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How Fonterra afforded a huge payout [VIDEO} · The SME Stream

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  Speaker 1: The information provided in this program is of a general
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  Speaker 1: nature and is not intended to be personalized financial advice.
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  Speaker 1: We encourage you to seek appropriate advice from a qualified
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  Speaker 1: professional to suit your individual circumstances. Fonterra is paying its
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  Speaker 1: second largest dividend in its history. How the dairy cooperative's
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  Speaker 1: finances have changed and how its future will coop And
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  Speaker 1: I think you and I.
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  Speaker 2: Took about a year ago around what was their growth.
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  Speaker 3: Can so started to see that play out.
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  Speaker 4: And those things alive give us a confidence that will
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  Speaker 4: consu to pay strong evenments.
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  Speaker 1: Our export let economy is built on dairy, making Fonterra
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  Speaker 1: one of our more important assets. It just made an
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  Speaker 1: annual net profit after tax of one point one billion dollars,
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  Speaker 1: down from one point six billion last financial year. It
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  Speaker 1: also announced a fifty five cents per year dividend for
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  Speaker 1: the year, including a fifteen cent special dividend, making the
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  Speaker 1: total the second large in its history. The cooperative, which
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  Speaker 1: is owned by its dairy farmer suppliers, has come a
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  Speaker 1: long way since its reset started in twenty eighteen. It's
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  Speaker 1: sold out of joint ventures around the world and Brazil,
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  Speaker 1: Chile and China, including its loss making China farms business.
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  Speaker 1: It even flicked its Tip Top ice cream business in
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  Speaker 1: twenty nineteen. It's now consulting on another major asset sale.
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  Speaker 1: It's New Zealand Consumer division that comprises its iconic brands Anchor,
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  Speaker 1: Mainland Carpety and Lenen and Mump Powder, Western Star Butter
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  Speaker 1: and Perfect Italiano Cheese. It'll need farmer shareholders to approve
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  Speaker 1: any sale, and they may want to see some of
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  Speaker 1: the price fetched return to them, given they've been struggling
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  Speaker 1: with on farm inflation in recent years, with costs for
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  Speaker 1: fertilizer increasing up to thirty percent.
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  Speaker 2: Particular labor, all those farm inputs, you know, being pretty
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  Speaker 2: much out of control on the last threet. That's starting
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  Speaker 2: to abate now, so farm imagines are starting to improve again.
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  Speaker 1: Dairy farmers received seven dollars eighty three per kilo of
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  Speaker 1: milk solids last season, barely enough to break even, but
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  Speaker 1: Fonterra expects to pay a higher price this season, with
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  Speaker 1: a midpoint of nine dollars.
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  Speaker 2: Yeah, it helps, but nine dollars isn't the old nine doors.
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  Speaker 2: So we're talking about a nominal nine dollars, nine dollars
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  Speaker 2: six or sevens ago with a lot more than it
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  Speaker 2: is today.
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  Speaker 1: It reflects the co op strategic focus on New Zealand
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  Speaker 1: milk as it continues to get its balance sheet and order.
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  Speaker 1: That's what I talk to its leaders about at its
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  Speaker 1: financial result press conference in Auckland this week, wanting Peter
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  Speaker 1: Miles and Andrew Nice and Andrew have you met you before?
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  Speaker 1: Thank you someonech for having us first Miles the second
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  Speaker 1: largest ever dividend in the history of this co op.
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  Speaker 1: What about the financial performance in the past twelve months
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  Speaker 1: but also going forward gives you confidence that you can
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  Speaker 1: pay that amount?
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  Speaker 4: Yeah, Well, I mean we've been on a journey for
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  Speaker 4: sort of the last four or five years and getting
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  Speaker 4: their business into good shape. And you've seen that in
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  Speaker 4: the slides here with regards to a balance sheet. So
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  Speaker 4: you get you balance, you under control, gives you the optionality,
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  Speaker 4: it gives you the flexibility. And so you've seen the
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  Speaker 4: investments we've made more recently, and so have our protein
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  Speaker 4: products and so are UHT and so's aout that's about
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  Speaker 4: growing the organization as a whole.
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  Speaker 3: And I think you and I talk about that.
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  Speaker 4: A year ago around what is that growth plan? So
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  Speaker 4: you're starting to see that play out and those things
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  Speaker 4: a line and give us the confidence that will continue
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  Speaker 4: to pay strong.
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  Speaker 1: Them on balance sheet. Andrew, I'd love to ask you
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  Speaker 1: about that net debt figure. I remember sitting in this
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  Speaker 1: room a few years ago and that gearing ratio was
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  Speaker 1: at forty eight percent. Now it's down to twenty four percent.
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  Speaker 1: Talk to us about the decisions that have had to
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  Speaker 1: be have had to have been made, and the focus
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  Speaker 1: and this co opt to get it down to the
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  Speaker 1: level where it's at now. And how do you feel
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  Speaker 1: about where it is now?
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  Speaker 3: So I actually feel really comfortable was where we are.
