New Zealand dairy cooperative, Fonterra, has decided not to sell its Australian arm, stating that the business will play a “key role” in attaining the company’s 2030 strategic targets.
As part of a review of its dairy businesses outside of New Zealand, Fonterra considered a number of options for its Australian business.
However, it has now decided that “it’s in the co-op’s best interests to maintain full ownership”.
“Australia plays an important role in our consumer strategy with a number of common and complementary brands and products and as a destination for our New Zealand milk solids,” Miles Hurrell, Fonterra chief executive, said.
“The business is going well, and it will play a key role in helping us get to our 2030 strategic targets.”
The company, which set a goal of a returning of around NZ$1 billion to shareholders and unitholders, noted that the sale of its Soprole business in Chile is “progressing”.
“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 unitholders,” Hurrell said.
Fonterra recently announced a “strong set of results” for the financial year ending July 31, 2022, with total group revenue increasing by 11% to NZ$23.4 billion (€13.8 billion).
Reported profit after tax was down by 3% to NZ$583 million (€345.5 million), while normalised profit after tax was up 1% to NZ$591 million.
The 2021/2022 farmgate milk price was NZ$9.30 (€5.52)/kg of milk solids.
The company confirmed a total dividend of 20 cents per share for its farmers, resulting in a record-high final cash pay-out for farmers of NZ$9.50/kg of milk solids.
Hurrell said that despite tight supply there was robust demand from global customers for dairy, which helped Fonterra deliver “a strong milk price and financial performance”.
“Total group revenue increased $2.3 billion to $23.4 billion due to higher product prices, but sales volumes decreased in FY22 [2022 fiscal year] due to short-term shifts in demand and ongoing shipping and supply disruptions.
“Strong margins in the ingredients channel, particularly in the final quarter, resulted in an increase in our gross profit. However, total gross margin was down due to the higher cost of milk on our foodservice and consumer channels during the year.
“Our normalised profit after tax of NZ$591 million was up 1% on last year, due to higher earnings,” he said.
Hurrell said Fonterra has made “solid progress” on some of its key sustainability targets.
Water use by manufacturing sites in water-constrained regions is now 6.6% below the 2018 baseline, while around 71% of shareholder farms have a farm environment plan.
Fonterra has announced a forecast 2022/2023 farmgate milk price range of NZ$8.50–$10.00/kg of milk solids, with a midpoint of NZ$9.25.
The co-op also forecasts 2023 normalised earnings guidance of 45-60 cents per share.
“The longer-term outlook for dairy remains positive. And in the medium-term, we expect to see an easing in some of the geopolitical events, namely the Covid-19 lockdowns in China and the economic challenges in Sri Lanka.
“This has been reflected in our earnings guidance and forecast Farmgate Milk Price for the 2022/2023 season,” Hurrell commented.
“We continue to monitor a number of risks. The strength of our balance sheet means we remain in a strong position to weather uncertainty and market volatility.
“Our ability to refocus our product mix through our diverse and flexible operations footprint, means the co-op’s milk will continue to be delivered to wherever the most value can be obtained for our farmer owners.
“The future for our co-op is exciting,” Hurrell concluded.
