Fonterra Co-operative Council Comments on FY23 Results
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Fonterra Co-operative Council Chair, John Stevenson has commented on the Co-op’s FY23 results released yesterday.
“The very strong earnings announced yesterday had been well signalled and our Co-op’s overall results for FY23 were pleasing to receive. We acknowledge the work put in by CEO Miles Hurrell and his team to achieve these results.
An overall dividend of 50 cents per share is good news for our shareholders at a time when the financial situation of many on farm is grim.
This dividend, on top of the 50 cents per share capital return paid in August from the divestment of our Co-op’s Chilean business, will be a welcome addition to farmer cashflows that are under a lot of pressure from the current season’s reduced forecast milk price range and the continuing significant cost increases that farmers are having to deal with on farm.
The final 2022/23 milk price of $8.22 per kgMS is below the $9 mid-point of the opening forecast farmgate milk price range, representing declining market conditions and contributing to the cashflow pressure our farmers are facing.
Council found it pleasing to see further strengthening of Fonterra’s balance sheet, noting that the gearing ratio of 28.8% and Debt to EBITDA of 1.3x are both well within Fonterra’s long term target ranges.
Council did find it disappointing to see further impairments to our Co-op’s assets. Full year impairments of $252 million include $101 million for our Co-op’s Asia Brands and $121 million for the Fonterra Brands New Zealand business.
Looking forward, the forecast 2023/24 Farmgate Milk Price range of $6.00 – $7.50 per kgMS is well below break even point for many farmers. Of key interest to Council and to Fonterra farmers is to what extent the strong earnings and return on capital for FY23 can be sustained in FY24 and beyond.
Council notes that the top end of the FY24 forecast earnings range of 45-60 cents per share is above the FY24 target of 45-55 cents per share annnounced in September 2021, but well below FY23’s normalised 80 cents per share. Management has reported that the favourable price relativities we’ve experienced across FY23 have reduced from their peaks.
Farmers have reported to us that they are encouraged to see that the business is trying to improve underlying performance outside of stream returns through its focus on reducing costs across the Co-op and the two new efficiency metrics that have been announced.
Council will take a keen interest in monitoring progress against these metrics when the FY24 interim results are announced, noting the FY23 figures of $1.39 cash operating expenses per kgMS and $9.21 gross profit from Core Operations per kgMS that were reported.
Councillors were very pleased to see new reporting on Fonterra’s Resource Allocation Framework. This details how the capital and milk that farmers supply, and cashflows from our Co-op’s operations, are allocated. Council looks forward to the continued development of this reporting, and is always encouraged by additional transparency.
Following the introduction of flexible shareholding, Council also notes the reporting on the alignment between milk supply and ownership of the Co-operative, and the distribution of ownership of the Co-operative, in the 2023 Business Performance Report. Movements over time will be of interest.
Management has advised it is updating the long-term strategy and will be sharing it early next year Whilst it is challenging to have to wait, the update will provide an opportunity for good discussion.
Council’s Annual Report due out in late October will contain more detailed analysis and commentary. In the interim, Council encourages Co-op members to attend one of the farmer meetings next week to hear more about Fonterra’s results and ask questions of Board and Management.”