What Would Synlait Be Worth to Fonterra or a2 Milk?
Speculation of a possible joint move by Fonterra and a2 Milk to buy Synlait raises a much bigger strategic question, says agribusiness expert Dr Nic Lees.
The co-op’s annual results have revealed the co-op generated $26 billion in revenue and delivered $16.2 billion in total cash returns to shareholders.
For the 2024/25 season, the final Farmgate Milk Price was $10.16/kgMS, equating to $15.3 billion in milk payments to New Zealand farmers, up $3.8 billion on last year.
Fonterra also announced a full year dividend of 57 cents fully imputed, and at the upper end of its dividend policy, equating to $916 million in cash to shareholders and unit holders, comprised of a 22 cent interim dividend and a 35 cent final dividend.
Operating profit increased to $1.7 billion, up from $1.5 billion last year.
Reported profit after tax was $1.1 billion, equivalent to earnings per share of 65 cents. This was down slightly on the prior year, reflecting Fonterra’s higher tax expense in FY25 after the Co-op elected not to deduct distributions to farmer shareholders from taxable income and instead attach imputation credits to dividends.
“We continue to see good demand from global customers for our high-quality products made from New Zealand farmers’ milk and this is driving returns through both the Farmgate Milk Price and dividends,” Hurrell says.
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“Our vision is to be the source of the world’s most valued dairy,” he says.
Hurrell says the co-op’s strategy is designed to grow end-to-end value for farmers by focusing on being a B2B dairy nutrition provider, working closely with customers through its ingredients and Foodservice channels.
“During the year, we’ve taken important steps towards this goal, including running a robust divestment process for global Consumer and associated businesses,” he says.
That process has resulted in an agreement to sell to Lactalis, the world's largest dairy company.
Fonterra is currently targeting a capital return of $2 per share from the divestment proceeds if it progresses, equivalent to $3.2 billion
The Fonterra Board intends to make a final decision on both the amount and timing of the capital return once the sale agreement is unconditional, cash proceeds are received in New Zealanders. The decision will also be based on other relevant factors including the co-op’s debt and earnings outlook at the time.
The sale is subject to approval from farmer shareholders, regulatory approvals, and the separation of the businesses from Fonterra.
Farmer shareholders are set to vote on the divestment at a Special Meeting on 30 October 2025.
“We’re also positioning the Co-op to deliver further value through our Foodservice and Ingredients businesses, including continuing to invest in new manufacturing capability to meet growing customer demand for our high-value products,” Hurrell says.
He says that Fonterra has a pipeline of potential growth investments currently being assessed, with plans to invest up to $1 billion over the course of the next four years in projects in an effort to generate further value and drive operational cost efficiencies.
Those projects include growing the value of the co-op’s existing protein portfolio; adding value to milkfat through new butter and cream cheese investments; and investments in site operations including the Enterprise Resource Planning system replacement.
Hurrell says that through focused execution of strategy, Fonterra is targeting earnings to be back at current levels within three years, offsetting the impact of the divestment from the Consumer and associated businesses.
“Our balance sheet strength gives us the confidence to return capital, invest in the future of the business and maintain our dividend policy,” he says.
Looking to the future, the co-op has also revised its forecast milk collections for the 2025/26 season from 1,490 million kgMS to 1,525 million kgMS.
Hurrell says that favourable weather conditions during the previous season are forecast to continue through spring, supporting pasture growth.
The 2025/26 forecast Farmgate Milk Price is $10.00 per kgMS with a range of $9.00 - $11.00 per kgMS.
“Global Dairy Trade prices continue to be robust, as does demand from customers for our products sold off GDT. However, the risk of potential volatility in commodity prices and exchange rates from geopolitical dynamics remains.”
Fonterra’s FY26 forecast earnings from continuing operations, which excludes the businesses to be divested, is 45-65 cents per share.
“Our forecast earnings for the year ahead exclude earnings from the businesses to be divested and is in line with the strong performance we’ve delivered in FY25.”
Looking further ahead, as well as targeting earnings to return to current levels in three years, Fonterra has confirmed it is maintaining the strategic targets and policy settings announced in September 2024, if Mainland Group is divested.
This includes a target average Return on Capital of 10-12% from FY26, which is above Fonterra’s 5-year average.
While there are always risks that may impact future performance, Fonterra says it continues to target dividend payments within its policy range of 60%-80% of earnings in the medium term.
“Our ongoing balance sheet strength, combined with our focused strategic direction, means the Co-op is well prepared for the future and positioned to continue delivering positive returns to shareholders,” says Hurrell.
Results at a Glance
- Total Group revenue: NZ $26 billion, up 15%
- Total cash returns to shareholders: $16 billion, up 30.6%
- Operating profit: NZ $1,732 million, up 13%
- Profit after tax: NZ $1,079 million, down 4%, up 13% tax-adjusted
- Normalised earnings per share: 71 cents, no change, up 13 cents tax-adjusted
- FY25 full year dividend, fully imputed: 57 cents per share, up from 55 cents unimputed
- Return on capital: 10.9%, down from 11.3%, up from 10.0% tax-adjusted
- 2024/25 final Farmgate Milk Price: NZ $10.16 per kgMS
- 2024/25 season milk collections: 1,509 million kgMS, up 2.6%
- 2025/26 forecast Farmgate Milk Price range: NZ $9.00 – $11.00 per kgMS
- FY26 forecast earnings range: 45-65 cents per share
- 2025/26 season forecast milk collections: revised up to 1,525 million kgMS
