Fonterra Co-operative Group Ltd has announced a 50-cent lift in its 2024/25 forecast Farmgate Milk Price midpoint to $9.00 per kgMS and FY25 earnings guidance of 40-60 cents per share.
CEO Miles Hurrell said the lift in this season’s forecast Farmgate Milk Price was followed by further recent strengthening in Global Dairy Trade prices and constrained milk supply in key producing regions.
“I’m pleased to announce an increase in this season’s forecast Farmgate Milk Price, which I’m sure will be welcome news for farmers, particularly when combined with the 55 cents total dividend for FY24 also announced by the Co-op today,” said Hurrell.
Fonterra’s new forecast Farmgate Milk Price range for the 2024/25 season is $8.25-$9.75 per kgMS. The Co-op has continued to maintain a wide range due to the relatively early stage of the season.
“We’ve also announced our forecast earnings for FY25 of 40-60 cents per share. The forecast earnings range reflects an expectation we will maintain strong margins in all three of our sales channels while also investing in the Co-op’s IT & digital transformation and incurring higher tax expenses.”
Hurrell said the payout reflected Fonterra’s continued strong earnings performance and the Co-op's long-term resilience. Looking ahead, they were well placed to consider the next phase of the strategy to grow long-term value.
“Our total dividend of 55 cents per share is the second largest since Fonterra was formed. It includes a 15-cent interim dividend and a 25-cent final dividend driven by strong FY24 earnings.”
In addition, the Co-Op’s capital management efficiency and ongoing balance sheet strength have enabled it to return an extra 15 cents per share to farmer shareholders and unit holders through a special dividend.
Fonterra advised that, after several years of solid earnings performance, the Co-op exhausted its tax losses in FY24 and will now be paying tax.
Chief Financial Officer Andrew Murray said that as a result of this change when they declare a dividend from FY25 and beyond, imputation credits will now be available to attach to this dividend.
“To enable all shareholders to receive the imputation credits, we are changing how we treat supply-backed shares for tax purposes, which means that Fonterra will pay more tax,” said Murray.
“While this does not impact the operating performance of Fonterra, it will reduce our reported earnings per share in future years, as Fonterra will have paid the tax on the cash to be distributed.”
The Co-op reported a return on capital for FY24 of 11.3 percent, above the target range for FY24.
Earnings (EBIT) from continuing operations were $1,560 million, continuing to be well above previous years, albeit down from FY23, which benefitted from elevated price relativities.
Fonterra’s profit after tax from continuing operations was $1,168 million, equivalent to 70 cents per share.
“Our FY24 earnings were driven by higher margins and increased sales volumes in our Foodservice and Consumer channels. Our Ingredients channel also continued to deliver strong returns, although down compared to the record result seen in FY23,” said Hurrell.
“We remain focused on making progress against our two efficiency metrics while also investing in the areas that will improve long-term performance and the resilience of the Co-op. Our core operations manufacturing costs per kgMS reduced year-on-year by two percent to $2.58 per kgMS, reflecting both operational improvements and improved input costs.”
Across the year, Fonterra has also achieved savings in its operating expenses, which largely offset the impacts of inflation. However, its cash operating expenses per kgMS are up mainly due to investment in IT and digital transformation projects.
This year, Fonterra completed a strategic review that reinforced the role of its Foodservice and Ingredients channels and confirmed its strengths in partnering with customers to produce world-class, innovative dairy.
As a result of this work, in May the Co-op announced that it is exploring divestment options for its global Consumer business, as well as Fonterra Oceania and Sri Lanka.
“Over the last few months, we have appointed advisors to assist with assessing divestment options for our Consumer businesses and this work is ongoing,” added Hurrell.
“As we can see from today’s result, the businesses in scope for potential divestment are performing well. We remain committed to a pathway that would maximise value of these businesses for our farmer shareholders and unit holders.
Alongside this, Fonterra has revised its strategy to focus more sharply on the Co-op’s strengths and where it can best create value.
