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Fonterra reports strong results in 2021, with plans for long-term growth

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Fonterra has announced a strong set of results for the 2021 financial year, reflected in a final Farmgate Milk Price of $7.54, normalised earnings per share of 34 cents and a final dividend of 15 cents, taking the total dividend for the year to 20 cents per share. 

The results come as Fonterra moves through its business reset and into a new phase of growing the value of its business. 

The last three years have been about resetting the business.  

“We’ve stuck to our strategy of maximising the value of our New Zealand milk, moved to a customer-led operating model and strengthened our balance sheet,” Fonterra CEO Miles Hurrell said. 

Despite the higher milk price and tightening margins in the final quarter, Fonterra’s strong business performance has enabled the delivery of $11.6 billion to the New Zealand economy through total pay-out to farmers. 

“The work we’ve done as part of the 2019 strategic reset means we’re well placed to take advantage of favourable industry dynamics. Growing global demand for dairy coupled with constrained supply has resulted in high prices for our milk,” Hurrell said. 

“Our resilient supply chain has allowed us to get products to market and the healthy demand for our farmers’ New Zealand milk has seen a record shipping year for the co-op. 

“We’ve continued to reshape our business and the sales of our joint venture farms and wholly-owned farming hubs in China. Our continued focus is to get our New Zealand milk to the world.” 

Total Group normalised EBIT, which reflects underlying business performance, was up 8 per cent to $952 million, with Total Group normalised operating expenditure down 3 per cent to $2.2 billion. 

A focus on financial discipline has paid off. 

“Net debt is down by $872 million to $3.8 billion, cashflow has improved again and at 2.7x, we are now within our long-term target Debt/EBITDA ratio,” Hurrell said. 

“We are pleased with our $599 million reported profit after tax. While down on last year, the 2020 financial year benefited significantly from the divestments of DFE Pharma and foodspring. Normalised profit after tax grew by $190 million to $588 million, driven by improved earnings and lower interest expense. 

“Our sales book is well balanced across the regions and a number of our markets have performed well. In Asia Pacific, significant improvements in our Foodservice and Consumer channels have pushed normalised EBIT up 28 per cent to $305 million. We’ve expanded our Foodservice footprint in the region and are seeing the benefits of that,” he said. 

Progress isn’t limited to Fonterra’s financial performance, according to Hurrell. 

“I’m proud of our efforts to reduce our environmental impact. New Zealand dairy has the lowest carbon footprint in the world, but we also know we need to do much more,” he said. 

“This year, we reduced our carbon emissions from coal by more than 11 per cemt, as Te Awamutu completed its first season using renewable wood pellets. We also recently announced our Stirling site will move to renewable energy from August next year. Our farmer owners are also doing their bit, with record numbers achieving the top level of our Co-operative Difference framework and 53 per cent of supplying farms now having a Farm Environment Plan. That’s good for the environment and it’s also what our customers expect.” 

Looking to the current season, Fonterra has announced a 2021/22 earnings guidance range of 25-40 cents per share and has also reaffirmed its 2021/22 forecast Farmgate Milk Price range of $7.25 – $8.75 per kgMS, with a midpoint of $8 per kgMS. 

The strong milk price is likely to continue, Hurrell said. 

“A high milk price is good for farmers and good for the New Zealand economy. However, this does have the potential to squeeze our sales margins and impact earnings,” he said. 

“We expect competitive tension in the global shipping market to continue this financial year. We have largely been able to mitigate this, thanks to the strength of our Kotahi partnership which has allowed us to keep our product moving through the supply chain.” 

Fonterra is now turning its mind to the next phase of its strategy, as it completes its reset and focuses on value growth. Hurrell said as the co-op looks out to 2030, the fundamentals of dairy – in particular, New Zealand dairy – look strong. 

“Put simply, the world wants what we’ve got – sustainably produced, high-quality, nutritious milk. This comes at a time when we see total milk supply in New Zealand as likely to decline, and flat at best,” he said. 

“On one hand, this requires the right capital structure to help ensure we don’t lose the benefits of what generations of farmers have built – a New Zealand dairy co-operative of scale. 

“But on the other hand, it gives us more options to be selective about what we do with our Co-op’s milk. In doing so, we can increase the value we generate for farmers and New Zealand over the next decade,” Hurrell said. 

“To make this happen we have made three strategic choices – continue to focus on New Zealand milk, be a leader in sustainability and be a leader in dairy innovation and science.” 

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