Fonterra has lifted the midpoint range of its forecast for the 2022-23 season by 50 cents from $9 to $9.50/kg milk solids.
This has altered its forecast range to NZ$8.75-$10.25/kg MS, up from NZ$8.25-$9.75/kg MS.
The lift in the forecast milk price reflects the milk supply and demand picture and the current strong US dollar, Fonterra chief executive Miles Hurrell says.
Fonterra also announced a 2022-23 earnings guidance range of 30-45 cents per share, reflecting an expected recovery in some of its key markets which have experienced margin pressures this financial year, coupled with ongoing favourable ingredients margins.
“The wide earnings range for 2022-23 reflects the current high level of uncertainty that comes with operating in a globally-traded, volatile market.
“While the co-op is in the position to be forecasting both solid earnings and a healthy milk price for the next year, significant volatility remains. These near-term headwinds have the potential to impact some of the co-op’s targets,” Hurrell says.
For the current financial year, it has maintained its earnings guidance range of 25-35 cents per share.
He said Fonterra was on track for its 2030 financial targets outlined in September last year, despite recent bumps.
“A series of global events have changed some of the assumptions the co-op’s aspirations were based on. In particular, interest rates and inflation have lifted well above our assumptions, as have commodity prices in response to the continued strong demand for dairy.”
This fed into milk price expectations, which was seen in its forecast, he said.
Higher input costs are impacting its short-term cost of debt as well as pushing up on farm costs.
“This in combination with ongoing regulatory changes, will potentially reduce milk supply volumes. As the higher milk prices lift working capital, our overall debt position has the potential to trend higher but still within our current debt parameters,” he said.
The ongoing uncertainty will see Fonterra update its earnings guidance for 2023-24 at the end of the 2022-23 financial year and at the same point going forward in future financial years.
“As we look out to 2030, the fundamentals of dairy – in particular, New Zealand dairy – look strong and we continue to make good progress against our long-term aspirations.
“We are growing our high value, specialty ingredients business, with Active Living expected to deliver growth year-on-year.”
The co-op has been working through how to adapt its organisational structure to accelerate progress towards its long-term aspirations since announcing its new strategy.
To help with that strategy it has appointed Komal Mistry-Mehta as its chief innovation and brand officer and will appoint a managing director of strategy and optimisation.
The shape of its AMENA (Africa, Middle East, Europe, North Asia and the Americas) business is changing with the divestments of Fonterra’s businesses in Chile and Brazil, its exit from Russia, and its active living business moving to a new innovation and brand business unit.
As a result, Fonterra has consolidated AMENA and APAC (Asia Pacific) together to be led by Judith Swales, Hurrell says.
AMENA chief executive Kelvin Wickham has also decided that to step away from Fonterra as the next generation of leadership takes forward the co-op’s long-term aspirations.
“Kelvin and his wife are keen to stay in Europe and I wish them all the best for their next great adventure. We’ve worked closely together for a number of years and I will miss his friendship, guidance, and support.
“I thank Kelvin for his extensive contribution to the co-op. He has been with Fonterra for over 34 years, holding multiple roles across many markets, and has been a tremendous advocate for Fonterra and New Zealand throughout this time,” Hurrell says.
The two new roles will be effective from August 1, with the new business unit to be effective from October 1.