Tuesday, February 27, 2024

Fonterra’s mixed records in context

Avatar photo
Fonterra may deliver its record nominal milk payout this season, possibly something over $9/kg, but that would not be the best ever outcome for its farmers on an inflation-adjusted basis.
Reading Time: 2 minutes

Fonterra is on track to deliver a milk price between $7.90 and $8.90 this season, plus an anticipated dividend around 25c.

Fonterra may deliver its record nominal milk payout this season, possibly something over $9/kg, but that would not be the best ever outcome for its farmers on an inflation-adjusted basis.

Fonterra is on track to deliver a milk price between $7.90 and $8.90 this season, plus an anticipated dividend around 25c.

History shows, according to analysts Northington Partners, inflation-adjusted payouts of $9.61 in FY08, $9.07 in FY11 and $9.33 in FY14.

The average Fonterra cash payout to dairy farmers in the past decade has been $6.37/kg plus a dividend of 22c since the Milk Price Manual methodology was introduced.

These nominal figures compare with $4.81 and 26c in the previous decade.

Analysis by Northington Partners for the Fonterra Co-operative Council, published in the FCC 2021 annual report, shows the CPI-adjusted figures have shown a similar improvement through the decades.

Most recently the CPI-adjust payout has averaged $6.85, plus 24c dividend.

The earlier decade was $6.34 plus 33c.

Northington also reported on-farm working expenses (FWE) and total cash payout, and what that left as farmers’ margin.

They said the average FWE over the past decade was 66% of the total payout and that the margin accruing to farmers had been gradually increasing since FY17.

If the FWE in the current year approaches $4.90/kg milksolids produced, being the DairyNZ FY21 figure of $4.62 with 6% cost inflation, a margin of around $4.25 would be the second-highest after $4.43 in FY14.

Northington also tracked the total shareholder return (TSR) from $1 nominal shareholding invested in Fonterra since its inception in 2001.

TSR values at the end of 2021 financial year were $1.71 pre-tax and $1.34 post-tax, representing an annual compounding rate of return of 2.7% pre-tax.

TSRs took a big hit when Fonterra suspended transfers between the supply share market and the Fonterra Shareholders Fund on May 5.

The pre-tax return went from $2.56 down to the $1.71 mark presently.

Northington commented that since the peak of TSR in 2017, the loss in value to the present day has been $2.85, down 47%.

On the positive side, Fonterra has reduced debt levels from a peak of $7.12 billion in FY17 to $3.8b in FY21, which equates to a debt-to-equity gearing ratio change from 49.7% down to 35.5%.

Total
0
Shares
People are also reading