Dairy giant Fonterra’s profit after tax result of $1.1 billion for the financial year ending July is down 4% but its farmer shareholders have enjoyed a record payout.
The full year result of $26 billion in revenue for the 2024/25 season is up 15% with a total of $16.2b delivered to farmer shareholders.
The result released today [September 25] saw the co-op lifting its final payout by a smidge to $10.16 per kilogram of milksolids.
This is up on last month’s estimate of $10.15/kg when the range was narrowed to $10.10/kg – $10.20/kg.
Unchanged is the co-op’s $10/kg midpoint forecast for this season, based on a $9/kg – $11/kg range.
Fonterra’s final dividend for the 2024/25 season was 57 cents per share.
The just over 1500 million kilograms of milk solids collected over the period was up 2.6%.
Fonterra’s strong performance resulted in operating profit increasing to $1.7b, up from $1.5b the previous year.
The lower profit after tax result of $1.1b than the previous year was explained by Fonterra a result of a higher tax expense after it chose not to deduct distributions to farmer shareholders from taxable income and instead attach imputation credits to dividends.
Chief executive Miles Hurrell said in a statement the result has been one of the co-op’s strongest years for shareholder returns.
“We continue to see good demand from global customers for our high-quality products made from New Zealand farmers’ milk and this is driving returns through both the farmgate milk price and dividends. Our vision is to be the source of the world’s most valued dairy.
“Our strategy is designed to grow end-to-end value for farmers by focusing on being a B2B dairy nutrition provider, working closely with customers through our high-performing ingredients and foodservice channels.’’
He said Fonterra had taken important steps towards this goal.
This resulted in an agreement to sell its Mainland consumer business to France’s Lactalis for $4.22b, subject to approvals.
“We’re also positioning the co-op to deliver further value through our foodservice and ingredients businesses, including continuing to invest in new manufacturing capability to meet growing customer demand for our high-value products.
Fonterra has mapped out ‘‘growth investments’’ with plans to invest up to $1b over the next three to four years in projects.
They include growing the value of protein products, on top of the manufacturing project underway at the Studholme site to support its ingredients business, and adding more value to milkfat through new butter and cream cheese investments.
More money is likely to be sunk into upgrading other sites with planning, data, AI and automation systems.
Mr Hurrell said the co-op was targeting earnings to be back at current levels within three years, offsetting the earnings impact of divesting the consumer and associated businesses.
“Our balance sheet strength gives us the confidence to return capital, invest in the future of the business and maintain our dividend policy,” he said.
The co-op delivered a return on capital of 10.9%, in line with the target range of 10%-12%.
The result was driven by higher profits in the ingredients business from protein demand, while foodservice sales continue to grow off the back of continued demand in greater China for high-value products including UHT cream, butter and mozzarella.
The potentially soon to be exited Mainland Group benefited from consumer sales growth and Fonterra’s Australian business having a stable milk price against higher global commodity prices.
Fonterra is targeting a capital return of $2 per share from the sale of the Mainland consumer business, which is equal to $3.2b, but has yet to make a final decision on the amount and timing of this.
The sale is subject to approval from farmer shareholders, regulatory approvals and separation of businesses from Fonterra.
The farmer shareholder vote is due to take place during a special meeting on October 30.
Looking ahead, the co-op revised its forecast milk collections for the 2025/26 season from 1490 million kilograms to 1525 million kilograms.
Mr Hurrell said favourable weather conditions were forecasted to continue through spring, supporting pasture growth.
Referring to the unchanged $10/kg midpoint forecast for this season, he pointed to the fine balance of market conditions.
“Global Dairy Trade prices continue to be robust, as does demand from customers for our products sold off GDT. However, the risk of potential volatility in commodity prices and exchange rates from geopolitical dynamics remains.”
Fonterra’s earnings forecast for this season, which excludes the Mainland businesses sale, is 45-65c per share.
Fonterra’s key results:
· Total group revenue: NZ $26 billion, up 15%
· Total cash returns to shareholders: $16b up 30.6%
· Operating profit: NZ $1732 million, up 13%
· Profit after tax: NZ $1079m down 4%, up 13% tax-adjusted
· Normalised earnings per share: 71 cents, no change, up 13 cents tax-adjusted
· FY25 full year dividend, fully imputed: 57 cents per share, up from 55 cents unimputed
· Return on capital: 10.9%, down from 11.3%, up from 10.0% tax-adjusted
· 2024/25 final Farmgate Milk Price: NZ $10.16 per kilogram of milksolids
· 2024/25 season milk collections: 1509 million kg, up 2.6%
· 2025/26 forecast Farmgate Milk Price range: NZ $9/kg – $11/kg
· FY26 forecast earnings range: 45-65 cents per share
· 2025/26 season forecast milk collections: revised up to 1525 million kg
