NEW ZEALAND – New Zealand-based dairy co-op, Fonterra, has  released its annual financial results, reporting an after-tax profit of NZ$1.16 billion, representing a 27.5% decline from the previous year’s NZ$1.6 billion. 

However, despite the profit drop, the company announced a total dividend of 55 cents per share, which includes a 15-cent interim dividend, a 25-cent final dividend, and a 15-cent special dividend. 

This announcement boosted investor confidence, leading to a 3.7% increase in Fonterra’s share prices, marking their highest level since 2021.

“We’ve maintained the positive momentum seen in FY23 and delivered earnings at the top end of our forecast range,”  Fonterra CEO Miles Hurrell said. 

He also noted that the total dividend of 55 cents per share is the second-largest since the co-op’s inception, attributing this to the strong FY24 earnings and the company’s capital management efficiency. 

“Our ongoing balance sheet strength has enabled us to return an extra 15 cents per share to farmer shareholders and unit holders through a special dividend,” Hurrell added.

Alongside the financial results, Fonterra unveiled a revised strategy, focusing on its high-performing Ingredients and Foodservice businesses. 

This follows a comprehensive review highlighting Fonterra’s strengths as a business-to-business (B2B) provider of dairy nutrition. 

As part of this shift, Fonterra will explore divestment options for its global Consumer businesses, allowing it to concentrate resources on the more profitable segments.

Fonterra Chairman Peter McBride emphasized the importance of the new strategy in delivering long-term financial benefits. 

“The co-op exists to provide stability and manage risk on farmers’ behalf while maximizing the returns to farmers from their milk and the capital they have invested in Fonterra,” McBride stated. 

He further explained that the strategy aims to grow shareholder returns, maintain a stable balance sheet, and secure the future of the co-op.

For the 2023/24 season, Fonterra set the final Farmgate Milk Price at NZ$7.83 per kilogram of milk solids (kgMS), which, combined with the dividend, provides a total payout of NZ$8.38 per kgMS to a fully shared-up farmer. 

Hurrell expressed optimism for the year ahead, adding that the co-op’s FY24 earnings were driven by higher margins and increased sales volumes in its foodservice and consumer channels. 

However, he acknowledged that the Ingredients channel, though performing well, saw a decline compared to the record results in FY23.

Hurrell also pointed out challenges in key importing regions, particularly China, which experienced volatile demand, leading to a 1% drop in sales volumes from continuing operations to 3,470 kMT. 

Despite these challenges, Fonterra managed to reduce its debt by NZ$600 million, bringing it down to NZ$2.6 billion. Hurrell highlighted that the company is looking to invest in areas that will boost its long-term performance and resilience.

Fonterra’s revised strategy includes six key priorities: delivering the strongest farmer offering, enhancing the Ingredients business, expanding foodservice operations (particularly in China), investing in future-ready operations, building on the co-op’s sustainability position, and innovating through new technology and research and development. 

“By streamlining the co-op to focus on these areas, we can grow greater value for farmer shareholders and unit holders, even if we divest our consumer businesses,” Hurrell said .

This strategic is expected to yield robust financial outcomes, with Fonterra aiming for an average return on capital of 10-12%, up from the previous target of 9-10%. 

The co-op also revised its dividend policy to distribute 60-80% of earnings, compared to the previous 40-60%, while maintaining a commitment to the maximum sustainable Farmgate Milk Price.

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