New Zealand Dairy Companies Review - March 2019 www.tdb.co.nz - TDB Advisory
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New Zealand Dairy Companies Review March 2019 www.tdb.co.nz
TDB Advisory Limited
L5, Wakefield House
90 The Terrace
P.O. Box 93
Wellington
New Zealand
Tel (+644) 934 8740
Email: info@tdb.co.nz
Principal contact for this report:
Geoff Taylor, Director Nigel Atherfold, Director Tom Stannard, Analyst
geoff.taylor@tdb.co.nz nigel.atherfold@tdb.co.nz tom.stannard@tdb.co.nz
027 465 0024 027 465 0057 027 800 8988
Disclaimer
This report has been prepared by TDB Advisory Limited (TDB) with care and diligence. The
statements and opinions given by TDB in this report are given in good faith and in the belief on
reasonable grounds that such statements and opinions are correct= and not misleading. However,
no responsibility is accepted by TDB or any of its officers, employees or agents for errors or
omissions however arising in the preparation of this report, or for any consequences of reliance
on its content, conclusions or any material, correspondence of any form or discussions arising out
of or associated with its preparation.
TDB Advisory Ltd tdb.co.nz New Zealand Dairy Companies Review 2Statement of Independence
This report has been prepared on a pro bono basis. TDB confirms that it has no conflict of interest
that could affect its ability to provide an unbiased report. For completeness, the following
disclosures are made.
The principal contacts for this report, as noted above, are:
• investors in Fonterra (FSF) shares;
• directors of other dairy farming businesses that are Fonterra Co-operative Group Limited
suppliers and shareholders or Synlait Milk Limited suppliers or MyMilk suppliers; and
• investors in and former directors of Open Country Dairy Limited.
In the last 24 months, TDB has advised on:
• the sale of shares in Open Country Dairy Limited; and
• various issues for Goodman Fielder, Westland, Open Country Dairy
TDB confirms that this report was not commissioned or sponsored by any entity and no other
entity – including none of the dairy companies nor Goodman Fielder – had any input into it
whatsoever other than each entity covered in the report being given the opportunity to check the
factual accuracy of the section of the report relating to itself. The dairy company information
disclosed in this report is all publicly available information.
TDB Advisory Ltd tdb.co.nz New Zealand Dairy Companies Review 3Table of Contents
Overview ...................................................................................................................................................... 6
Financial performance ............................................................................................................................... 8
Return On Capital Employed................................................................................................................. 8
Analysis of the Northington report on Fonterra’s financial performance ....................................... 9
Market positioning and strategic direction ...........................................................................................11
Commodities through to consumer products ..................................................................................11
Profit from value add? .........................................................................................................................12
Adequate returns from NZ commodity processing .........................................................................12
Growth rates and forecast market share ..............................................................................................14
Companies historic growth rates .......................................................................................................14
Access to debt capital ..........................................................................................................................14
Forecast growth rates to 2021 ............................................................................................................15
Forecast market shares .......................................................................................................................16
Fonterra Co-operative ..............................................................................................................................18
Open Country Dairy..................................................................................................................................19
Synlait Milk.................................................................................................................................................20
Tatua Co-operative ...................................................................................................................................21
Westland Co-operative .............................................................................................................................22
List of Figures
Figure 1: 5-year average ROCE .................................................................................................................. 8
Figure 2: Revenue per kgMS, 2018 .........................................................................................................11
Figure 3: NPAT and revenue per kgMS, 2010-2018 ..............................................................................12
Figure 4: ROCE for OCD and Fonterra NZ, 2009-2018 ..........................................................................13
Figure 5: Five-year CAGR of milk collections (%), 2014-2018 ...............................................................14
Figure 6: Debt to debt plus equity, 2018 ................................................................................................14
Figure 7: Forecast milk collection volumes, 2018-2021 .......................................................................16
Figure 8: NZ and Fonterra’s milk volumes, 2000-2021 .........................................................................16
TDB Advisory Ltd tdb.co.nz New Zealand Dairy Companies Review 4List of Tables Table 1: TDB’s comments on Northington analysis ................................................................................ 9 Table 2: Milk volume growth rates and leverage ..................................................................................15 TDB Advisory Ltd tdb.co.nz New Zealand Dairy Companies Review 5
Overview
The recent release of an independent review of Fonterra’s performance by Northington Partners
(Northington)1, and the release of the 2018 reported annual accounts by the competing dairy
companies are triggers for us to update our April 2018 review of the performance of New Zealand’s
dairy companies.
