Fonterra to retain Australian business

New Zealand dairy cooperative Fonterra will retain its Australian operations, CEO Miles Hurrell announced on the release of FY22 results. The co-operative had a “good year” despite increased costs from supply chain volatility Hurrell said.

Snapshot

  • Total Group Revenue: NZ$23.4bn, up 11%;
  • Normalized Profit After Tax: NZ$591m, up 1%;
  • Total Group normalized EBIT: NZ$991m, up 4%;
  • Net Debt: NZ$5.3bn, up NZ$1bn;
  • Normalized earnings per share: 35c/share, up 1 cent;
  • Final 2021/22 Farmgate Milk Price: NZ$9.30 per kgMS;
  • Milk collections: 1,478 million kgMS, down 4%; and
  • FY23 Outlook: Forecast 2022/23 Farmgate Milk Price range of NZ$8.50–$10.00 per kgMS, with a midpoint of NZ$9.25 per kgMS. Forecast 2022/23 normalized earnings guidance range of 45-60 cents per share.

“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,” Hurrell said. .

On the release of its FY21 results, the co-op announced it was looking to offload its Australian operations as it moved into a phase of asset evaluation. Its Chilean operations Sorpole and Prolesur were also flagged for sale.

In Australia, Fonterra owns brands Western Star butter, Perfect Italiano and Mainland cheese, as well as license to produce some Bega branded products.

Hurrell said the sale of the Soprole business was “progressing”, despite reports of protests at its Chilean plant earlier this month.

“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.

“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,” Hurrell said.

The main 2030 target is a return of around $1 billion to shareholders and unitholders.

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.

While there were strong margins in the ingredients channel, total gross margin was down because of the higher cost of milk in foodservice and consumer 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.

“Our normalized profit after tax of NZ$591 million was up 1 percent on last year, due to higher earnings.

There was a “mixed performance” across its three regional markets:

Africa, Middle East, Europe, North Asia, Americas (AMENA) normalized EBIT was NZ$527 million, up 57 percent, due to the improved gross margin in its Ingredients channel.

Asia Pacific (APAC) normalized EBIT was NZ$237 million, down 22 percent, with the improved performance in APAC’s Ingredients channel more than offset by the somewhat weaker consumer and foodservice channels.

Greater China normalized EBIT was NZ$432 million, up 7 percent, 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.

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