Fonterra Co-operative Group Ltd has announced a positive FY25 interim result.
Fonterra has reported a half-year profit after tax of NZD 729 million, earnings of 44 cents per share, and a decision to pay an interim dividend of 22 cents per share. This is alongside a 2024/25 season forecast Farmgate Milk Price midpoint of NZD 10.00 per kgMS.
The Co-op has continued to make good progress in implementing its strategy.
Fonterra CEO Miles Hurrell said it was pleasing to deliver these results for farmer shareholders and unit holders.
“We’re focusing on driving value, which includes delivering strong financial performance while achieving the highest sustainable Farmgate Milk Price," said Hurrell.
“At the same time, we’re looking ahead as we implement our strategy and continue to invest for the future.”
He said the co-op has commenced projects to unlock manufacturing production capacity for the co-op’s ingredients and food service channels. Site works were also underway at Studholme for high-value protein capacity and at Edendale for a new UHT cream plant.
It has also continued to invest to future-proof our operations and supply chain network, with work underway on a new Whareroa cool store and plans for decarbonisation projects at Clandeboye, Edendale, Edgecumbe and Whareroa to secure energy supply and reduce the emissions.
“As we focus on delivering the strongest farmer offering, we have announced new funding for farmers with lower emissions milk and expanded the Fixed Milk Price programme that farmers can use to get more certainty around the Farmgate Milk Price.”
Farmgate Milk Price Fonterra has committed to delivering the highest sustainable Farmgate Milk Price to farmers. For the current season, the forecast Farmgate Milk Price range is narrowing from NZD 9.50 to NZD 10.50 per kgMS to NZD 9.70 to NZD 10.30, with the midpoint holding at NZD 10.00 per kgMS.
“We’re seeing good demand for our quality products, and our teams have worked hard to optimise our product portfolio to capture value from the market conditions, leaving us well contracted for the season. We have also optimised the current season’s Advance Rate Schedule to get cash to farmers sooner, underpinned by our balance sheet strength.”
Regarding milk flows, the co-op’s forecast milk collections for the year are up 2.7 percent on this time last year to 1,510 million kgMS. This followed favourable pasture growth across most New Zealand earlier in the season, noting that many parts of the country have been experiencing very dry conditions.
Fonterra's strong half-year performance was underpinned by an optimised product mix to capture value across the Co-op’s sales channels.
“Our robust first half performance saw earnings growing alongside the firm Farmgate Milk Price, reflecting the strength of our core business.”
Hurrell added that the Ingredients channel performance had been a highlight this half, with sales volume down 3.9 percent and operating profit up NZD 229 million to NZD 696 million, reflecting better margins and improved product mix.
“Our Foodservice channel has seen sales volume growth of 8.3 percent this half, with Q2 gross margins significantly up on Q1 as pricing adjusted to the higher milk price. Foodservice operating profit for the half was a healthy NZD 230 million, compared to the record high of NZD 342 million in FY24 when input costs were much lower.”
The Consumer channel saw good sales volumes, up 8.5 percent, and margin growth despite the higher Farmgate Milk Price. Operating profit was largely flat compared to the prior period at NZD 173 million.
Meanwhile, the IT and Digital transformation project, a once-in-a-generation replacement of the Co-op’s Enterprise Resource Planning software, has progressed well and remained on budget.
The project is expected to cost NZD 450 to 500 million over six years, and annual expenditure will peak in FY25 at NZD 130 million. This expenditure was included in the previously announced earnings forecast, and despite this expenditure, FY25 results remain strong.
“We have recently increased Fonterra’s FY25 full-year forecast earnings range to 55 to 75 cents per share which reflects the underlying strength of our core business and the resilience in our Consumer channel. The Co-op is in a great shape, with milk collections, the forecast Farmgate Milk Price and earnings performance all up on this time last year,” added Hurrell.
“As we look to the balance of the year ahead, we’re focused on maintaining this momentum in performance, while progressing delivery of our strategy, including the dual-track Consumer divestment process which is on track as planned.”
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