In previous reports we have shown the comparative performance of returns across New Zealand’s
dairy companies. However, some judgement was required when unbundling the multiple
businesses within Fonterra to allow for clear comparative analysis. The Northington report
improves transparency of Fonterra’s different businesses. Most significantly, it discloses the
performance of Fonterra’s core business, the NZ processing segment within Fonterra. The
segments, as defined in the Northington report are:
• the Ingredients segment is the Commodity business (including advanced ingredients) in
New Zealand only, plus general group costs; and
• the Value-Add segment is all other businesses, including Consumer and Food Service,
China Farms and international milk pools.
It is the separate reporting of the NZ Ingredients segment that allows a more accurate comparison
with other NZ dairy processing companies.
The message given by Fonterra’s Shareholders’ Council (SC) in the Northington report is that
Fonterra’s performance is unambiguously poor. We think this is a harsher judgement than is
supported by the report. While Fonterra’s return on capital of 6% was more than 1% below its cost
of capital, the surprise from our point of view in the analysis is how relatively good the return was
from the NZ Ingredients business. It is the NZ Ingredients business that is the core of Fonterra in
that it collects, processes and sells the milk of its NZ farmer suppliers and co-op shareholders. It
is also the NZ Ingredients business that is regulated under the Dairy Industry Restructuring Act,
employs about 50% of Fonterra’s capital, and represents the co-op that most farmers identify with.
In this report we have updated our financial performance methodology to mirror that used in the
Northington report. Specifically, we have adopted Return On Capital Employed2 (ROCE) as our key
performance metric. Consistent with prior versions of this report we consider and analyse only
the reported public results of NZ’s milk processing companies. This report finds that, over the last
five years, Tatua has achieved the highest return on capital of the milk processors (with 19% ROCE
on average p.a.), followed by Open Country Dairy (OCD) (11%), Synlait (9%), Fonterra (6%) and
Westland (2%).
1
Northington Partners report commissioned by Fonterra Shareholders’ Council titled “Independent Assessment of
Fonterra’s Financial Performance since Inception”, published November 2018.
2
Based on book values rather than market values.
TDB Advisory Ltd tdb.co.nz New Zealand Dairy Companies Review 6In addition, we highlight a flat outlook for NZ milk production volumes and forecast that within the NZ milk pool Fonterra’s competitors have a higher growth outlook. Fonterra’s market share is, in our view likely to continue to fall by between 1 and 2 percentage points per year to 75% by 2021 – this is fairly consistent with the steady decline of Fonterra’s market share over the last 17 years since Fonterra was established. TDB Advisory Ltd tdb.co.nz New Zealand Dairy Companies Review 7
Financial performance
This report focuses on the Return On Capital Employed (ROCE) of the competing dairy companies.
The five dairy companies we consider are Tatua, Open Country Dairy (OCD), Synlait, Fonterra and
Westland. Our focus on ROCE is consistent with the recent Northington report on Fonterra’s
performance that disclosed ROCE for both Fonterra’s NZ Ingredients business and the Value-Add
business.
For the competing firm comparison analysis we only consider Fonterra at the group level but we
analyse Fonterra segment’s as detailed in the Northington report later in this report.
We note that the Northington report used both the market value and book value of capital as
performance measures. We have used just book values because we want to compare across the
industry against invested capital employed and because a very small portion of invested capital
has a market value.
We have used the last five years as our period of comparison because that is what Fonterra has
indicated they will use on an annual basis for their financial metrics.
Return On Capital Employed
Figure 1 below shows the average ROCE3 of each firm over the last five years.