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  Speaker 3: I'll know, if you look at our guardrails, we've been
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  Speaker 3: aiming to get down to this sort of level. We're
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  Speaker 3: probably a little memb, a little lawd wh where we
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  Speaker 3: would adly be. But obviously that you know, we've had
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  Speaker 3: a really good selection of innings that's enabled us to
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  Speaker 3: get ourselves into really good sheep and that's what sets
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  Speaker 3: us up for the future. I think if we look
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  Speaker 3: out a little bit, you know, we do have some
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  Speaker 3: larger investments coming up as we continue doing the Sustinability
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  Speaker 3: agenda and the other goals investments. So feeling really comfortable
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  Speaker 3: that we're in the exact range we need to be,
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  Speaker 3: and we can also stand a little bit of bolatility
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  Speaker 3: in the market.
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  Speaker 1: Thanks Andrew Miles on consumer I'm sure everyone wants to
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  Speaker 1: know about this today. Margins there have improved massively. Sales
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  Speaker 1: were up six percent, made one hundred and ninety nine
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  Speaker 1: million dollars in earnings in the financial year just ended.
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  Speaker 1: Why do you want to get rid of it?
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  Speaker 4: Well, clearly it's it's had one of us bitter years
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  Speaker 4: across the history of the cooperative, which shows that the
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  Speaker 4: team of focus of delivering our brands are wanted by
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  Speaker 4: consumers globally. But still we're still not the natural owner
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  Speaker 4: of that business when you look at the return on
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  Speaker 4: capital compared to other business units. We believe very gingredients
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  Speaker 4: in our food service as it has a better future
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  Speaker 4: for this corporative, and so we don't shy away from
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  Speaker 4: the fact that we've had a very strong performance. It's
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  Speaker 4: still not at the levels that we would like to
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  Speaker 4: see over the long terminus. A new natural odor is
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  Speaker 4: the right place for us.
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  Speaker 1: How much do you think you can fetch for it
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  Speaker 1: in a price.
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  Speaker 4: Tamally two too early? Have you got a checkbook?
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  Speaker 1: Medicine I don't think I can afford three point five
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  Speaker 1: billion dollars, but fans for asker, I mean, and as.
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  Speaker 4: I said, I think in Q three, you know we've
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  Speaker 4: had had some very good interest in our business. We've
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  Speaker 4: now apported some advice to help us on the next phase,
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  Speaker 4: and so we're looking forward to sort again getting that
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  Speaker 4: kicked off before crystals.
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  Speaker 1: Simplified strategies are what we're seeing from a lot of
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  Speaker 1: businesses at the moment. You're seeing us Worth Rhyme and
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  Speaker 1: healthcare with the warehouse. All of these businesses are getting
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  Speaker 1: back to their core. But I want to know what
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  Speaker 1: Fonterra will then look like going forward if it loses
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  Speaker 1: one of only three divisions that it has left. We've
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  Speaker 1: seen the Ingredients, which is one of the two that
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  Speaker 1: you'll be left with after divesting. Consumer hasn't had that
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  Speaker 1: good of a year. So how diversified and strong will
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  Speaker 1: Fonterra without Consumer and a more simplified strategy going.
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  Speaker 4: For Yeah, So despite this year's Ingredients being back on
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  Speaker 4: last year, I mean last year was extraordinary and that
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  Speaker 4: was a year that we've never seen before in our
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  Speaker 4: ingredient's business. Given the stream, the relativities between the reference
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  Speaker 4: and non reference. So even this year is a very
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  Speaker 4: very strong performance or ingredients business when you look back
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  Speaker 4: over the history. So we shouldn't we shouldn't we should
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  Speaker 4: acknowledge that in our food service business continues to go
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  Speaker 4: from strength to We think by focusing what we're good at,
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  Speaker 4: which is collection processing and their B to B business,
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  Speaker 4: we think there's more upside to be head there than
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  Speaker 4: trying to chase the consumersiness as well.
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  Speaker 1: Peter would love your thoughts on the Chinese economy at
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  Speaker 1: the moment and your ingredients business to mention that again
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  Speaker 1: there was lower volumes down by about four percent and
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  Speaker 1: greater China. How are you thinking about that going forward?
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  Speaker 5: Well, it feels like from a dairy perspective that we're
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  Speaker 5: on there in China, like demands particular the last couple
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  Speaker 5: of months has started to recover and you know seven
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  Speaker 5: leaders down with pressure on China is Molok supply and
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  Speaker 5: also some potentially aged indon treated they've had in the
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  Speaker 5: home space. That's really a home peller story and that's
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  Speaker 5: the product of last result for the Chinese.
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  Speaker 2: So we're feeling a lot better about demand.
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  Speaker 1: From John Miles, if you had any feedback on that
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  Speaker 1: nine bucks a midpoint today, So the smiling farmers out there.
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  Speaker 4: Yeah, the phone's been ringing this morning quite a lot.
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  Speaker 4: So I know that that's been well received, and I think,
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  Speaker 4: you know, Peter referred to that in the opening. I mean,
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  Speaker 4: we've come off the back of a couple of tough
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  Speaker 4: years behind fun Gate, we struggled to break even, and
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  Speaker 4: so that to be very well welcomed. I think there's
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  Speaker 4: some probably caval expenditure that farmers haven't been able to
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  Speaker 4: be in the last couple of years, and so well,
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  Speaker 4: well it's a fantastic number. You know, there's a couple
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  Speaker 4: of years catch up that I think farmers are looking
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  Speaker 4: forward to.
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  Speaker 1: Thanks so much. I appreciate it.