rs
0
5000
M
Source: FAPRI
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Setting a positive outlook
Drivers of dairy consumption
Population growthPromotion
Income growthShifting diets
Urbanisation
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China: has underwritten global demand
2011 12011-4
Monthly Chinese milk powder imports, 2005-2011
2009 42009-7
2009-102010-12010-42010-7
2010-102011-1
2007 072007-102008-12008-42008-7
2008-102009-12009-4
Melamine Crisis
2005 102006-012006-042006-072006-102007-012007-042007-07
- 10,000,000 20,000,000 30,000,000 40,000,000 50,000,000 60,000,000 70,000,000
2005-012005-042005-072005-10
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Source: Chinese customs statistics, CITIC, 2011Food & Agribusiness Research and Advisory
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Russian: ongoing import reliance
Weather drives an import surge in 2010 and development plan for Russia’s dairy industry shows little progress
Russian dairy imports (excluding Belarus) 2005-2010
3000
3500
+53%
2000
2500
mln
litre
s LM
E
CheeseWheyButter
1000
1500m ButterSMPWMP
0
500
2005 2006 2007 2008 2009 2010
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Cheese contains cheese & curd Source: GTIS Food & Agribusiness Research and Advisory
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India: possibility of dramatic demand impact
Ability to be self sufficient is elusive with demand outstripping local supply
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Japan: an important trading partner
Limited impact along supplier chain so far
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Farmgate milk prices at record high globally
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Producers have responded with new milk
But encouraging supply growth is proving expensive
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US supply response critical to balance
US taking some time to find their feet in export markets, but can’t go back to domestic focus only – even if they wanted to!
Net Dairy Trade - USA
1,000,000
1,200,000
1,400,000
Net Dairy Trade USA• Not the lowest cost BUT the lowest
cost capable of significant expansion
• 1 5% tipped for 2011; below 10yr
400,000
600,000
800,000
1,000,000
litre
s ME
Q
• 1.5% tipped for 2011; below 10yr annual growth rate
• Industry increasing its focus on i i d i i
-200,000
0
200,000
400,000
Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3T
hous
and export opportunities and recognising
rewards available offshore
• Rate of export growth determined by
-600,000
-400,000
00,0002005 2006 2007 2008 2009 2010
Source: USDEC
offshore demand/supply gap
• Regulatory structures will continue to challenge ability to capitalise on
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challenge ability to capitalise on growth
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Unwinding quotas in the EU
Removal of quota system imminent; and will drive supply growth
• The number of countries that are restricted by the quota system is relatively limited: Ireland, Denmark, Germany, Belgium, some regions in FranceNetherlands:
• Total growth potential of EU milk production between 2011 and 2020 is about 9bn litres
Ireland:+ 1.8 bln kg
+ 2.2 bln kg
Poland: +1.0 bln kg
N Germany/Denmark: +1.5 bln kg
about 9bn litres
• Contraction in less favourable regions, strengthened sustainability constraints Brittanyand local demand growth – albeit limited – will reduce the supply surplus to some 3bn litres
+ 1.0 bln kg
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Oceania – only marginal contributions
Milk flows boosted by more favourable climatic conditions but only modest increases on an ongoing basis
Mixed fortunes across both sectors:• NZ slow down in January to March due to
“drought” saw an impact on prices. • Final 2010/11 season production = + 5%• Final 2010/11 season production = + 5%• Forecast 2011/12 season production = + 5%
• Australia still impacted by weather and general pessimism especially in the north.
• Final 2010/11 season production = + 1%.F t 2011/12 d ti + 1%• Forecast 2011/12 season production = + 1%.
There will be growth; but will not keep pace with global demand
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There will be growth; but will not keep pace with global demand.For
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Lower buffer stocks
Means market becomes more susceptible to supply shocks
150,000MT of SMP in EU intervention stores- Highs of 260,000MTg
<1,500MT of butter in EU intervention stores- Highs of 240,000MT
No stocks of SMP in USHighs of 600 000MT- Highs of 600,000MT
Food & Agribusiness Research and
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AdvisoryFor
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Dairy commodity price expectations
• Prices have softened and will continue to so do through to end of
Bullish outlook despite some weakness
2011; but trade is still at elevated levels– Commodity prices too far above costs in too many regionsy p y g– Seasonal excess supply will impact in the short term – Requirements in China will probably stabilise
Demand will be slowed by retail price inflation– Demand will be slowed by retail price inflation
• But not fast, and not by as much as 2009– Demand conditions generally sound– Lower cost regions remain constrained– Costs of production will remain generally high
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– No GFC on horizon???For
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Marketing Consumer Products – our storyRichard Lange - Marketing Manager Consumer ProductsRichard Lange - Marketing Manager Consumer Products
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Who is Richard Lange?