Figure 1: 5-year average ROCE
24%
19%
16%
ROCE (%)
11%
9%
8%
6%
2%
0%
Tatua* OCD Synlait Fonterra Westland
*Tatua’s ROCE is calculated using earnings adjusted for milk price deviation from FGMP
Source: Company annual reports & TDB Advisory analysis
3
ROCE = earnings before interest and tax x (1 – effective tax rate) / book value of capital employed. ROCE is therefore an
after-tax measure
TDB Advisory Ltd tdb.co.nz New Zealand Dairy Companies Review 8Analysis of the Northington report on Fonterra’s financial performance
In previous years’ TDB NZ Dairy Companies reviews we have shown the comparative performance
of returns across New Zealand’s dairy companies. However, some judgement was required to
unbundle the multiple businesses within Fonterra to allow for clear comparative analysis. The
Northington report improves the transparency of Fonterra’s different businesses by disclosing the
performance of Fonterra’s core NZ processing business, being the regulated segment within
Fonterra. The segments within Fonterra, as defined in the Northington report are:
• the Ingredients segment, which is the Commodity business (including advanced
ingredients) in NZ only, plus general group costs; and
• the Value-Add segment, which is all other businesses, including Consumer and Food
Service, China Farms and international milk pools.4
Fonterra’s core processing business is the NZ Ingredients segment and it is the separate reporting
of that segment that allows a more accurate comparison with other NZ dairy processing
companies.
The message given by the Fonterra Shareholders’ Council in the Northington report is that
Fonterra’s performance is unambiguously poor. We think this is a harsher judgement than
supported by the Northington report. The report showed in our opinion a surprisingly positive
performance from the NZ Ingredients business that was then dragged down by low returns from
the Value-Add business such that overall performance was poor at an overall group level.
The Northington report is concise and transparent: it helps answer several queries we had in our
April 2018 review. Each key question raised by TDB’s analysis and addressed in the Northington
report is presented and commented on in Table 1 below.
While the Northington report concludes that Fonterra’s return on capital of 6% is more than 1%
below its cost of capital, the surprise from our point of view in the analysis is how relatively good
the return from the NZ Ingredients business was. It is that business that is the core of Fonterra in
that it collects, processes and sells the milk of its NZ farmer suppliers and co-op shareholders. It
is that business that is regulated under the Dairy Industry Restructuring Act, employs about 50%
of Fonterra’s capital and represents the co-op that most farmers identify with. Since the release of
the Northington report Fonterra has communicated that it will re-evaluate all investments, major
assets and partnerships to ensure they still meet the co-op’s needs. We consider that it is in the
interests of Fonterra’s shareholders to maximise the value of all of the non-NZ Ingredients
business (being $5 billion plus of book value of capital). If Fonterra could return a large amount
of that capital to shareholders and still maintain a similar earnings per share from the Ingredients
business, it would clearly be a positive option for shareholders to consider.
4
Pg 8 of the Northington report.
TDB Advisory Ltd tdb.co.nz New Zealand Dairy Companies Review 9Table 1: TDB’s comments on Northington analysis5
TDB April ’18 review/issue Northington report answer Comment
What is the unbundled return within The return from the Ingredients This is the first disclosure we have
Fonterra from its “core” business of business, in NZ only, in the last five seen of the financial performance of
processing NZ milk and exporting years, was 6.8% Return On Capital the NZ processing and exporting
Pg11,para2
it? Employed versus a WACC for the businesses. It is a surprise to see that
Ingredients business over the last five the regulated business is performing
years of 5.6%.Pg7 this well and delivering returns above
the cost of capital. It does highlight
that the flip side of this is the rest of
Fonterra (being all other business,
including Consumer & Foodservice,
China Farms and international milk
pools) are subtracting value.
Given the lack of evidence of an For the first five years since inception Fonterra’s total book value of equity
adequate risk-adjusted return for (FY02 – FY 06), the value-add business plus debt is $12.8 billion. This
Fonterra’s supplier shareholders, it accounted for 36% of Fonterra’s suggests that Fonterra has an even
seems reasonable for Fonterra’s capital. This has increased to 50% of split of $6.4 billion of capital employed
shareholder farmers to ask how much Fonterra’s capital over the last 5 years in the NZ processing business and the
capital is employed in the “value add” (FY14 – FY18).Pg7 value-add businesses.
consumer and food service segments.
