New Zealand dairy co-op Fonterra published its annual results on 25 September, reporting an after-tax profit of NZ€1.16bn, a 27.5% drop on the previous year’s 1.6bn.
The co-op, owned by 10,700 farmer shareholders in New Zealand, is the world’s largest dairy product processor. In addition to shares owned by farmer-owners, it sells units in its Fonterra Shareholders’ Fund, which gives outside investors access to economic rights (such as distributions and capital movements), similar to those of a share.
Along with its annual results, the co-op announced a total dividend of 55 cents per share, comprising 15% interim and 25-cent final dividend as well as a 15 cent special dividend.
The announcement led to increased interest in its shares, which climbed as much as 3.7% to their highest level since 2021.
“We’ve maintained the positive momentum seen in FY23 and delivered earnings at the top end of our forecast range,” said CEO Miles Hurrell.
“Our total dividend of 55 cents per share is the second largest since Fonterra was formed. It includes a 15 cent interim dividend and a 25 cent 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 15 cents per share to farmer shareholders and unit holders through a special dividend.
Related: New strategic direction for New Zealand dairy co-op Fonterra
“The final Farmgate Milk Price for the 2023/24 season finished at $7.83 per kgMS. This, combined with the 55 cents per share dividend, provides a total cash payout to a fully shared up farmer of $8.38 per kgMS.”
Hurrell also expressed confidence in the year ahead.
“Our co-op is in good shape, and I’m pleased to have delivered another year of solid returns to farmer shareholders and unit holders,” he said.
“Looking ahead, we’re well placed to consider the next phase of our strategy to grow long-term value for the co-op.”
Hurrell said the FY24 earnings were driven by higher margins and increased sales volumes in Fonterra’s foodservice and consumer channels.
“Our Ingredients channel also continued to deliver strong returns, although down when compared to the record result seen in FY23,” he added.
According to the report, Fonterra’s results were hit by volatile demand in key importing regions, including China, with sales volumes from continuing operations down 1% to 3,470 kMT.
The co-op was also able to reduce debt by NZ$600m to $2.6bn. Hurrell revealed Fonterra is looking at investing in the areas that will improve its long-term performance and resilience.
The co-op has also recently unveiled a revised strategy, with a focus on its high-performing Ingredients and foodservice businesses to grow value for farmer shareholders and unit holders. The strategy aims to achieve three key outcomes: strong shareholder returns; a stable balance sheet; and an enduring co-operative.
“The co-op exists to provide stability and manage risk on farmers’ behalf, while maximising the returns to farmers from their milk and the capital they have invested in Fonterra,” said chair Peter McBride.
“Through implementation of our strategy, we can grow returns to our owners while continuing to invest in the co-op, maintaining the financial discipline and strong balance sheet we’ve worked hard to build over recent years.
“We have increased our target average return on capital to 10-12%, up from 9-10%, and announced a new dividend policy of 60-80% of earnings, up from 40-60%. At all times, we remain committed to maintaining the maximum sustainable farmgate milk price.”
The new strategy follows a strategic review to determine which parts of the business create the most value today and where there is further headroom for growth.
“These are our innovative Ingredients and foodservice businesses, supported by efficient and flexible operations,” said Hurrell.
“By streamlining the co-op to focus on these areas, we can grow greater value for farmer shareholders and unit holders, even if we divest our consumer businesses.”
To achieve this, the co-op says it will focus on six strategic choices: deliver the strongest farmer offering; “unleash its ingredients engine”; keep up the momentum in foodservice – including expansion in China; invest in operations for the future; build on Fonterra’s sustainability position; and innovate by investing in new technology and research and development.