• Grew up on beef and sheep farm on 3 soldier resettlement dairies
• Agricultural Economics• SunRice• Dairy Australia• Wife (Vet) 4 children
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WCB produces great products
but is hidden under a rock…
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The consumer trend for “local”
This is an opportunity for Warrnambool Cheese and Butter
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Overseas this trend is taking hold
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Victoria’s and South Australian consumers are repeating these trendsrepeating these trends
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This is our story and it has value for our brandsour brands
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David Lord – CEO & Managing Director
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Presentation Contents
• Financial performance• Highlights for the 2010 / 11 year • Special projects• Special projects• Milk intake growth
S• Strong Australian dollar • Carbon tax• Outlook 2012
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Financial Performance First Half FY11
Sales Revenue $254.6 million up $50.8 million or 24.9% Sales Revenue $254.6 million up $50.8 million or 24.9%
International dairy prices up by 36 4% total volume down bySales Revenue up International dairy prices up by 36.4%, total volume down by 6.6%
Consumer Goods prices steady with volumes up 25.3%
Sales Revenue up 24.9%
NPAT of $36.4 million up $27.5 million or 309.0%
EBITDA $59 million Operating cash flow $30 millionNPAT up 309.0%
EBITDA $59 million. Operating cash flow $30 million
Successful share placement and rights issue that raised a net $35.1m
Net debt reduced by $60 million with gearing returning to traditional levels
Business improvement projects approved and commenced utilising funds raised in H1
Strategic Initiatives
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Highlights for the Year
• Strong second half trading performance• International markets have remained firm
despite widely expected downturn• Capital raised and debt reduced by more than
$60m• Balance sheet repaired. Funds for reinvestment• New projects commenced• Sound operating performance• Consumer products division continues to grow
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Operations Highlights
• Milk to manufacture -1.5% versus last year- Conversion milk from Lion down due to floods
• GWF contract commenced at Mil Lel
GOI l t d fi t f ll f i i i• GOI completed first full year of commissioning- GOS production +88% on prior year
$- Operating cost reductions of $1.8 million
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Operations Highlights
• Environmental 95% of condensate used replacing mains water- 95% of condensate used replacing mains water
- Total site water re-use 46%, saving $763,000 - Replacement of natural gas with Biogas savingReplacement of natural gas with Biogas saving
$140K and 1606 tonnes of greenhouse gas• Safety
– LTI’s x 6 for the year, no change from last year– Lost time injuries x 144hrs 50% reduction
C ti i t j t l t d• Continuous improvement projects completed:- $3.86 million in cost reductions
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2011 Highlights
• Three major capital projects approved and commenced:– Sungold expansion
I it b 50%- Increase capacity by 50%– Powder plant upgrade
C bilit t d hi h ifi ti- Capability to produce high specificationpowders
Mil Lel specialty cheese upgrade– Mil Lel specialty cheese upgrade- Capacity upgrade for GWF and specialtyrange
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Award Winning Products
Warrnambool’s Vintage Cheddar Acknowledged as Best in Australia: At Australia’s premier dairy awards, Dairy Australia’s Grand Awards, WCB beat out a list of very well established Australian cheese brands to win the award for Champion Cheddar Style
Photo courtesy of Australian Dairy Foods Magazine
very well established Australian cheese brands to win the award for Champion Cheddar Style Cheese for its Vintage Cheddar.
DIAA National E T Heard Memorial Gold Medallion Highest scoring unsalted butter - Unsalted Butter Cryovac Australia Award Highest scoring club cheese - Cheddar with Cracked
Pepper
DIAA VictorianW L Kraft OBE Memorial Trophy Highest scoring unsalted bulk butter –W L Kraft, OBE, Memorial Trophy, Highest scoring unsalted bulk butter
Unsalted Butter Aggreko Award Highest scoring club cheese - Flavoured Cheddar, Cracked
Pepper Givaudan Trophy Highest scoring flavoured milk chocolate - Sungold FMGivaudan Trophy, Highest scoring flavoured milk, chocolate Sungold FM
Chocolate Givaudan Trophy, Highest scoring flavoured milk, coffee - Sungold Xtra Coffee In Vitro Technologies Award, Highest scoring flavoured milk other than chocolate
or coffee - Sungold FM Strawberry
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or coffee Sungold FM Strawberry Ecolab Trophy, Highest scoring flavoured milk overall - Sungold Xtra Coffee
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Milk Intake Growth
• WCB needs more milk to support its growth pp gstrategy and new customer demand
• Strong closing and opening prices• Open letter to suppliers• Unique improvements to the payment systemq p p y y
- Choice of payment options- Improved cash flow
S f t N t- Safety Net- Growth incentive doubled
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Impact of strengthening $AUD
• On average we expect international prices to be b tt th l tbetter than last year
• In 2010/11 prices increased to offset the impact of the rising $AUDof the rising $AUD
• Further price improvement to offset the impact of sustained high exchange rates in 2011/12 g gunlikely
• A consistently high $AUD has the potential to h ld f t i t th l d f th DAhold farm gate prices to the low end of the DA range.
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Carbon Tax
• Not clear how the tax will flow through in the market• More policy detail required on rebates, offsets etc• WCB can expect higher energy costs
WCB ill k lt ti N 64%• WCB will seek alternative energy sources. Now 64% natural gas.
• Trade exposed industry cannot pass these costs on• Trade-exposed industry cannot pass these costs on to local consumers or world markets.
• Electricity usage exemption for dairy procesors and ec c y usage e e p o o da y p oceso s a dproducers
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Outlook 2012
• International demand tipped to remain strong• Supply side slowly respondingSupply side slowly responding• International price outlook softening• WCB well positioned to benefit from strong market
conditionsconditions• Investment in new value adding projects• WCB is a low cost and efficient processor with p
significant product mix flexibility- Manufacturing Scale in cheese, powder and
butter plantsbutter plants- Unique single site configuration
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Supplier Presentation 2011QuestionsF
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