It would not be unreasonable for Over the last ten years OCD has Again, this surprised us, and we have
Fonterra’s farmer shareholders to delivered an average pre-tax return updated our financial analysis using
query why Fonterra has not achieved on capital employed of 7.0% which is the same methodology as the
a higher return on average than OCD lower than Fonterra’s group pre-tax Northington review. Our analysis
given Fonterra is invested in a range level performance over the last ten confirms the Northington finding and
of more risky activities than just years of 8.3%.Pg9 is shown in Figure 4. Our conclusion of
commodity processing.Pg12 the analysis is that while Fonterra’s
group average has been better than
OCD’s as a whole, OCD’s average
return has been dragged down due to
losses in its start-up period.
Fonterra’s global “volume into value” Fonterra’s pre-tax return on capital It is the last five years of returns that
strategy has not resulted in additional has been 8.1% p.a. since its formation are more relevant because that is the
shareholder value beyond what could in 2002, and 6.8% in the last five period that captures both the volume
Pg 9
have been expected from a NZ-based years. into value strategy and the NZX listing
commodity and ingredients and trading of shares. When we
processor. compare the ROCE for OCD (being our
benchmark for a NZ-based
commodity exporter) with Fonterra
Group over the last five years it shows
a post-tax return of 10.5% versus
5.5%. See Figure 4.
5
Superscript references in the table refer to page numbers in the Northington report where the information was
sourced from.
TDB Advisory Ltd tdb.co.nz New Zealand Dairy Companies Review 10Market positioning and strategic direction
As discussed in our April 2018 report, the competing dairy processors have adopted a range of
different strategies. In this section we look at the different strategies and reflect on the trade-off
between risk and return.
Commodities through to consumer products
Figure 2 below provides the revenue per kgMS of each company in 2018. The revenue per kgMS
acts as a proxy for the product mix of the firms. High revenue per unit of product output indicates
production of more specialised and higher cost (and potentially value-added) ingredients whereas
low revenue per unit of output reflects a commodity focus for the firm.
Figure 2: Revenue per kgMS, 2018
$25 $23.8
$20
$14.5
$15 $13.6
$/kgMS
$11.8
$10 $8.8 Commodity value: $8.75
$5
$0
OCD Westland Fonterra Synlait Tatua
Source: Fonterra 2018 milk price statement, Company annual reports & TDB Advisory analysis
The line on Figure 2 represents the regulator’s estimate of the NZ dollar value of a benchmark
commodity product mix (milk powders and by products) and is used by the regulator as a
benchmark for deriving Fonterra’s regulated base milk price. Overall, Figure 2 depicts the
differences in production choice among the competing dairy firms. OCD is a commodity processor
and exports all of its production. It receives revenue per kgMS that is very close to the regulated
base milk price as a result. On the other end of the plot there is Tatua which is engaged in very
speciality ingredient production. As a result, Tatua receives a high level of revenue per kgMS it
produces. The other competing firms have a mixture of business units and overall receive revenue
somewhere between OCD and Tatua.
