Tuesday, 01 October 2019 09:55

Simple is best for Fonterra

Written by  Sudesh Kissun
Fonterra chairman John Monaghan. Fonterra chairman John Monaghan.

Fonterra chairman John Monaghan says the co-op's new strategy sounds simple, but the best strategies often are.

Click here to read about Fonterra's new strategy.

“Simplicity shouldn’t be confused with a lack of ambition,” he said.

Fonterra’s earnings range forecast for 2019-20 starts at 15-25 cents per share. The five year plan is to achieve a target of 50c/share.

“Our starting earnings range reflects our change in culture. We will earn the right to make ambitious decisions by first doing the basics right and returning our balance sheet to a position of strength. That will give us options to go for the opportunities which we create in the future.”

The board also reviewed the dividend policy guidelines within the context of the new strategy. Monaghan says the new guidelines better reflect the annual performance and financial strength of the cooperative.

“Under the new guidelines, we would expect the dividend payment to be 40-60% of reported net profit after tax, excluding any abnormal gains, from what was previously 65-75% of adjusted NPAT over a period of time. An interim dividend will not be more than 40% of the forecast total dividend and no more than net earnings at half year.

“In addition to the new percentage of earnings, two additional key principles will guide our board when considering the payment of a dividend. A dividend should not require our co-op to take on more debt, and a dividend should not reduce our co-op’s ability to service existing debt. 

“The distribution of any abnormal gains, such as an asset sale, will be considered separately,” he said.

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