Wednesday, 03 April 2024 11:55

Fonterra's in good shape

Written by  Staff Reporters
Fonterra knows supporting on-farm cash flow is important to farmers, especially during a time of increasing costs. Fonterra knows supporting on-farm cash flow is important to farmers, especially during a time of increasing costs.

Fonterra released its interim results last month, showing a continuation of the strong earnings performance delivered by the co-op through the 2023 financial year. Here’s what Fonterra chair Peter McBride and chief executive Miles Hurrell said about the results…

The underlying performance of our business is in good shape. This result has been driven by improved earnings in our Consumer and Foodservice channels, helping to offset lower returns in our Ingredients channel relative to last year, which benefited from historically high price relativities during FY23.

Our strong earnings put us in a position to pay an interim dividend of 15 cents per share to farmer shareholders and unit holders, up 50% from FY23. We are also pleased to be forecasting an improved 2023/24 Farmgate Milk Price after volatility earlier in the season.

Our midpoint lifted by 30 cents in February to $7.80/kgMS following strengthening demand from the Middle East and Southeast Asia.

As we are now well progressed through the 2023/24 season, we have the confidence to narrow the forecast range to $7.50 – $8.10/kgMS.

Our focus is always on utilising our co-op’s strengths and scale, including our diversification across products, markets and categories, to maximise overall returns to our owners.

This year, we have been able to utilise our strong balance sheet to get more of the Farmgate Milk Price payment to farmers earlier in the season through implementation of our new Advance Rate guideline. We know supporting onfarm cash flow is important to farmers, especially during a time of increasing costs.

On-farm cash flow was further supported by the payment of the $804 million capital return in August, equivalent to 50 cents per share and unit. This followed the divestment of Soprole and delivered on a commitment made by the co-op to return capital to shareholders and unit holders by FY24.

We note the share price impact following the capital return. Over time we expect the share price will reflect the co-op’s financial performance.

Ultimately, farmers will determine the value of the shares, given farmers can only buy from and sell to each other.

The co-op has given considerable focus to managing owners’ capital, lowering our debt position and shoring up our balance sheet over the last few years.

We are pleased to be in a position where this work is allowing us to provide some financial stability to farmers, as well as allowing us to invest in the upgrades required to sustain and decarbonise our manufacturing assets.

This stability is one of our strengths, with feedback from farmers wanting to join Fonterra showing us that many are seeking the security of a stable co-op.

Our new capital structure has now been in place for one year with some farmers citing the new flexible shareholding options as another reason for their interest in joining or remaining with us. The combination of our strong performance, financial stability and flexible shareholding options mean we now have a waitlist of farmers in some regions who want to be part of the co-op. At the core of our principles is the promise to farmers that their milk will be collected every day and the highest possible return will be sought for that milk.

Right now, we are operating in a period of heightened geopolitical tensions, which is resulting in disruptions to global supply chains and presents the potential for further volatility in global demand.

Farmers can be confident that the co-op is well positioned to navigate through these dynamics thanks to our stable financial position, scale and diversification across markets and categories, and strong partnerships, such as with global logistics provider, Kotahi.

In terms of the remainder of FY24, we have a positive outlook for dairy demand, which gives us confidence to maintain our forecast earnings guidance for the year of 50-65c/share.

More like this

All eyes on NZ milk supply

All eyes are on milk production in New Zealand and its impact on global dairy prices in the coming months.

"Our" business?

OPINION: One particular bone the Hound has been gnawing on for years now is how the chattering classes want it both ways when it comes to the success of NZ's dairy industry.

Farmers' call

OPINION: Fonterra's $4.22 billion consumer business sale to Lactalis is ruffling a few feathers outside the dairy industry.

Wasted energy

OPINION: Finance Minister Nicola Willis could have saved her staff and MBIE time and effort over ‘buttergate’ recently by not playing politics with butter prices in the first place.

Featured

Australia develops first local mRNA FMD vaccine

Foot and Mouth Disease outbreaks could have a detrimental impact on any country's rural sector, as seen in the United Kingdom's 2000 outbreak that saw the compulsory slaughter of over six million animals.

NZ household food waste falls again

Kiwis are wasting less of their food than they were two years ago, and this has been enough to push New Zealand’s total household food waste bill lower, the 2025 Rabobank KiwiHarvest Food Waste survey has found.

Editorial: No joking matter

OPINION: Sir Lockwood Smith has clearly and succinctly defined what academic freedom is all about, the boundaries around it and the responsibility that goes with this privilege.

National

All eyes on NZ milk supply

All eyes are on milk production in New Zealand and its impact on global dairy prices in the coming months.

Machinery & Products

Leader balers arrive in NZ

Officially launched at the National Fieldays event in June, the Leader in-line conventional PRO 1900 balers are imported and distributed…

JDLink Boost for NZ farms

Connectivity is widely recognised as one of the biggest challenges facing farmers, but it is now being overcome through the…

New generation Defender HD11

The all-new 2026 Can-Am Defender HD11 looks likely to raise the bar in the highly competitive side-by-side category.

» Latest Print Issues Online

Milking It

Full cabinet

OPINION: Legislation being drafted to bring back the controversial trade of live animal exports by sea is getting stuck in the…

» Connect with Dairy News

» eNewsletter

Subscribe to our weekly newsletter