Sunday, December 3, 2023

Strategy reassurance from on high

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Fonterra’s leaders have told shareholders that its new strategy is on target to deliver a recovery in earnings and debt.
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Chairman John Monaghan and chief executive Miles Hurrell used their addresses to the annual meeting in Invercargill to reassure and repeat rather than to make announcements. 

Monaghan said the co-operative was not broken and it delivered a milk price that was consistently on-par with those paid to farmers in Europe and the United States.

While it was not broken, it did need to change.

It should take the best of the past and adapt it for the future and it needed to do more listening.

“Doing more listening than talking and taking what I call the shine off our language has improved the standing of our co-op in many people’s minds.

“Our new purpose is already guiding our decision making, culture and behaviour as an organisation.

“We are confident that, implemented well, the new strategy will bring a new period of success for our co-op.”

While in the past Fonterra might have regarded itself as a global dairy giant, its new focus was on creating value for its owners, customers and communities.

Producing ingredients at scale would still be the engine room, now complemented by research and investment into medical nutrition, sports and active nutrition products that showed strong growth potential.

Already the leading Foodservice business in China, Fonterra wanted to extend that in the Asia-Pacific region and form new partnerships to help expand to other markets without spending large amounts of capital.

Hurrell expanded on that comment by referring to the recent Anchor Foodservice Professionals partnership announcement with Future Group in India.

That group has over 2000 food trade outlets and 5000 public distribution outlets.

“This is a capital-light partnership which combines our dairy knowledge and know-how, with Future’s Group’s access to market, established customer base, and strong marketing and distribution networks. 

“Combine these two skill sets together and you get more than the sum of its parts.”

Monaghan said the priorities of the directors for 2020 began with delivering the forecast milk price and making a return to respectable earnings that should improve the share price and enable a return to paying dividends as soon as possible.

He also suggested some improvement was possible to the advance rate, subject to the continued improvement of the balance sheet and protection of the credit rating.

Hurrell said the mid-point of the current milk price forecast range of $6.55 to $7.55/kg would require Fonterra to push hard to achieve its gross margins.

“So far we’re comfortable with how this season is shaping up in terms of underlying business performance.”

Earnings per share, forecast at 15 to 25c, would be higher than in the 2019 financial year because of lower interest cost and tax.

By the end of the year Hurrell forecast debt would be no more than 3.75 times earnings, down from 4.3.

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