Fonterra releases FY23 Annual Results

Fonterra has announced its results for the financial year ending 31 July 2023, with full year reported earnings of 95 cents per share, reported profit after tax of $1.6 billion and a final 2022/23 season Farmgate Milk Price of $8.22 per kgMS.

Miles Hurrell, Fonterra CEO, delivered the update and said the Co-op has delivered strong earnings and progressed against key strategic initiatives in FY23, against a backdrop of a Farmgate Milk Price that has dropped across the season.

According to Hurrell, the 2022/23 season Farmgate Milk Price was impacted by reduced demand for whole milk powder from key important regions, which saw Global Dairy Trade prices drop, with the average whole milk powder price down 16% compared to last season.

Fonterra has announced a strong full year dividend of 50 cents per share. It has also returned tax-free 50 cents per share to shareholders and unit holders in August, following the divestment of Soprole, giving a final cash payout to farmers of $9.22 per share backed kgMS.

Fonterra’s reported profit after tax of $1,577 million was up $994 million. Excluding net gain from divestments of $248 million, normalised profit after tax was $1,329 million, up $738 million compared to the same time last year. This includes the impact of impairments and is equivalent to 80 cents per share.

The Co-op also reported a Return on Capital for the last 12 months of 12.4%, up from 6.8% in the comparable period.

This result came from a number of key drivers, including favourable margins in the Ingredients channel, particularly cheese and protein portfolios. The Foodservice channel also saw improved performance due to increased product pricing and higher demand.

Across the second half of the year, the operating performance of Fonterra’s Consumer channel strengthened due to improved pricing. It adjusted the long-term outlook for its Asia Brands and Fonterra Brands New Zealand business, resulting in full year impairments of $101 million and $121 million respectively.

The Co-op also recognised a $260 million gain on sale from its Chilean Soprole business during the year.

On the supply side, full year milk collections ended the season at 1480 million kgMS, despite significant challenges that farmers face across New Zealand, such as rising input costs and adverse weather events.

“In addition, Fonterra’s balance sheet metrics are better than target levels, even after adjusting for the impact of providing for the payment of the Capital Return, with a gearing ratio of 28.8% and debt to EBITDA of 1.3x,” Hurrell said.

In September 2021, Fonterra released its long-term strategy and it has since been progressing towards its 2030 goals.

It completed the divestment of China Farms and Soprole as part of its strategic choice to focus on New Zealand milk.

The Co-op is also working towards its ambition to be a sustainability leader and has stepped up its emission reduction goals for the operation side of the business, targeting a 50% reduction in Scope 1&2 emissions by 2030. It also plans on introducing a Scope 3 emissions target.

It is also progressing work in its innovation portfolio, establishing a joint venture with Royal DSM, Vivici, and launching Nutrition Science Solution (NSS), its corporate ventures arm.

It has introduced two metrics to track its progress:

• Cash operating expenses per kgMS — targeting a 4% cash operating cost improvement per year to support long-term discipline in its global overheads.
• Gross profit from Core Operations per kgMS — targeting a 2% New Zealand operational cash cost improvement every year to support efficient New Zealand operations while remaining laser-focused on delivering value.

Fonterra’s forecast 2023/24 Farmgate Milk Price range of $6.00–$7.50 per kgMS, with a midpoint of $6.75, reflects reduced demand for whole milk powder from key importing regions.

There are indications that demand for New Zealand milk powders will start to return from early 2024, while demand for other products, such as Foodservice and value-added Ingredients, continues to be robust.

The FY24 forecast earnings range for continuing operations is 45–60 cents per share. Though the FY23 favourable price relativities have reduced from their peaks, Fonterra is forecasting improved margins across its Consumer and Foodservice channels for FY24.

Across the year, farmers will continue to feel the pressure from high input costs and a reduced Farmgate Milk Price.

Image credit: iStock.com/4FR