Latest / Best of Business / Miles Hurrell: Fonterra CEO reveals how strong result could lead to lower butter prices

Transcript

Miles Hurrell: Fonterra CEO reveals how strong result could lead to lower butter prices · Best of Business

• 0:09
  Speaker 1: You're listening to a podcast from News talks'd be follow
• 0:12
  Speaker 1: this and our wide range of podcasts now on iHeartRadio.
• 0:16
  Speaker 2: Regions will get a double whammy boost with this Fonterra result.
• 0:19
  Speaker 2: Net profit up over a billion dollars. Shareholders will get
• 0:22
  Speaker 2: their highest ever total dividend of fifty seven cents a
• 0:25
  Speaker 2: share for the year, which is great. Add to that
• 0:27
  Speaker 2: the consumer brand sale three out of the four billion
• 0:30
  Speaker 2: of that is going back to Miles Harrell is Fonterra's
• 0:32
  Speaker 2: chief executive with me tonight, Miles, good evening, good edning. Ruh,
• 0:36
  Speaker 2: how did you feel about that result?
• 0:38
  Speaker 1: Oh?
• 0:38
  Speaker 3: Superb result. Our team has got up and delivered and
• 0:41
  Speaker 3: you know, please be able to stand it there this
• 0:42
  Speaker 3: morning and took to a farmers and deliver a decent
• 0:45
  Speaker 3: milk price but also decent earnings on top. So no,
• 0:47
  Speaker 3: overall superb result for the team.
• 0:49
  Speaker 2: What are you expecting in the year ahead? I mean,
• 0:51
  Speaker 2: obviously it's been a great year dairy price wise. What
• 0:54
  Speaker 2: are you expecting going forward?
• 0:56
  Speaker 3: Yeah, so to finish the year ten sixteen ten dotals
• 0:58
  Speaker 3: sixteen per kilogram for the last season, and the forecast
• 1:01
  Speaker 3: ahead still remains ten dollars a second ye in a
• 1:03
  Speaker 3: row forecast of ten dollars, which has we've never been
• 1:07
  Speaker 3: done before. Of course, still a bit of uncertainty out
• 1:09
  Speaker 3: there in the international market, and we're only in the
• 1:11
  Speaker 3: early stages, so a lot of the water to go
• 1:14
  Speaker 3: unto the bridge. But as we see here today, feel
• 1:16
  Speaker 3: pretty good about ten dollars for the second year in
• 1:17
  Speaker 3: a row.
• 1:18
  Speaker 2: When you say uncertainty, do you mean supply stuff or
• 1:21
  Speaker 2: trade stuff, we'll both.
• 1:23
  Speaker 3: Mainly trade geopolitics. It just it just puts a bit
• 1:27
  Speaker 3: of uncertainty in the minds of buyers, whether they be
• 1:29
  Speaker 3: in the US or throughout Asia. It just puts unsettledness
• 1:33
  Speaker 3: into the market, and so you know, to buyers sit
• 1:35
  Speaker 3: around and wait a little bit, and does that soften
• 1:38
  Speaker 3: the market? But you know, at the same time, you
• 1:40
  Speaker 3: know we've got a good product to sell and the
• 1:42
  Speaker 3: customs of wanting it, so those things balance out, I
• 1:44
  Speaker 3: think at a good ten dollars.
• 1:45
  Speaker 2: Again, locally, the price of butter is obviously being very
• 1:49
  Speaker 2: big on the minds of consumers. Is it frustrating for
• 1:52
  Speaker 2: you to hear that debate and to hear the reaction
• 1:55
  Speaker 2: from some of our politicians.
• 1:58
  Speaker 3: Well, I think we should acknowledge. I mean, it has
• 1:59
  Speaker 3: been tough out there for consumers in the price of
• 2:01
  Speaker 3: dairy products has risen in the last twelve eighty months,
• 2:04
  Speaker 3: caught quite significantly, so we should acknowledge that it has
• 2:06
  Speaker 3: been tough. You know. That said the who also a
• 2:08
  Speaker 3: better price has probably come off about fifteen percent actually
• 2:10
  Speaker 3: in the last two months. So you know, at some
• 2:13
  Speaker 3: point that will flow through to the supermarkets. I suspect
• 2:15
  Speaker 3: that they'll set their own prices, but that should flow
• 2:18
  Speaker 3: through and give an element of relief. But you know,
• 2:21
  Speaker 3: at the end of the day, as we've said previously,
• 2:23
  Speaker 3: you know, the international market has been quite buoyant, which
• 2:25
  Speaker 3: which delivers these returns are back to New Zealand and
• 2:27
  Speaker 3: unfortunately that flows through to the markets here.
• 2:30
  Speaker 2: Why the delay for it to flow through, Well.
• 2:34
  Speaker 3: Well, I mean depends on what sort of contracts each
• 2:36
  Speaker 3: of these supermarkets will have, who they're brought from, over
• 2:38
  Speaker 3: what periods, where they be quarterly contracts or spot pricing.
• 2:41
  Speaker 3: So you know, there might be some inventory in the
• 2:43
  Speaker 3: system and when you go to the supermarket, it's there's
• 2:45
  Speaker 3: stock there that didn't arrive this morning. It might have
• 2:47
  Speaker 3: been there for us for a few weeks and so
• 2:49
  Speaker 3: those things take some time to flow through. But you know,
• 2:52
  Speaker 3: as I say, the wholesale price has come down steadily
• 2:54
