Monday, 30 September 2024 10:50

Revised strategy to grow value for shareholders, unit holders

Written by  Sudesh Kissun
Fonterra has unveiled a revised strategy – to maximise farmgate milk price and setting higher targets for dividends and return on capital for shareholders and unit holders. Fonterra has unveiled a revised strategy – to maximise farmgate milk price and setting higher targets for dividends and return on capital for shareholders and unit holders.

Fonterra has unveiled a revised strategy – to maximise farmgate milk price and setting higher targets for dividends and return on capital for shareholders and unit holders.

At the same time, the co-op has confirmed plans to divest its consumer businesses in New Zealand and around the world.

The co-op has increased its target average return on capital to 10-12%, up from 9-10%, and announced a new dividend policy of 60-80% of earnings, up from 40-60%.

“At all times, we remain committed to maintaining the maximum sustainable Farmgate Milk Price,” it says.

Fonterra chairman Peter McBride says the revised strategy creates a pathway to greater value creation, allowing the co-op to announce enhanced financial targets and policy settings.

“The co-op exists to provide stability and manage risk on farmers’ behalf, while maximising the returns to farmers from their milk and the capital they have invested in Fonterra.

“Through implementation of our strategy, we can grow returns to our owners while continuing to invest in the co-op, maintaining the financial discipline and strong balance sheet we’ve worked hard to build over recent years.

CEO Miles Hurrell says Fonterra is in a strong position, delivering results well above its five-year average, which puts it in a position to think about the next evolution of its strategic delivery.

“The foundations of our strategy – our focus on New Zealand milk, sustainability, and dairy innovation and science – remain unchanged. What’s changed is how we play to these strengths.

“Following our recent strategic review, we are clear on the parts of the business that create the most value today and where there is further headroom for growth. These are our innovative Ingredients and Foodservice businesses, supported by efficient and flexible operations.

“By streamlining the co-op to focus on these areas, we can grow greater value for farmer shareholders and unit holders, even if we divest our Consumer businesses,” says Hurrell.

Fonterra’s revised targets

  • Return on capital: 10-12% (FY18-23 average - 8.6%)
  • Dividend policy: 60-80% ((FY18-23 average - 50%)
  • Gearing Ratio: 30-40% (FY18-23 average - 35%)
  • Debt to EBITDA: 2-3x (FY18-23 average - 2.5x)
  • Capital investment requirements: $1 billion per annum in essential, sustainability and growth capital ((FY18-23 average - $650m)
  • Emissions reductions by 2030 (from an FY18 base year) – Absolute Scope 1&2 emissions: 50%, on-farm emissions intensity Scope 3: 30%

More like this

Aussie farmers get A$8.60/kgMS as opening milk price

Australian dairy farmers supplying Fonterra are getting an opening weighted average milk price of A$8.60/kgMS for the new season or around NZ$9.26/kgMS -  NZ74c less than New Zealand suppliers, based on the current exchange rate.

Featured

LIC Space folds for good

Farmer co-operative LIC has closed its satellite-backed pasture measurement platform – Space.

Editorial: Time for common sense

OPINION: The case of four Canterbury high country stations facing costly and complex consent hearing processes highlights the dilemma facing the farming sector as the country transitions into a replacement for the Resource Management Act (RMA).

National

Machinery & Products

Calf feeding boost

Advantage Plastics says it is revolutionising calf meal storage and handling, making farm life easier, safer, and more efficient this…

JD's precision essentials

Farmers across New Zealand are renowned for their productivity and efficiency, always wanting to do more with less, while getting…

» Latest Print Issues Online

The Hound

Are they serious?

OPINION: The Greens aren’t serious people when it comes to the economy, so let’s not spend too much on their…

A hurry up!

OPINION: PM Chris Luxon is getting pinged lately for rolling out the old 'we're still a new government' line when…

» Connect with Rural News

» eNewsletter

Subscribe to our weekly newsletter