Dairy co-operative, Fonterra, has announced its results for the financial year ending 31 July 2023.
In financial year 2023 (FY23), Fonterra’s reported profit after tax of $1.6 billion was up by $994 million.
Excluding the net gain from divestments of $248 million, normalised profit after tax was reported at $1.3 billion, a $738 million increase compared to the same period the year prior.
The company’s balance sheet metrics were also better than target levels, with a gearing ratio of 28.8 per cent and debt to EBITDA of 1.3x.
Total group reported operating expenses were $2.8 billion up from $2.5 billion due in large part to the impact of impairments, as well as increased costs from inflation and a “one-off favourable item” of $44 million in the previous year.
Fonterra CEO, Miles Hurrell, said while the company delivered strong earnings and made progress against key strategic initiatives in FY23, it was against the backdrop of a Farmgate Milk Price that has dropped across the season.
“Our 2022/23 season Farmgate Milk Price was impacted by reduced demand for whole milk powder from key importing regions,” he said.
“As the financial year progressed, we saw Global Dairy Trade prices drop, with the average whole milk powder price down 16 per cent compared to last season.
“We recognise the impact the reduced Farmgate Milk Price has on farmers’ businesses and have utilised our strong balance sheet to introduce a new Advance Rate Schedule guideline to assist on-farm cash flow.”
Despite this, Hurrell said he was pleased to be announcing a strong full year dividend of 50 cents per share – compromising an interim dividend of 10 cents per share and a final dividend of 40 cents per share.
“In addition, the Co-op returned tax free 50 cents per share to shareholders and unit holders in August, following the divestment of Soprole, giving a final cash pay-out to farmers of $9.22 per share backed kgMS,” he said.
“Our FY23 performance demonstrates that we are focusing on the right strategic priorities.
“This said, we are aware that there are challenging conditions on the ground for many of our farmers.”
Fonterra also reported a Return on Capital of 12.4 per cent for the last 12 months, up from 6.8 per cent in the comparable period.
“There were a number of key drivers that helped us deliver this result, including favourable margins in our Ingredients channel, in particular the cheese and protein portfolios,” Hurrell said.
“We also saw improved performance in our Foodservice channel due to increased product pricing and higher demand as Greater China’s lockdown restrictions started to ease from the start of calendar year 2023.
“Further, across the second half, the operating performance of our Consumer channel strengthened due to improved pricing. However, we adjusted the long-term outlook for our Asia Brands and Fonterra Brands New Zealand business, resulting in full year impairments of $101 million and $121 million respectively.”
According to Hurrell, Fonterra also recognised a gain on sale from its Chilean Soprole business of $260 million during the year.
“Looking at our reportable segments, Core Operations reported profit after tax increased $532 million to $572 million, due to higher ingredient margins,” he said.
“Global Markets reported profit after tax was up $77 million to $385 million, mainly due to higher sales volumes and improved pricing. This was partially offset by the impairments in its Consumer channel.”
Following the company’s successful FY23 performance, Fonterra has announced its outlook for the next financial year.
“We are watching market dynamics closely and there are indications demand for New Zealand milk powders will start to return from early 2024,” Hurrell said.
“Demand for other products, including Foodservice and our value-added ingredients, continues to be robust.”
Its FY24 forecast earnings range for continuing operations, Hurrell revealed, is 45-60 cents per share.
“While the favourable price relativities we’ve experienced across FY23 have reduced from their peaks, we are forecasting improved margins across our Consumer and Foodservice channels for FY24,” he said.
“We acknowledge that across the year, farmers will continue to feel the pressure from high input costs and a reduced Farmgate Milk Price. We’ll continue to do all that we can to support farmers through this challenging period.”
