Where does Fonterra's axed Australian unit sale leave its $1 billion capital return pledge?

Fonterra bullish on year ahead as it delivers solid FY22 results. Photo / Grant Bradley

Tumultuous world events played a part in Fonterra's decision not to sell part of its Australian business, but the dairy export juggernaut won't concede its language has subsequently cooled around a plan to return $1 billion to shareholders in 2024.

Announcing solid FY22 results in a particularly challenging year marked by record milk payments to farmers, New Zealand's biggest business said after looking at options for its Australian operation it had decided it was in the co-operative's best interest to maintain full ownership.

The possible partial sale and divesting its Chilean business Soprole underpin Fonterra's previously announced plan to return $1b to its farmer-owners and unit-holders by the end of FY24.

"Even though we have decided not to sell a stake in our Australian business we are still committed to targeting a significant capital return to our shareholders and unit holders," chief executive Miles Hurrell said.

"The amount of any capital return will ultimately be determined on a number of factors including the successful completion of the divestment programme as well as our ongoing debt and earnings levels."

He later told the Herald the review of the Australian operation "never got to the point of valuations".

"That said, it goes without saying the external investment market is not as robust as it once was. But I wouldn't say it played into our decision - you look through those short-term situations when making a big strategic call such as this."

Asked if doing business had got more challenging in a world that seems more chaotic than when he took on the job, Hurrell said while Fonterra was accustomed to working around global crisis situations, "at the moment there are probably bigger situations and more at the same time".

Delivering strong results in this global scenario showed its "real strength" in product channel diversity and market adaptability.

"Let's be honest, that's played a part in the decision on Australia. It's a good business, it has its own milk, its own manufacturing facilities and can complement what we do out of New Zealand."

While agreeing the $1b capital return plan was very dependent on divestments, with Chile "absolutely a big part", Hurrell did not concede the language tone had changed.

"We no longer have two assets that would make up the cash to determine how much return to shareholders. We need to determine the sales process, and how that progresses and looks like before determining what the outcome is, along with our earnings and debt position at FY2024."

Fonterra chief executive Miles Hurrell upbeat on FY22 results. Photo / Dean Purcell.

Hurrell said it was too early to discuss where the Chile business sale process was at.

Asked if he was confident of getting a good price in a recessionary global environment, he said: "I am. It is a very, very good business and a very, very good brand in a relatively stable market - one of the most stable in South America."

Total group revenue was up 11 per cent at $23.4b, and "reported" profit after tax was $583m, down 3 per cent. Normalised profit after tax came in at $591m, up 1 per cent. Total group normalised ebit was $991m, up $30m or 4 per cent. A total dividend of 20c per share to farmers took their total cash payout to $9.50/kg milksolids.

A highlight was a big jump in forecast normalised earnings guidance - from 35c per share for 2022 to a 45-60c per share range for the 2022-2023 year.

Hurrell told the Herald the confidence was due to the gap between "reference" product price (the milk price), and non-reference products (cheese and protein), which historically tracked closely together, continuing to widen.

"In the first half (FY22) they tracked pretty closely together, in the second half the gap really started to widen which really helped us with earnings this year. As we look to the year ahead that gap has continued into the first part of (FY23).

"When they're close together it squeezes our margin. That cheese and protein ingredients play is looking very healthy."

Hurrell "received" total remuneration of $4.3m, flat on FY21. But under Fonterra's CEO remuneration system he "earned" a total of $5.38m - $902,000 of which was to pay for performance with payment deferred until FY2023.

Chairman Peter McBride received $446,122, up from $362,327 in FY21. McBride said the FY21 payment had not been for a full year and he had received no extra payment that year for his work leading Fonterra's proposed capital restructure.

The number of Fonterra staff earning more than $100,000 rose by 1054 to 8440.

Hurrell said last year a "significant" number of staff would have been earning $90,000-$100,000, a range the company wasn't obliged to disclose. Wage increases, including those achieved in union negotiations, had propelled more into the $100,000-plus range.

But the biggest contributor was offshore staff, when local currency changes against the New Zealand dollar pushed them over the $100,000 threshold, with maybe no change in their local currency salary, he said.

Fonterra, which collects just under 80 per cent of the country's raw milk production, is now reporting it has 9000 farmer-shareholders, compared with 10,000 last year.

Hurrell said this was a result of farm consolidations in the industry - "it's not a trend we are worried about".

The co-operative's milk collection in the year to July 31 was down by 4 per cent.

Hurrell attributed this to poor spring and summer weather conditions.

"A key point there is that for the first time in over a decade we have maintained our market share [of milk] in New Zealand.

"It shows our business is performing well. It's a vote of confidence from shareholders. Across the country milk production was down but we retained our market share."

Asked if the company was reviewing its processing site numbers with flat to falling national milk production, Hurrell said it regarded the 4 per cent dip as an anomaly.

"Were we to see significant drops of that scale year on year, clearly we'd have to reassess our asset footprint ... we have no plans at this point to rationalise any of our facilities, but it's something we need to watch."