TDB Advisory Ltd tdb.co.nz New Zealand Dairy Companies Review 11Profit from value add? Our previous reports have highlighted how difficult it is to deliver shareholder value by growing the value-added component of milk sales. The Northington report confirms that to be the case for Fonterra. Figure 3 below plots NPAT per kgMS against total revenue per kgMS for the five dairy processors. The point size reflects the total milk volumes collected. Figure 3: NPAT and revenue per kgMS, 2010-2018 Source: Company annual reports & TDB Advisory analysis Figure 3 shows some correlation between high value product revenue and profit when Tatua is included, but very low correlation across the rest of the industry. This suggests that, other than for Tatua, a greater focus on ‘higher value’ products has not shown strong correlation with increased profits, despite the increased risk involved. Adequate returns from NZ commodity processing The section above, and the Northington report, shows the difficulty in converting higher cost milk products into profit. What is clear from our, and Northington’s analysis is that generally adequate returns can be achieved from less risky commodity products distributed into the export market. The Northington report comments “of the local processors OCD is arguably the most comparable to Fonterra because it is the largest competitor and is predominantly focused on commodity ingredients. Over the last ten years OCD has delivered an average pre-tax Return on Capital Employed of 7.0% p.a., which is lower than Fonterra’s equivalent return of 8.3% across the same period”. The relative tax adjusted performance of the two businesses, by year, across the ten years is shown in Figure 4 below. TDB Advisory Ltd tdb.co.nz New Zealand Dairy Companies Review 12
Figure 4: ROCE for OCD and Fonterra NZ, 2009-2018
20%
10%
ROCE
0%
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
-10%
-20%
Fonterra Group OCD OCD Average
Source: Company annual reports & TDB Advisory analysis
Our interpretation of Figure 4 above is that while Fonterra’s group average return has been better
than OCD’s over the ten years as a whole, the underlying dynamic is OCD’s low and volatile returns
in its earlier start up years followed by more stable and generally rising returns in the last five
years.
If we compared performance over the last five-years, the comparison shows a Fonterra average
tax adjusted ROCE of 5.5% p.a. and an OCD average of 10.5% p.a.
TDB Advisory Ltd tdb.co.nz New Zealand Dairy Companies Review 13Growth rates and forecast market share
This section reviews the position of each of the five dairy processing companies in advance of what
may be significant changes in the industry from slower growth NZ milk volumes and Fonterra’s
announcements of asset reviews and debt reduction.
We estimate the growth of each of the competitors to Fonterra based on their committed
investments, access to capital, and in Westland’s case, a return to competitiveness that retains its
current volumes. Given our estimates for growth by the competitors we assume that Fonterra
makes up the remainder of the milk production.
Companies historic growth rates
Figure 5 presents the compound annual growth rates (CAGR) of milk collections for each of the
firms over the last five years.
Figure 5: Five-year CAGR of milk collections (%), 2014-2018
16.0%
13.9%
12.0%
CAGR (%)
8.0%
5.4%
4.0% 3.2%
0.6% 0.5%
0.0%
OCD Synlait Tatua Fonterra Westland
Source: Company annual reports & TDB Advisory analysis
Figure 5 highlights the growth of the competitors’ milk volume collections relative to Fonterra’s
and Westland’s over the last five years.
Access to debt capital
Figure 6 shows the widely ranging gearing (debt to debt plus equity ratios) across the processing
companies. Both Westland and Fonterra have acknowledged their limited financial flexibility, and
both have plans to reduce their debt.
TDB Advisory Ltd tdb.co.nz New Zealand Dairy Companies Review 14Figure 6: Debt to debt plus equity, 2018
80%
66%
Net debt/(net debt+equity), (%)
60%
50%
40% 37%
21%
18%
20%
0%
OCD Synlait Tatua Fonterra Westland
Source: Company annual reports & TDB Advisory analysis
Figure 6 highlights the fact that OCD and Synlait continue to fund growth through retained profits.
With no dividends forecast by either company, we expect their debt to remain low compared with
the other processing companies. The industry has historically funded its longer-term assets with
approximately 50% debt so the low debt levels of OCD and Synlait reinforces their forecast high
growth positions.
Forecast growth rates to 2021
Table 2 presents the historical and forecast growth in milk volumes, the current dividend pay-out
ratio, and net debt to total assets for each company. We have also included two smaller processors,
Miraka and Oceania, in this analysis.
Table 2: Milk volume growth rates and leverage
Growth rates Forecas t growth rates Dividend pay-out ratio, Debt to Total
C ompanies
2013-2018 (% p.a.) 2019-2021 2018 As s ets , 2018
Fonterra 0.6% -2.5% 42%** 36%
OC D 13.9% 8.0% 0% 12%
S ynlait 5.4% 9.4% 0% 14%
Wes tland 0.5% 0.0% not applicable 40%
Tatua 3.2% 0.0% not applicable 27%
Miraka 3.5%+* 0.0% not applicable not dis clos ed
Oceania 15.0%+* 28.1% 0% 0%
*TDB estimates.
