Fonterra Co-operative Group Ltd., has today (Thursday, March 21) released its FY24 interim results which show a continuation of strong earnings performance.
CEO Miles Hurrell says the co-op’s performance has been driven by higher margins and sales volumes across Fonterra’s diversified product and category mix.
“I’m pleased to report we’ve continued the positive momentum seen in our earnings performance and delivered an interim dividend of 15cents for our co-op’s farmer shareholders and unit holders, up from 10cents this time last year,” he said.
“The forecast Farmgate Milk Price has also lifted recently, with a current midpoint of $7.80/kg/MS, following volatility earlier in the season.
“While supply and demand dynamics remain finely balanced, with continuing global uncertainty, we are now well progressed through the season. This gives us the confidence to narrow our forecast Farmgate Milk Price range to $7.50-8.10/kg/MS.
“We have also maintained our forecast earnings guidance for the year of 50-65cents per share,” Hurrell added.
Fonterra business performance
As the largest processor in New Zealand, Fonterra’s reported profit after tax of $674 million is up $128 million on this time last year, with earnings before interest and taxes (EBIT) from continuing operations up 14% to $986 million over the same period.
The co-op has reported a return on capital for the last 12 months of 13.4%, up from 8.6% on this time last year, and earnings per share of 40cents, up from 33cents.
“Our FY24 earnings have been driven by higher margins and sales volumes in our Foodservice and Consumer channels, which have helped to offset lower returns in the Ingredients channel following historically high price relativities last year,” Hurrell continued.
“Sales volumes from continuing operations are up 22kMT or 1.3% to 1,721kMT and gross margins are up from 16.6% to 18.4%.
“At the same time, our balance sheet position remains resilient, with our strong underlying performance and low debt position helping to further lower our financing costs this year,” he said.
According to the CEO, the operating expenses for continuing operations are up $52 million on last year, due to increased labour costs, professional fees and investment in I.T infrastructure.
“Looking at our channels and regions, our Consumer and Foodservice earnings are up year-on-year, due to improved pricing and higher sales volumes,” he said.
“Ingredients channel earnings are down year-on-year off the back of historically high price relativities in FY23 and lower margins in Australia Ingredients during FY24.
“Global Markets’ reported profit after tax is up $230 million to $380 million, due to lower input costs in Southeast Asia, Sri Lanka and Fonterra Brands New Zealand.”
The financial report reveals that Fonterra Australia’s performance has been impacted by the higher Australian milk price.
“In February, we announced plans to merge our Australia and Fonterra Brands New Zealand businesses from 1 May,” Hurrell continued.
“These two units share many similarities, and we expect the integration to create scale efficiencies.
“Greater China reported profit after tax is up $94 million to $232 million, primarily due to strong performance in the Foodservice channel.
“Core Operations’ reported profit is down $154 million to $102 million due to lower price relativities compared to last year, which have been partially offset by New Zealand manufacturing efficiencies.”
Strategy
The co-op has stated that it continued to make progress on its strategy with initiatives to create value for farmers, commercialise the company’s sustainability position and unlock capacity through innovation.
“Our new capital structure has been in place for a year and encouragingly, we’re seeing new co-op farmers citing it as a reason for returning to the co-op,” the report stated.
“Some are wanting to take advantage of the flexible shareholding options now available to them and this, coupled with the co-op’s stability, means we have a strong pipeline of farmers wanting to join the co-op.
“We have also been utilising our scale, optionality, and strong balance sheet to deliver benefits to farmers. This includes getting cash to farmers sooner through our revised Advance Rate guideline.
“Earlier this financial year, we returned $804 million to farmer shareholders and unit holders following the divestment of Soprole.”
The financial report also mentions the sale of Fonterra’s DPA Brazil JV with Nestle to Lactalis.
“Since announcing our on-farm emissions target, we have been working with customers to commercialise our farmers’ sustainability credentials,” Hurrell continued.
“This includes introducing to customers our regenerative agriculture position, which recognises our farmers’ pastural farming system.”
Outlook
Looking out to the remainder of the year, while global inflationary pressures are easing, Fonterra has said that it is monitoring the potential for volatility as a result of geopolitical instability.
“Our partnership with Kotahi and diversification across markets means we’re well prepared for disruption in global supply chains or changes in demand from key importing regions,” Hurrell said.
“We’re pleased with our first half performance for FY24 and look forward to the second half as we continue to deliver for our farmer shareholders and unit holders.”