Release Date: August 29, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Strong performance from the branded business, with market-leading brands and significant investment in key growth strategies.
- Revenue growth of 4% and brand growth of 6%, demonstrating resilience in uncertain times.
- Successful organizational realignment, making the branded business more effective and the bulk business more agile.
- Record year in branded international business, with significant growth in Southeast Asia and Northern Asia.
- Strong cash generation, resulting in a year-end leverage ratio of 1.3 times and a final dividend of $0.04 per share.
Negative Points
- Significant challenges from external factors such as COVID-19, cost increases, and shifts in global commodity markets.
- Disconnect between farm gate milk prices and global commodity prices, impacting financial performance.
- High cost inflation of 3.5%, driven by labor, energy, and commodity prices.
- Ongoing challenges in the bulk business, with a $61 million year-over-year drop in earnings.
- Pressure from major retailers, potentially leading to more aggressive promotional activity and pricing strategies.
Q & A Highlights
Q: What mechanisms do you have to preserve profitability given the potential for aggressive promotional activity from retailers?
A: Pete Findlay, CEO: We anticipate that cost inflation will normalize, and we will focus on driving volume through aggressive promotional activity and operational leverage. We will also optimize our sites and distribution centers to reduce costs. Additionally, we are expanding our presence in non-grocery channels and international markets to diversify our revenue streams.
Q: Can you provide more context around the outlook and guidance assumptions for branded and bulk segments?
A: Gunther Burghardt, CFO: We expect mid-single-digit growth in our branded business, with minimal price increases. Efficiency programs will be crucial. The bulk business is expected to return to profitability, with a potential EBITDA benefit of over $30 million from lower farm gate milk prices.
Q: What are the key sources of upside and downside risks across the portfolio?
A: Barry Irvin, Executive Chairman: The key turnaround will be in the bulk business, driven by the alignment of farm gate milk prices with global commodity prices. We have already procured the necessary milk and understand our prices, providing a fair bit of certainty.
Q: What is the expected impact of cost inputs like orange juice concentrate and peanuts on FY25?
A: Pete Findlay, CEO: The significant increase in orange juice concentrate and peanuts has been managed within our results. We expect the elevated prices for orange juice to persist for a couple of years, while peanut prices may come down in the next year or two.
Q: What are your ambitions for the foodservice market, and what has driven growth over the last 12 months?
A: Pete Findlay, CEO: The foodservice market is a significant growth area for us. We have expanded our product range and improved our distribution network. We aim to become the number one or number two player in this space, leveraging our strong dairy portfolio.
Q: How do you see the possibility of step-ups in farm gate milk prices, given recent moves by Fonterra?
A: Barry Irvin, Executive Chairman: The Australian market is different from New Zealand's auction market. We have already built in expected improvements in milk prices, and any further increases would need to be justified by significant changes in global commodity markets.
Q: What is the medium-term branded EBITDA margin target?
A: Gunther Burghardt, CFO: We are aspiring to achieve a 10% EBITDA margin by FY28 or shortly thereafter.
Q: What is the expected impact of inventory reduction on the bulk business?
A: Gunther Burghardt, CFO: The bulk business saw significant inventory reductions in butter, skim milk powder, and cheese. We expect a net inventory investment in the first half of FY25, but overall leverage will continue to improve.
Q: What are your plans for capital management once debt levels reach the target range?
A: Barry Irvin, Executive Chairman: We will consider all options, including rewarding shareholders or further strengthening the business through strategic acquisitions. Our primary focus is to maintain a strong balance sheet.
Q: How much milk are you looking to procure, and what are the risks associated with milk procurement?
A: Barry Irvin, Executive Chairman: We have largely completed our milk procurement for the year and are comfortable with our current levels. We are slightly ahead of expectations due to favorable seasonal conditions, but we remain cautious about the spring period.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