** Calculated using normalised EPS.
We project that OCD’s processing volumes will increase by 8% per year. This is a slow-down from
its 2013-2018 growth rate of 13.9%per year. The forecast growth is driven by OCD’s opening of a
TDB Advisory Ltd tdb.co.nz New Zealand Dairy Companies Review 15new plant in Waikato for the 2019 year and higher than average milk growth of its existing supplier
base.
We project that Synlait’s processing volumes will increase by 9% p.a. through to 2021 as its new
plant in the North Island is commissioned and South Island volumes are optimised.
We assume no growth for Westland, Tatua and Miraka because we are not aware of any planned
increase in production or capacity for these firms. Lastly, we project 28% p.a. growth in processing
volumes for Oceania as it continues to attract milk to its stage two plant.
If NZ’s total milk production remains constant out to 2021 our projections for the other companies
imply that Fonterra will lose 2.5% of its processing volume each year.
Forecast market shares
Taking the growth rates from the previous section, the forecast volumes for Fonterra’s competitors
to 2021 are shown in Figure 7. We also include Mataura Valley Milk (Mataura) in the comparison
presented below.
Figure 7: Forecast milk collection volumes, 2018-2021
2.4
2.0
1.6
Litres (billion)
1.2
0.8
0.4
0.0
OCD Synlait Westland Oceania Miraka Tatua Mataura
2018 2021
Source: Company annual reports & TDB Advisory analysis
If we overlay the above volumes and assume nil growth in industry milk volumes through to 2021,
we arrive at the projection for Fonterra’s market share presented in Figure 8 below. The right-hand
axis presents total milk volumes and the left-hand axis is Fonterra’s NZ market share of collections.
In this scenario Fonterra would lose approximately one billion litres of milk. That decline in
Fonterra market share is generally consistent with the steady changes in market share over the
previous decade. Given the capital-intensive nature of diary processing, some decline in Fonterra’s
TDB Advisory Ltd tdb.co.nz New Zealand Dairy Companies Review 16market share may be helpful for Fonterra’s aims of reducing CapEx as part of its debt reduction
targets.
Figure 8: NZ and Fonterra’s milk volumes, 2000-2021
28 1
Actual Forecas
t
21 0.9
% market share
Litres (billion)
14 0.8
7 0.7
0 0.6
2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
Total NZ volume, LHS Fonterra volume, LHS
Source: DairyNZ, Fonterra annual reports & TDB Advisory analysis
TDB Advisory Ltd tdb.co.nz New Zealand Dairy Companies Review 17Fonterra Co-operative
Return On Capital Employed Milk collections
