Fonterra has unveiled its annual financial results for the fiscal year ending on July 31, 2023, demonstrating remarkable growth in key areas.
The company reported impressive full-year earnings of 95 cents per share, a substantial increase from the previous year's 36 cents per share. This surge in earnings contributed to a reported profit after tax of $1.6 billion, marking a substantial 170% rise up $994 million from the previous year.
Additionally, Fonterra's Return on Capital soared to 12.4%, up from 6.8% in the previous year.
One noteworthy highlight is Fonterra's final Farmgate Milk Price for the 2022/23 season, which stands at a competitive $8.22 per kgMS, despite facing challenges related to reduced demand for whole milk powder in key global markets.
Fonterra CEO Miles Hurrell acknowledged the impact of reduced milk prices on farmers' businesses, emphasising their commitment to assisting farmers with a new Advance Rate Schedule guideline to bolster on-farm cash flow.
“Our 2022/23 season Farmgate Milk Price was impacted by reduced demand for whole milk powder from key importing regions. As the financial year progressed, we saw Global Dairy Trade prices drop, with the average whole milk powder price down 16% compared to last season.
“We recognise the impact the reduced Farmgate Milk Price has on farmers’ businesses and have utilised our strong balance sheet to introduce a new Advance Rate Schedule guideline to assist on-farm cash flow."
Despite these challenges, Fonterra's strong financial performance allowed the company to declare a robust full-year dividend of 50 cents per share, comprising an interim dividend of 10 cents per share and a final dividend of 40 cents per share.
In addition to these dividends, Fonterra delivered a tax-free capital return of 50 cents per share to shareholders and unit holders in August, following the divestment of Soprole, culminating in a final cash payout to farmers of $9.22 per share per kgMS.
The company's impressive results can be attributed to several factors, including favourable margins in its Ingredients channel, particularly in cheese and protein portfolios. Improved performance in the food service channel, driven by increased product pricing and higher demand in Greater China, also contributed to the strong financials.
However, Fonterra did adjust the long-term outlook for its Asia Brands and Fonterra Brands New Zealand businesses, leading to impairments of $101 million and $121 million, respectively.
Despite significant challenges, Fonterra managed to collect 1.48 billion kgMS of milk during the year, demonstrating resilience and determination in the face of rising input costs and adverse weather events in New Zealand.
Fonterra's long-term strategy, introduced in September 2021, has seen significant progress. The company divested China Farms and Soprole, focusing on New Zealand milk.
Furthermore, Fonterra has increased its emissions reduction goal, targeting a 50% absolute reduction in Scope 1 and 2 emissions by 2030 and plans to announce a Scope 3 emissions target. The company is also investing in innovation, with ventures like Vivici and Nutrition Science Solution (NSS), furthering its commitment to sustainability and growth.
Looking ahead, Fonterra forecasts a Farmgate Milk Price for 2023/24 ranging from $6.00 to $7.50 per kgMS, with a midpoint of $6.75.
Despite challenges, Fonterra anticipates improved margins in its Consumer and food service channels, leading to a forecasted earnings range of 45-60 cents per share for the next fiscal year.