Fonterra is optimistic for the year ahead and is posting strong results for FY22. Photo/Grant Bradley
Turbulent world events played a part in Fonterra’s decision not to sell part of its Australian business, but the dairy export juggernaut won’t concede that its language then cooled around a plan $1 back
billion to shareholders in 2024.
Announcing strong results for FY22 in a particularly difficult year marked by record milk payments to farmers, New Zealand’s largest company said that after reviewing options for its Australian operation, it had decided that it was in the interests of the cooperative to retain full ownership.
The possible partial sale and divestiture of its Chilean Soprole business underpins Fonterra’s previously announced plan to return $1 billion to its farmer-owners and unitholders by the end of FY24.
“While we have decided not to sell a stake in our Australian business, we remain committed to aiming for a meaningful capital return for our shareholders and unitholders,” Chief Executive Miles Hurrell said.
“The amount of any return on capital will ultimately be determined based on a number of factors, including the success of the divestment program as well as our ongoing debt and earnings levels.”
He later told the Herald that the review of the Australian operation “never got to the point of assessments”.
“Having said that, it goes without saying that the outside investment market is not as robust as it once was. But I wouldn’t say that played into our decision – you look at these short-term situations. when you make a big strategic call like this.”
Asked if doing business has become more difficult in a world that seems more chaotic than when he took office, Hurrell said that while Fonterra was used to working in global crisis situations, “to the moment, there are probably more important situations and more at the same time”.
Performing well in this global scenario showed its “true strength” in product channel diversity and market adaptability.
“Let’s be honest, that played a part in the decision about Australia. They’re a good company, they have their own milk, their own manufacturing facilities and can complement what we’re doing from New Zealand.”
While agreeing that the $1 billion return on capital plan was very much dependent on divestments, with Chile “absolutely doing a big chunk of it,” Hurrell did not concede that the tone of the language had changed.
“We no longer have two assets that would constitute the money to determine the return to shareholders. We need to determine the sale process, and how it progresses and looks before determining what the outcome is, and our earnings and debt. in fiscal year 2024.”
Hurrell said it was too early to discuss the status of the business sale process in Chile.
When asked if he was sure of getting a good price in a recessionary global environment, he said: “I am. It’s a very, very good company and a very, very good brand on a relatively stable market – one of the most stable in South America.”
Total group revenue rose 11% to $23.4 billion, and “reported” after-tax profit was $583 million, down 3%. Normalized profit after tax was $591 million, up 1%. Total Group Normalized Ebit was $991 million, up $30 million or 4%. A total dividend of 20 cents per share to farmers brought their total cash payment to $9.50/kg solid milk.
A highlight has been a big jump in normalized earnings forecasts – from 35 cents per share for 2022 to a range of 45 to 60 cents per share for the year 2022-23.
Hurrell told the Herald that the confidence was driven by the price gap between the ‘benchmark’ commodity (the price of milk) and the non-benchmark commodities (cheese and protein), which historically followed closely behind, continuing to dig in.
“In the first half (FY22) they followed closely, in the second half the gap really started to widen which really helped us with earnings this year. As we look to the year ahead, this gap continued into the early part of (FY23).
“When they’re close together, it squeezes our margin. That cheese-and-protein ingredient set seems very healthy.”
Hurrell “received” total compensation of $4.3 million, stable over FY21. But under Fonterra’s CEO compensation package, he “earned” a total of $5.38 million – including $902,000 to pay for performance with a deferred payment until fiscal year 2023.
Chairman Peter McBride received $446,122, compared to $362,327 in FY21. McBride said the payment for FY21 did not last a full year and he did not receive any additional payments that year for his work leading Fonterra’s proposed recapitalization.
The number of Fonterra employees earning more than $100,000 increased by 1,054 to 8,440.
Hurrell said last year that a “significant” number of employees would have earned between $90,000 and $100,000, a range the company was not required to disclose. Wage increases, including those won in union negotiations, had propelled more than $100,000 and more.
But the biggest contributor has been offshore staff, when local currency swings against the New Zealand dollar pushed them above the $100,000 threshold, with perhaps no change in their local currency pay. , did he declare.
Fonterra, which collects just under 80% of the country’s raw milk production, now says it has 9,000 shareholder farmers, up from 10,000 last year.
Hurrell said this was the result of agricultural consolidations in the industry – “it’s not a trend we’re concerned about”.
The cooperative’s milk collection in the year to July 31 has decreased by 4%.
Hurrell attributed this to poor spring and summer weather.
“A key point is that for the first time in over a decade, we have maintained our market share [of milk] in New Zealand.
“It shows that our business is doing well. It’s a vote of confidence from shareholders. Across the country, milk production has declined, but we have maintained our market share.”
Asked if the company is reviewing the number of its processing sites with flat or declining national milk production, Hurrell said it views the 4% drop as an anomaly.
“If we were to see significant declines of this magnitude year-over-year, we would clearly have to reassess our asset footprint…we have no plans at this stage to rationalize any of our facilities, but that’s something. something we have to watch out for.”
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