% ROCE KgMS collected (millions)
7%
1,614
6%
1,584
5% 5% 1,566
3% 1,526
1,505
2014 2015 2016 2017 2018 2014 2015 2016 2017 2018
Normalised EBIT Normalised gross margin
$EBIT (millions) $ EBIT/kgMS $ GM (millions) $ GM/kgMS
$1 ,60 0 $1 .4
$1,358
$1 ,40 0
$1 .2
$4 ,00 0
$3,636 $3
$1 ,20 0
$1,155 $3 ,50 0
$3,332 $3,246 $3,152
$974
$3
$1 .0
$1 ,00 0
$902 $3 ,00 0
$2,462 $2.3
$2.1 $2.1
$2
$0 .8
$0.9 $2.1
$2 ,50 0
$8 00
$0.8
$503
$0 .6 $2 ,00 0 $2
$6 00
$0.6 $…
$0.6
$1 ,50 0
$0 .4
$1
$4 00
$1 ,00 0
$2 00
$0.3 $0 .2
$5 00
$1
$0 $0 .0
$0 $0
2014 2015 2016 2017 2018 2014 2015 2016 2017 2018
Leverage Capital expenditure
%Net debt/(net debt+equity) Net debt/EDITDA. $ CAPX (millions) CAPX/kgMS
$1 ,40 0 $1 .4
52% $1,189
7.00
60 %
50%
46% 45%
6.00
$1 ,20 0 $1 .2
41%
50 %
$1 ,00 0
$859 $858 $1 .0
$791
5.00
40 %
4.7x 4.00
$8 00
$690 $0 .8
30 % 4.4x 4.5x
3.5x
3.00 $6 00
$0.7 $0 .6
3.1x
$0.5 $0.5 $0.6
20 %
2.00
$0.5
$4 00 $0 .4
10 %
1.00 $2 00 $0 .2
0%
0.00 $0 $0 .0
2014 2015 2016 2017 2018 2014 2015 2016 2017 2018
TDB Advisory Ltd tdb.co.nz New Zealand Dairy Companies Review 18Open Country Dairy
Return On Capital Employed Milk collections
% ROCE KgMS collected (millions)
140
16% 127
109
98
12%
11% 81
8%
6%
2014 2015 2016 2017 2018 2014 2015 2016 2017 2018
Normalised EBIT Normalised gross margin
$EBIT (millions) $ EBIT/kgMS $ GM (millions) $ GM/kgMS
1.5 $140 2.0
$92
$100
$90
$121 1.8
1.3
$120
$80
$101 1.6
$70
1.1
$100 $91 1.4
$56
$73
0.9
$50
$60 1.2
$80
$46 $64
$50
$0.8 0.7
$1.1
1.0
$40
$35 $60 $1.0 0.8
$0.6 $0.6
0.5
$30
$0.8 0.6
$0.7
$40
$0.4 $0.6
0.3
0.4
$0.3
$20
$20
0.1
$10 0.2
$0 -0.1 $0 -
2014 2015 2016 2017 2018 2014 2015 2016 2017 2018
Leverage Capital expenditure
%Net debt/(net debt+equity) Net debt/EDITDA $ CAPX (millions) CAPX/kgMS
35% 3.00
31%
$90
$83 $1.5
30%
27% 2.50
$80
$1.3
$61
$70
$1.1
$57
25%
2.00
2.1x
$60
18%
$0.9
20%
$50
15% 1.50
$38 $0.7
15%
1.6x 12% $40
$0.8 $31 $0.5
1.00
$30
$0.6 $0.6
10%
1.2x $0.3
0.9x $20
$0.3
$0.3
0.50
0.6x
5%
$0.1
$10
0% 0.00 $0 -$0.1
2014 2015 2016 2017 2018 2014 2015 2016 2017 2018
TDB Advisory Ltd tdb.co.nz New Zealand Dairy Companies Review 19Synlait Milk
Return On Capital Employed Milk collections
% ROCE KgMS collected (millions)
65
61
14.6% 58
54
50
9.2% 9.0%
8.1%
4.8%
2014 2015 2016 2017 2018 2014 2015 2016 2017 2018
Normalised EBIT Normalised gross margin
$ EBIT (millions) $ EBIT/kgMS $ GM (millions) $ GM/kgMS
$120 $113 $3.0 20 0 $192 $4.5
18 0
$4.0
$100 $2.5
$133
16 0
$3.5
$120
$66
14 0
$80 $2.0 $3.0
$61 12 0
$…
$86 $83
$2.5
$1.9
$60 $1.5 10 0
$2.0
$32 $2.1
80
$26 $1.0
$2.1
$1.7
$40 $1.5
$1.1 $1.5
60
$1.0 40
$1.0
$20 $0.5
$0.6 $0.5
20
$0.5
$0 $0.0 0
$0.0
