The dairy giant Fonterra has reported a solid full-year result and announced plans for further divestment of its overseas ventures.
(For the 12 months to July 2021 against 2020)
- Net profit after tax $599m vs $659m (includes one-off gains from asset sales)
- Underlying profit $588m vs $382m
- Revenue $20.6b vs $20.3b
- Net debt $3.8bn vs $4.7bn
- Milk payout $7.54 per kgMS vs $7.14 per kilogram of milk solids
- Final dividend 15 cps vs 5cps
Chief executive Miles Hurrell said its reset of its business over the past three years had been paying off.
"We've stuck to our strategy of maximising the value of our New Zealand milk, moved to a customer-led operating model and strengthened our balance sheet.
"Although the higher milk price and tightening margins put pressure on earnings in the final quarter, this is a strong overall business performance, allowing us to deliver $11.6 billion to the New Zealand economy through the total pay-out to farmers," he said.
The co-operative saw strong sales growth through both the Greater China and Asia-Pacific region, up 10 percent and 28 percent respectively.
However, it saw an earning declines of about 28 percent in the Africa, the Middle East, Europe, North Asia and the Americas.
This was part of the company's strategy to redirect products to higher margin markets, Hurrell said.
Outlook and strategy
Fonterra has forecast a milk price payout of between $7.25 and $8.75 per kgMS.
"High milk price is good for farmers and good for the New Zealand economy. However, this does have the potential to squeeze our sales margins and impact earnings," Hurrell said.
It provided farmers with a view of its business strategy through to 2030, which included the goal to increase its operating profit by between 40 and 50 percent, maintain an average milk price range of $6.50 - $7.50 per kgMS, raise research and development spending by half, and return about $1bn to shareholders by 2024 financial year.
Hurrell said the co-op would achieve this by prioritising New Zealand milk above all others.
It was considering the sale of its milk pools in Chile and Australian, planning to sell the former and float the latter on the stockmarket.
"Our continued focus is to get our New Zealand milk to the world."
Capital review update
Fonterra's board had revised its capital structure proposal based on recent feedback from farmers.
It had adopted suggestions from farmers to increase the minimum shareholding requirement from 25 percent to 33 percent, allow different types of farmers to own shares, and making it easier for farmers to enter and leave the co-op.
It also suggested that the associated shareholder's fund be retained and capped, meaning farmers could not convert their shares into units.
The farmer-only market would continue to operate but $300m would be allocated to support liquidity in the proposed structure.
"We are confident that this proposal would support the sustainable supply of New Zealand milk that our long-term strategy relies on," Fonterra chair Peter McBride said.
Farmer-shareholders will vote on the proposal at the co-op's annual meeting in December.