Thursday, November 30, 2023

Fonterra posts strong annual results

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Full-year dividend of 50 cents per share on its way.
Dairy demand softens just as the supply side finds its balance.
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Fonterra has announced a strong annual result for the 2022-2023 season, reporting a profit after tax of $1.6 billion.

Its earnings per share is 95 cents per share, up from 36 cents per share, and its final milk price for last season is $8.22/kg MS.

It will pay a full-year dividend of 50 cents per share, including interim dividend of 10 cents per share, as well as a one off tax free 50 cents per share capital return following the sale of its Soprole business.

Fonterra chief executive Miles Hurrell said while the co-operative has delivered strong earnings and made progress against key strategic initiatives, it is against the backdrop of a falling milk price for this season.

“Our 2022/23 season farmgate milk price was impacted by reduced demand for whole milk powder from key importing regions. As the financial year progressed, we saw Global Dairy Trade prices drop, with the average whole milk powder price down 16% compared to last season.

“We recognise the impact the reduced farmgate milk price has on farmers’ businesses and have utilised our strong balance sheet to introduce a new advance rate schedule guideline to assist on-farm cash flow.

“However, we’re pleased to be announcing a strong full year dividend of 50 cents per share – comprising an interim dividend of 10 cents per share and a final dividend of 40 cents per share.

“In addition, the co-op returned tax free 50 cents per share to shareholders and unit holders in August, following the divestment of Soprole, giving a final cash pay-out to farmers of $9.22 per share backed kgMS.”

“Our FY23 performance demonstrates that we are focusing on the right strategic priorities. This said, we are aware that there are challenging conditions on the ground for many of our farmers,” Hurrell said.

Fonterra’s reported profit after tax of $1577 million was up $994m. Excluding the net gain from divestments of $248m, normalised profit after tax was $1329m, up $738m compared to the same time last year. This includes the impact of impairments and is equivalent to 80 cents per share.

Net debt has also been reduced from $5.3bn-$3.2bn.

The co-op also reported a return on capital for the past 12 months of 12.4%, up from 6.8% in the comparable period.

Hurrell said there were a number of key drivers that helped Fonterra deliver this result, including favourable margins in the ingredients channel, in particular the cheese and protein portfolios.

“We also saw improved performance in our foodservice channel due to increased product pricing and higher demand as greater China’s lockdown restrictions started to ease from the start of calendar year 2023.

“Further, across the second half, the operating performance of our consumer channel strengthened due to improved pricing. However, we adjusted the long-term outlook for our Asia Brands and Fonterra Brands New Zealand business, resulting in full-year impairments of $101 million and $121 million respectively.

“Greater China’s reported profit increased $11m to $284m, with the Foodservice channel showing improved margins and resilience to market disruption from covid-19. However, this was offset by the consumer channel, which included a proportion of the Asia brand impairment.

“On the supply side, full-year milk collections ended the season at 1480 million kgMS. This is in spite of significant challenges that many farmers faced across New Zealand including rising input costs and adverse weather events in the North Island early in calendar year 2023.

“In addition, Fonterra’s balance sheet metrics are better than target levels, even after adjusting for the impact of providing for the payment of the capital return, with a gearing ratio of 28.8% and debt to EBITDA of 1.3x.

“The 2023-2024 forecast remained at $6-$7.50/kg MS with a midpoint of $6.75/kg MS. 

“We are watching market dynamics closely and there are indications demand for New Zealand milk powders will start to return from early 2024. Demand for other products, including foodservice and our value-added ingredients, continues to be robust,” he said.

“We acknowledge that across the year, farmers will continue to feel the pressure from high input costs and a reduced farmgate milk price.

“We’ll continue to do all that we can to support farmers through this challenging period.”

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