2014 2015 2016 2017 2018 2014 2015 2016 2017 2018
Leverage Capital expenditure
%Net debt/(net debt+equity) Net debt/EDITDA. $ CAPX (millions) CAPX/kgMS
$107 $110 $3.0
60%
70% 8.0 0
$120
60%
7.0 0
$100
$96 $2.5
45% 45% 6.0 0
6.4x
50%
$80 $2.0
5.0 0
40%
4.0 0 $60 $1.9 $2.0 $1.5
30%
21% $40 $1.8
3.5x 17%
3.0 0
$40
$33 $1.0
20%
2.5x
2.0 0
$0.7
$20 $0.5
10%
$0.5
1.0 0
0%
0.9x 0.8x 0.0 0
$0 $0.0
2014 2015 2016 2017 2018 2014 2015 2016 2017 2018
TDB Advisory Ltd tdb.co.nz New Zealand Dairy Companies Review 20Tatua Co-operative
Return On Capital Employed Milk collections
% ROCE KgMS collected (millions)
36%
15.7 15.6
15.0
14.7
20%
15% 16% 13.2
10%
2014 2015 2016 2017 2018 2014 2015 2016 2017 2018
Normalised EBIT Normalised gross margin
$ EBIT (millions) $ EBIT/kgMS $ GM (millions) $ GM/kgMS
$55
$70 $60. 0 $5 .0
$60 $6.0
$47
$4 .5
$60
$50. 0 $46 $4 .0
$39
$5.0
$37
$50
$3 .5
$39
$40. 0
$3.6
$4.0
$3.2
$3 .0
$32
$40
$3.0
$28 $3.9 $2.8
$30. 0 $2 .5
$30 $26 $3.0
$2.7 $2 .0
$2.5
$20. 0
$2.0 $1 .5
$20
$2.1 $2.2
$1.7
$1 .0
$10. 0
$1.0
$10
$0 .5
$0 $0.0 $0.0 $0 .0
2014 2015 2016 2017 2018 2014 2015 2016 2017 2018
Leverage Capital expenditure
%Net debt/(net debt+equity) Net debt/EDITDA $ CAPX (millions) CAPX/kgMS
$70 $5.0
$59 $4.5
$60
0.4 37% 36% 35% 37% 6.00 $4.0
$50
0.4 $3.5
5.00
0.3
25% $3.8 $3.0
5x
$40
4.00
0.3 $2.5
$30
0.2 3.00 $2.0
0.2
3x 2.8x $20 $16 $16 $1.5
2.00
2.2x $11
0.1
$1.2 $8 $1.0
1.3x
$10
1.00
0.1
$0.7 $1.1 $0.5
0.0 0.00 $0
$0.5 $0.0
2014 2015 2016 2017 2018 2014 2015 2016 2017 2018
TDB Advisory Ltd tdb.co.nz New Zealand Dairy Companies Review 21Westland Co-operative
Return On Capital Employed Milk collections
% ROCE KgMS collected (millions)
65.0
64.0
63.2
6.0%
59.4
58.6
2.0%
1.6% 1.4%
2014 2015 2016 2017 2018 2014 2015 2016 2017 2018
-1.3%
Normalised EBIT Normalised gross margin
$ EBIT (millions) $ EBIT/kgMS $ GM (millions) $ GM/kgMS
250 $5.0
$35
$40
$35 $0.7 $208 $4.5
$30
200 $4.0
$163 $3.5
$148
$25 $0.5
$0.5 150 $136 $137 $3.0
$3.2
$20
$13 $2.5
$10
$15 $0.3
$8 $2.5 $2.5
$2.3
100 $2.0
$2.2
$10
$0.2
$0.2
$1.5
$5 $0.1
$0.1 -$0.1 50 $1.0
$0
2014 2015 2016 2017 2018
$0.5
-$5 -$0.1
0 $-
-$10
-$15
-$9 -$0.3
2014 2015 2016 2017 2018
Leverage Capital expenditure
%Net debt/(net debt+equity) Net debt/EDITDA $ CAPX (millions) CAPX/kgMS
$120 $1.8
66% $106
Thousands
70%
11x 12.00
$1.6
$100
60%
50%
$1.4
50%
10.00
50%
46% $80
$1.6 $1.2
8.00
37% $1.0
$50
40%
$60
$41
6.00
$0.8
5.8x
30%
5x $0.8
$40 $0.6
4.5x $0.6
4.00
20%
3.6x $20
$15 $16 $0.4
2.00
10%
$0.2 $0.3
$0.2
0% 0.00 $0 $0.0
2014 2015 2016 2017 2018 2014 2015 2016 2017 2018
TDB Advisory Ltd tdb.co.nz New Zealand Dairy Companies Review 22You can also read