  Speaker 3: in the last of a month or two, and I
• 2:56
  Speaker 3: expect that to flow through to at some point.
• 2:59
  Speaker 2: Roughly north of four billion for the sale of their
• 3:01
  Speaker 2: consumer business and three billion going to shareholders, the remainder
• 3:06
  Speaker 2: being reinvested into well.
• 3:09
  Speaker 3: So we have a range of things that we're looking at.
• 3:11
  Speaker 3: So we haven't made any calls on that other than
• 3:13
  Speaker 3: we've already got a pipeline of growth projects out there,
• 3:16
  Speaker 3: including an additional butter capacity we are putting into the
• 3:19
  Speaker 3: South Island at some point next year. So the range
• 3:23
  Speaker 3: of sort of growth projects predominantly for the export market again,
• 3:27
  Speaker 3: so some of it will go towards that. We also
• 3:29
  Speaker 3: want to keep a conservative balance sheet and it's important
• 3:32
  Speaker 3: in a corporate position, and we're dealing an international market
• 3:35
  Speaker 3: to maintain a conservative balance sheet. So a combination of
• 3:38
  Speaker 3: those things. But at the same time, you know, we
• 3:40
  Speaker 3: are in a really good position. It gives us opportunity
• 3:42
  Speaker 3: to explore other alternatives as they come up.
• 3:44
  Speaker 2: China, how are you feeling about it? They are obviously
• 3:47
  Speaker 2: a government they're trying to stoke consumer demand. It has
• 3:50
  Speaker 2: been relatively strong for us. How significant is that now
• 3:54
  Speaker 2: in terms of the business and how significant will it
• 3:57
  Speaker 2: be going forward.
• 3:59
  Speaker 3: Yeah, Look, it's still a third of our book, maybe
• 4:02
  Speaker 3: even slightly more than a third of our book, and
• 4:04
  Speaker 3: we have been strong, robust demand in the last twelve months. Yeah,
• 4:07
  Speaker 3: it has come off from where it was two or
• 4:09
  Speaker 3: three years ago, and I think we've talked about that.
• 4:10
  Speaker 3: But at the same time, we are still seeing strong demand.
• 4:13
  Speaker 3: But at the same time, you know that the innovation
• 4:15
  Speaker 3: cycle is quite fast and China, you've got to continue
• 4:17
  Speaker 3: to find new products in new markets and new customers,
• 4:20
  Speaker 3: which our team in the markets do so feeling good
• 4:23
  Speaker 3: about that. I think they've you know, they've seen the
• 4:25
  Speaker 3: GDP growth actually start to increase again from the slumps
• 4:28
  Speaker 3: they had a year ago, and so we'll ride the
• 4:31
  Speaker 3: wave of that, but certainly not back to where it
• 4:33
  Speaker 3: was in twenty twenty three. But we're in a pretty
• 4:35
  Speaker 3: good position.
• 4:36
  Speaker 2: I've had text in the show this afternoon miles from farmers,
• 4:39
  Speaker 2: from your suppliers saying we think it's crazy to sell off,
• 4:42
  Speaker 2: and it's not. You know, there is a range of views,
• 4:44
  Speaker 2: but some saying it's crazy to sell off part of
• 4:45
  Speaker 2: the company. Now that it's running well, value add et cetera,
• 4:48
  Speaker 2: what do you say.
• 4:50
  Speaker 3: Well, look, it's running, it's running a heck a lot
• 4:52
  Speaker 3: better than where it's been in the history of a carpet.
• 4:54
  Speaker 3: I'd go as far as to say that said that
• 4:56
  Speaker 3: still doesn't in our minds get to the cost of
• 4:58
  Speaker 3: capital that our farmers have invested in. So you know,
• 5:01
  Speaker 3: when you operating in a finite resource environment, whether that
• 5:05
  Speaker 3: be cash or others, you've got to put your your
• 5:07
  Speaker 3: farmer's capital things that we're going to get the best
• 5:09
  Speaker 3: return and consumers. Still is the lag out of that.
• 5:12
  Speaker 3: So the economics of it, I think are quite clear.
• 5:15
  Speaker 3: I think you get to the emotional element from our
• 5:17
  Speaker 3: farmers that their brands that they've invested in, and we
• 5:20
  Speaker 3: all understand them. But at the end of the day,
• 5:22
  Speaker 3: I've got a lot through that and say what's the
• 5:23
  Speaker 3: right thing to do for the cop well and to
• 5:25
  Speaker 3: the next generation or two will take that to farmers
• 5:28
  Speaker 3: the end of October for a vote. We're out on
• 5:30
  Speaker 3: farm next week talking to a range of farmers to
• 5:32
  Speaker 3: get their views and to answer their questions. But you know,
• 5:35
  Speaker 3: we feel confident in our position going forward, but ultimately
• 5:38
  Speaker 3: files will have the end of October.
• 5:40
  Speaker 2: All right, Myles. Appreciate your time tonight, Miles, and congratulations
• 5:42
  Speaker 2: on the result. Miles Harold, Chief executive at Volunteering.
• 5:45
  Speaker 1: For more from News Talks B, Listen live on air
• 5:48
  Speaker 1: or online, and keep our shows with you wherever you
• 5:51
  Speaker 1: go with our podcasts on iHeartRadio