New Zealand dairy co-op Fonterra has announced its results for the year to 31 July, with profit after tax more than doubling to NZ$1.6bn.
Full year reported earnings come to 95 cents per share, and the final 2022/23 season farmgate milk price was $8.22 per kgMS.
CEO Miles Hurrell said the co-op has delivered strong earnings and made progress against key strategic initiatives, but this has been against the backdrop of a farmgate milk price that has dropped across the season, impacted by reduced demand for whole milk powder from key importing regions.
The co-op recently said it was looking to make $1bn in cost savings to meet the challenge of the milk price slump, and in the report Hurrell said global trade prices fell as the financial year progressed, “with the average whole milk powder price down 16% compared to last season”.
He added: “We recognise the impact the reduced price has on farmers’ businesses and have utilised our strong balance sheet to introduce a new advance rate schedule guideline to assist on-farm cash flow.
“However, we’re pleased to be announcing a strong full year dividend of 50 cents per share – comprising an interim dividend of 10 cents per share and a final dividend of 40 cents per share.
“In addition, the co-op returned tax free 50 cents per share to shareholders and unit holders in August, following the divestment of Soprole, giving a final cash pay-out to farmers of $9.22 per share backed kgMS.
“Our FY23 performance demonstrates that we are focusing on the right strategic priorities. This said, we are aware that there are challenging conditions on the ground for many of our farmers.”
Fonterra’s reported profit after tax of $1,577m was up $994m, says the report. Excluding the net gain from divestments of $248m, normalised profit after tax was $1,329m, up $738m compared to the same time last year. This includes the impact of impairments and is equivalent to 80 cents per share.
The co-op also reported a return on capital for the last 12 months of 12.4%, up from 6.8% in the comparable period.
“There were a number of key drivers that helped us deliver this result,” said Hurrell, “including favourable margins in our Ingredients channel, in particular the cheese and protein portfolios.”
The result was helped by higher demand as China’s lockdown restrictions started to ease from the start of this year, and improved pricing. But the co-op has also adjusted the long-term outlook for its Asia Brands and Fonterra Brands New Zealand business, resulting in full year impairments of $101m and $121m respectively.
Fonterra also reported a $260m gain on the sale of it Chilean Soprole business.
The co-op says it has made good progress on its 2030 goals, set out in its long-term strategy in September 2021.
“Across FY23, we completed the divestment of China Farms and Soprole as part of our strategic choice to focus on New Zealand milk,” said Hurrell.
“As we work towards our ambition to be a leader in sustainability, we have stepped up our emissions reduction goal for the operational side of our business, introducing a target of a 50% absolute reduction in Scope 1&2 emissions by 2030, from a 2018 baseline, an increase on our previous target of a 30% reduction by 2030. We have held discussions with our farmers on why we need to introduce a Scope 3, or on-farm emissions target, and plan to announce our target before the end of calendar year 2023.
“We’re also progressing work in our innovation portfolio, including establishing our joint venture with Royal DSM, Vivici, which is exploring commercial opportunities in fermentation derived ingredients, and launching our corporate ventures arm Nutrition Science Solution (NSS), which made its first strategic investment in the form of a minority stake in Pendulum Inc, a biotech company specialising in metabolic health.”
Looking ahead, the co-op says its forecast 2023/24 farmgate milk price range of $6 – $7.50 per kgMS, with a midpoint of $6.75, reflects reduced demand for whole milk powder from key importing regions.
“We are watching market dynamics closely and there are indications demand for New Zealand milk powders will start to return from early 2024,” said Hurrell. “Demand for other products, including Foodservice and our value-added Ingredients, continues to be robust.
“Our FY24 forecast earnings range for continuing operations is 45-60 cents per share. While the favourable price relativities we’ve experienced across FY23 have reduced from their peaks, we are forecasting improved margins across our Consumer and Foodservice channels for FY24.
“We acknowledge that across the year, farmers will continue to feel the pressure from high input costs and a reduced farmgate milk price. We’ll continue to do all that we can to support farmers through this challenging period.”
