Fonterra sees $ 1 billion return to shareholders by 2024 as it doubles New Zealand milk

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Fonterra plans to return around $ 1 billion to shareholders over the next three years as it plans to sell assets in Chile and Australia and focuses on extracting more value from New Zealand milk.

Along with its annual result on Thursday, Fonterra announced plans to sell its investments in Chile and review ownership of its Australian company, which it flagged for a potential listing in the stock market where it would retain a significant stake.

“We consider that these two measures are essential to allow a greater concentration on our New Zealand milk and, above all, to allow us to free up capital, much of which is intended to be returned to shareholders,” said the managing director. Miles Hurrell.

Under Hurrell’s leadership, Fonterra sold assets after a period of global expansion failed to deliver the promised profits and left him in too much debt. Hurrell has shifted the focus of the cooperative to New Zealand where he is seeking to derive more value from the milk produced by its 10,000 farmer shareholders.

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The Chilean assets of Fonterra, the dairy brand Soprole and its milk supplier Prolesur, require no New Zealand milk or expertise, while its Australian business uses both Australian and New Zealand milk. Assets in countries like Sri Lanka, Indonesia and Malaysia depended on New Zealand milk and were not intended for sale.

Jarden’s research director, Arie Dekker, estimated that shareholders could receive a special dividend of 60 cents per share.

Shares in Fonterra’s Shareholders’ Fund, which gives investors outside the cooperative access to its dividends, jumped 5.3% to $ 4.

THING

Fonterra takes the levels of fat and protein in milk into account when buying it from farmers.

Hurrell said he wanted to differentiate New Zealand milk on a global scale, highlighting its natural pasture-based credentials that contrast with barn-raised cows in many other parts of the world.

“New Zealand has the unique position of being the lowest carbon dairy country on the planet and when you combine that with our pasture-based model, our animal welfare standards and our efficiency at scale. , we have something that cannot be duplicated, ”Hurrell said. .

“Customers want to know where their food comes from and the environmental impact it leaves behind, and a farmer’s livelihood depends on a stable climate and healthy ecosystems.

Over the next 10 years, Fonterra plans to invest approximately $ 1 billion in reducing carbon emissions and improving the efficiency and treatment of water at its manufacturing sites.

The cooperative aims to increase its annual investment in research and development by more than 50% to reach approximately $ 160 million per year by 2030, as it seeks ways to reduce methane emissions and develop new products. innovative to support its value growth plans.

Fonterra chief executive Miles Hurrell said the fundamentals of New Zealand dairy seem solid.

ROSS GIBLIN / STUFF

Fonterra chief executive Miles Hurrell said the fundamentals of New Zealand dairy seem solid.

Hurrell said the fundamentals of dairy, and in particular New Zealand dairy, looked strong.

“Simply put, the world wants what we have: high quality, nutritious milk produced in a sustainable manner,” he said. “This comes at a time when we believe the total supply of milk in New Zealand is likely to decline, and at best stagnate.

“It gives us more options to be selective about what we do with our cooperative’s milk. In doing so, we can increase the value we generate for farmers and New Zealand over the next decade. “

Fonterra has had to rethink how it is increasing its profits as the rapid expansion of dairy farming comes to an end. The number of cows has more than doubled in the past 40 years, but the environmental cost of rapid change means that the number of cows is expected to decline in the future. The Climate Change Commission has suggested the number of dairy cattle could drop by 13 percent from 2019 levels by 2030.

The cooperative is also looking to change its capital structure to reduce its risks as it looks to a future with a declining or stable supply of milk. Farmers must vote Proposal at its annual meeting in December.

Fonterra reported a 9% drop in annual profit to $ 599 million as the previous year’s profits were inflated by one-off asset sales, but an improvement in its underlying performance allowed it to reduce its debt and increase dividend payments.

The co-op will pay a final dividend of 15 cents, bringing the total for the year to 20 cents. That’s up from a dividend of just 5 cents the year before.

Fonterra is targeting a 40 to 50 percent increase in operating profit by 2030. Given the reduction in interest resulting from debt reduction, it expects this to increase its profits from around 75 percent, giving it the ability to steadily increase dividends to around 40 to 45 cents per share by 2030.

The cooperative will pay its farmers a final farm gate price of $ 7.54 per kgMS for the 2020/21 season, as planned and ahead of the 2019/20 season payment of $ 7.19 per kgMS.

It reaffirmed its target farm milk price range for 2021/22 of $ 7.25 per kgMS to $ 8.75 per kgMS, with a midpoint of $ 8 per kgMS.


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