Fonterra is New Zealand's biggest business and the world's sixth-largest dairy company by revenue. Photo / Fonterra
It will be November before dairy export heavyweight Fonterra gives a significant update on the progress of its deliberations on selling its $3 billion-plus consumer products business, but any sale is still many months away.
Fonterra’s leaders remained tightlipped on their divestment work progress with market advisers on Wednesday when announcing a strong FY24 profit after tax of $1.16 billion and a 55c full-year dividend, including a special dividend of 15c per share.
Instead, the country’s leading milk processor and exporter said it would share on Monday its “revised” business strategy and the outcomes farmer-shareholders and unit holders could expect.
Fonterra chairman Peter McBride told the Herald any sale or sales was many months away.
Chief executive Miles Hurrell earlier told a media conference that despite the consumer business’ $324 million FY24 lift in earnings before tax and interest (ebit) to $199m, the company was “not a natural owner” of consumer businesses.
He suggested some progress would have ”kicked off before Christmas” but said Fonterra was sticking to its May guideline that any divestment process would take 12 to 18 months from then.
McBride said Hurrell’s “natural owner” remark did not mean a sale or sales was a fait accompli.
“What he means is as it relates to sources of capital with farmers [the main source]. It also means [we are exploring] what is our comparative competitive advantage, what are we the best in the world at? It’s not a fait accompli,” he told the Herald.
“There are multiple pathways to this, not just one approach.”
Fonterra’s nearly 8000 farmer-shareholders will be asked to vote on any sale proposal, McBride confirmed.
He said Fonterra “may have more to talk about” at the annual meeting before Christmas.
Fonterra’s leaders can expect to be peppered with questions from farmer-shareholders when they hold roadshows around the country next week to discuss the FY24 results.
The farmer-owned company surprised New Zealand in May with its announcement that a change in strategic direction could involve full or partial sale options for some, or all, of its global consumer businesses. These included its integrated New Zealand-Australia business Fonterra Oceania, home to iconic brands such as Anchor, Mainland, Kāpiti, Anlene, Anmum, Fernleaf, Western Star, and Perfect Italiano. Any sale could also include Fonterra Sri Lanka.
It said its change in strategy direction called for it to become a world-leading provider of high-value, innovative dairy ingredients.
The co-operative has since appointed market advisers to help in its deliberations.
Hurrell said the revised strategy to be unveiled on Monday was “more than a tweak, but not radical”.
He said it was too early to say if a divestment of the consumer business would mean a capital return to farmers.
The co-operative confirmed it had significant investment plans coming up. Chief financial officer Andrew Murray said this would be to keep its “sustainable assets fighting fit” and the investment would ramp up over the next few years. Fonterra’s assets in this case are its processing facilities around the country. It has this year announced upgrades and improvements to the value of $375m at three sites.
Profit after tax was $1.168b.
Earnings before interest and tax (ebit) from continuing operations were $1.56b, equalling 70c a share.
Reported earnings in FY23 equalled 95c a share, up from 36c the previous financial year.
It will pay a total dividend of 55c per share comprising a 15c interim and 25c cent final dividend and a 15c special dividend. Last year’s full-year dividend was 50c per share.
The good news rolled on with an announcement of a lift in the farmgate milk price for the 2024-2025 dairy season and FY25 earnings guidance.
The milk price forecast has been raised by 50c/kg milk solids with a midpoint price of $9/kg and the FY25 earnings guidance is 40-60 cents per share.
The final farmgate milk price for the 2023-2024 season is $7.83/kg milk solids. This final milk payout will inject $11.5b into the rural economy, based on the total 1.471 billion kgs of milk solids collected in the FY24 dairy season, a Fonterra spokesperson said.
FY24 revenue was $22.8b, down from $24.5b in the 2023 financial year. Total debt had been reduced to $2.6b. In 2020 the company’s debt was $6.5b.
Hurrell received a total FY24 remuneration of $5.9 million, according to the annual report. This comprised fixed pay of $2.4m, benefits totalling $172,566, a short-term incentive payment of $1.66m and a long-term incentive payment of $1.62m.
He said Fonterra had maintained the “positive momentum” of FY23 and delivered earnings at the top end of its forecast range.
“Our total dividend of 55c cents per share is the second largest since Fonterra was formed. It includes a 15c interim dividend and a 25c final dividend driven by strong FY24 earnings.
“In addition, our capital management efficiency and ongoing balance sheet strength have enabled us to return an extra 15c cents per share to farmer shareholders and unit holders through a special dividend.
“The final farmgate milk price for the 2023/24 season finished at $7.83/kg. This, combined with the 55c per share dividend, provides a total cash payout to a fully shared up farmer of $8.38/kg.”
Return on capital for FY24 was 11.3%, above the target range for FY24.
Fonterra’s FY24 earnings were “excellent”, farmer-shareholder watchdog the Fonterra Co-operative Council said.
Chairman John Stevenson said the result delivered strong returns to its shareholding farmers, including the special dividend.
“Farmers will appreciate the 3 cents/kg milk solids uplift in the milk price for the 2023-2024 season to $7.83/kg milk solids. However, council notes this is similar to the breakeven milk price for many of our farmers,” he said.
Earnings from continuing operations at $1.56b were well above previous years, albeit down on FY23 which benefited from elevated price relativities, Hurrell said.
The lift in this season’s forecast farmgate milk price followed further recent strengthening in global dairy trade prices and constrained milk supply in key producing regions, he said.
Fonterra’s new forecast farmgate milk price range for the 2024/25 season is $8.25-$9.75 per kg milk solids. The co-op continues to maintain the wide range because of the relatively early stage of the season.
The forecast earnings range reflected an expectation of maintaining strong margins in all three of Fonterra’s sales channels while investing in the co-op’s IT and digital transformation and incurring higher tax expenses, Hurrell said.
Fonterra said after several years of strong earnings performance, the co-op exhausted its tax losses in FY24 and will now be paying tax.
CFO Murray said because of the change, when Fonterra declared a dividend from FY25 and beyond, imputation credits would now be available to be attached to the dividend.
“To enable all shareholders to receive the imputation credits, we are changing how we treat supply-backed shares for tax purposes which means that more tax will be paid by Fonterra.
“While this does not impact the operating performance of Fonterra, it will reduce our reported earnings per share in future years, as Fonterra will have paid the tax on the cash to be distributed.”
Full-year milk collection was 1471 million kg of milk solids.
Andrea Fox joined the Herald as a senior business journalist in 2018 and specialises in writing about the $26 billion dairy industry, agribusiness, exporting and the logistics sector and supply chains.
Jason Te Brake, Peter Newbold, Chris Russell, Jo Luxton, Mike Petersen.