Fonterra has crunched out big financial targets to result from its strategy and repay farmer-shareholders in milk prices, dividends and returns of capital.
The targets include a milk price average of $6.50-$7.50/kg for the decade to 2030, 40-50% increase in operating profit and 9-10% return on company capital.
Debt gearing brought down to 33% and reduced interest payments would enable steadily increasing dividends to 40-45c a share by 2030.
“Through planned divestments and improved earnings, we could target an intended return of about $1 billion to shareholders by FY24,” chief executive Miles Hurrell said.
“Additional capital of $2b would be available for a mix of investment in further growth and return to shareholders.
“That would be additional to $2b invested in sustainability and moving milk into higher value products.”
The new focus on value creation includes nutrition science solutions in a $500b slice of the global health and wellness category.
Research and development will be increased by 50% to around $160m a year, with about $60m targeted at growth in active living.
Hurrell cited digestive and mental wellness plus immunity where Fonterra can make the most of its expertise in dairy nutrition.
That expertise is already evident in probiotics for digestion, immunity and anxiety, lipids for stress management and cognition and protein for muscle tone.
It will further differentiate New Zealand milk on the world stage to get more value.
Two offshore milk pools, in Chile and Australia, are now subject to reviews of Fonterra ownership.
He says a process to divest the Soprole-Prolesur investment in Chile has already begun.
Fonterra Australia sits within strategy and is an important export market for NZ milk, especially in foodservice products and advanced ingredients.
“We are considering the most appropriate ownership structure for this business – one option is an initial public offering, but we retain a significant stake,” he said.
Hurrell says NZ has a unique position as the lowest carbon-producing dairy nation from a pasture base, with high animal welfare standards and efficiency of scale.
“We can’t slow down now. Customers want to know where their food comes from and the environment impact it leaves and a farmer’s livelihood relies on a stable climate and healthy ecosystems,” he said.
Fonterra will invest $1b over the next decade in reducing its carbon emissions and improving water efficiency and treatment in manufacturing.
To retain the relative carbon footprint advantage against northern hemisphere farming systems, NZ must solve the enteric methane challenge.
The world population will grow by 800 million in 10 years and more than five billion will be middle class and keen and able to afford dairy products.
Steady demand growth of 2% annually means the fundamentals of NZ milk continue to loom strong.
“The world wants what we’ve got – sustainably produced, high-quality, nutritious milk,” he said.
“We require the right capital structure to ensure we don’t lose the benefits of what generations of farmers have built – a NZ dairy co-operative of scale.”
