Fonterra has posted a strong $1.1 billion net profit result for FY24 with a special dividend. 

The big dairy co-operative had little to say about the potential sale of part or all of its $3 billion-plus global consumer product business, only stating it would share from next week its “revised” business strategy and outcomes farmer-shareholders and Fonterra unit holders could expect. 

Earnings before interest and tax (ebit) from continuing operations were $1.56b with earnings per share from continuing operations of 70c per share. 

It will pay a total dividend of 55c per share comprising a 15 cent interim and 25 cent final dividend and a 15c special dividend. 

The good news rolled on with an announcement of a lift in the farmgate milk price for 2024-2025 and FY25 earnings guidance. 

The milk price forecast has been raised by 50c/kg with a midpoint price of $9/kg and the FY25 earnings guidance is 40-60 cents per share. 

The final farmgate milk price for the 2023-2024 season is $7.83/kg milk solids. 

FY24 revenue was $22.8b, down from $24.5b in the 2023 financial year. 

Chief executive Miles Hurrell said the payout reflected Fonterra’s strong earnings performance and the long-term resilience of the co-op. 

“We’ve maintained the positive momentum seen in FY23 and delivered earnings at the top end of our forecast range. 

“Our total dividend of 55 cents per share is the second largest since Fonterra was formed. It includes a 15 cent interim dividend and a 25 cent final dividend driven by strong FY24 earnings. 

“In addition, our capital management efficiency and ongoing balance sheet strength have enabled us to return an extra 15 cents per share to farmer shareholders and unit holders through a special dividend. 

“The final farmgate milk price for the 2023/24 season finished at $7.83/kg. This, combined with the 55c per share dividend, provides a total cash payout to a fully shared up farmer of $8.38/kg.” 

Hurrell said Fonterra was well-placed to consider the next phase of its strategy to grow long-term value for the co-op. 

Return on capital for FY24 was 11.3%, above the target range for FY24. 

Earnings from continuing operations at $1.56b were well above previous years, albeit down on FY23 which benefited from elevated price relativities, said Hurrell, who received total remuneration of $5.9m, according to the 2024 annual report. 

The lift in this season’s forecast farmgate milk price followed further recent strengthening in Global Dairy Trade prices and constrained milk supply in key producing regions, he said. 

Fonterra’s new forecast farmgate milk price range for the 2024/25 season is $8.25-$9.75 per kg milksolids, with the co-op continuing to maintain the wide range due to the relatively early stage of the season. 

The forecast earnings range reflected an expectation of maintaining strong margins in all three of Fonterra’s sales channels, while investing in the co-op’s IT & digital transformation and incurring higher tax expenses, Hurrell said. 

Fonterra said after several years of strong earnings performance, the co-op exhausted its tax losses in FY24 and will now be paying tax. 

Chief financial officer Andrew Murray said due to the change, when Fonterra declared a dividend from FY25 and beyond, imputation credits would now be available to be attached to the dividend. 

“To enable all shareholders to receive the imputation credits, we are changing how we treat supply-backed shares for tax purposes which means that more tax will be paid by Fonterra. 

“While this does not impact the operating performance of Fonterra, it will reduce our reported earnings per share in future years, as Fonterra will have paid the tax on the cash to be distributed.” 

Full year milk collection was 1471m kg of milk solids. 

On this year’s change in business strategy which raised the potential for the sale of Fonterra’s consumer product businesses, Hurrell said: “This year, Fonterra completed a strategic review that reinforced the role of its foodservice and ingredients channels and confirmed its strengths in partnering with customers to produce world-class, innovative dairy. 

“As a result of this work, in May the co-op announced that it is exploring divestment options for its global Consumer business, as well as Fonterra Oceania and Sri Lanka. 

“Over the last few months, we have appointed advisors to assist with assessing divestment options for our consumer businesses and this work is ongoing. 

“As we can see from today’s result, the businesses in scope for potential divestment are performing well. We remain committed to a pathway that would maximise value of these businesses for our farmer shareholders and unit holders. Alongside this, we have revised our strategy to have a sharper focus on the co-op’s strengths and where we can best create value. 

“We will be sharing this revised strategy, as well as the outcomes shareholders and unit holders can expect from the co-op, next week.” 

Andrea Fox joined the Herald as a senior business journalist in 2018 and specialises in writing about the $26 billion dairy industry, agribusiness, exporting and the logistics sector and supply chains.