Fonterra announced a strong set of results for the financial year ending 31 July 2022, reflecting a 2021/22 Farmgate Milk Price of NZ$9.30 per kgMS and normalised profit after tax of NZ$591 million.
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With a total dividend of 20 cents per share to fully shared-up farmers – comprising of an interim dividend of 5 cents per share and a final dividend of 15 cents per share – the final cash pay-out for farmers is $9.50.
Total Group normalised Earnings Before Interest and Taxes (EBIT) was NZ$991 million, up NZ$39 million or 4% on the prior year.
Chief Executive Miles Hurrell says despite the challenges including increased costs associated with supply chain volatility, 2021/22 was a good year for the Co-op.
“These results demonstrate that our decisions relating to product mix, market diversification, quality products and resilient supply chain, mean the Co-op is able to deliver both a strong milk price and robust financial performance in a tough global operating environment.
“The Co-op is pleased to be able to pay a total dividend of 20 cents per share for our farmer owners and unit holders. And this year’s higher Farmgate Milk Price is the strongest it has ever been, which is great news for our farmers. New Zealand also benefits from this, with $13.7 billion returned into the economy in milk price payments alone this year.
“Importantly, one year on, the Co-op is making tangible progress against our strategy – namely to focus on New Zealand milk, be a leader in sustainability and a leader in dairy innovation and science.
“As part of the strategic review of the ownership of our milk pools outside New Zealand, we continue to make progress, with the sales process for the Soprole business progressing. Meanwhile, we’ve looked at a number of options for our Australian business and have decided that it’s in the Co-op’s best interests to maintain full ownership.
“Australia plays an important role in our consumer strategy with a number of common and complementary brands and products and as a destination for our New Zealand milk solids. The business is going well, and it will play a key role in helping us get to our 2030 strategic targets.
“As part of our strategy to 2030, we set a goal of a return of about $1 billion to shareholders and unitholders which anticipated divestments including Soprole and a stake in our Australian business. Even though we have decided not to sell a stake in our Australian business, we are still committed to targeting a significant capital return to our shareholders and unitholders. The amount of any capital return will ultimately be determined on a number of factors including the successful completion of the divestment programme as well as our ongoing debt and earnings levels.
“Our positive performance in 2021/22 would not have been possible without the continuing hard work of employees and our farmer owners, and I want to thank every one of them for their commitment and support.â€
Mr Hurrell says despite tight supply there was robust demand from global customers for dairy, which has helped Fonterra deliver a strong milk price and financial performance.
“Total Group Revenue increased $2.3 billion to $23.4 billion due to higher product prices, but sales volumes decreased in FY22 due to short-term shifts in demand and ongoing shipping and supply disruptions.
“Strong margins in the Ingredients channel, particularly in the final quarter, resulted in an increase in our gross profit. However, total gross margin was down due to the higher cost of milk on our Foodservice and Consumer channels during the year.
“Our Total Group normalised EBIT of NZ$991 million, up 4%, reflects improved margins in our Ingredients channel but is partially offset by the higher milk price which placed pressure on margins in our Consumer and Foodservice channels.
“A series of geopolitical and economic events also impacted our performance – including a NZ$80 million adverse revaluation of the Co-op’s Sri Lankan business payables, due to the devaluation of the rupee.
“Total Group operating expenses were up in FY22, by 7% to NZ$2.4 billion, with underlying operating expenses increasing due in part to inflationary pressures and supply costs.
“Our normalised profit after tax of NZ$591 million was up 1% on last year, due to higher earnings.
“We have higher inventory than usual at the end of the 2022 financial year due to stronger milk collections towards the end of the season coinciding with factory constraints, short-term impacts on demand and shipping disruptions. 88% of our year inventory is contracted, which means the sale price has been agreed and the product contracted, however the inventory had not been shipped at the balance date. The first six weeks of the new financial year have showed good progress with shipment of this inventory. We have flexibility in relation to inventory levels due to the strength of our balance sheet.
“The increased inventory, coupled with the higher milk price, has also increased our working capital throughout the year, and our net debt position at year end. Our net debt was NZ$5.3 billion, up NZ$1 billion, and as a result our Debt/EBITDA ratio increased to 3.2x from 2.7x and our gearing ratio increased from 38.5% to 42.4%. We expect these measures to improve as our working capital returns to normal levels. Even with the higher working capital, our return on capital has increased from 6.6% to 6.8%, as a result of the improvement in our EBIT.
Mr Hurrell says FY22 saw a mixed performance across Fonterra’s three regional markets.
“Africa, Middle East, Europe, North Asia, Americas (AMENA) normalised EBIT was NZ$527 million, up 57%, due to the improved gross margin in its Ingredients channel. Asia Pacific (APAC) normalised EBIT was NZ$237 million, down 22%, with the improved performance in APAC’s Ingredients channel more than offset by the somewhat weaker Consumer and Foodservice channels. Greater China normalised EBIT was NZ$432 million, up 7%, with an improved performance in its Ingredients channel partially offset by lower margins in the Foodservice and Consumer channels, as a result of the higher cost of milk. ■