Dairy giant's promise on Australian assets

·2-min read

Global dairy giant Fonterra will retain its entire Australian business off the back of promising profits, quashing fears of a partial sell-off.

The New Zealand co-op is the world's biggest dairy exporter and owns popular household brands Perfect Italiano, Mainland and Western Star.

The company faced volatile supply chains, increased costs, creeping inflation and fallout from protests in Sri Lanka during the past financial year.

Despite the challenges, Fonterra chief executive Miles Hurrell said it was a good 12 months.

In an investor briefing on Thursday, Mr Hurrell said retaining full ownership of Fonterra's Australian assets was the best path forward for continued growth and return on investment.

"We've looked at a number of options for our Australian business and have decided that it's in the co-op's best interest to maintain full ownership," he said.

"Australia plays an important role in our consumer strategy with a number of common and complementary brands.

"The business is going well, and it will play a key role in helping us get to our 2030 strategic targets."

Fonterra, which is owned by roughly 10,000 New Zealand farmers, began a review of its Australian businesses a year ago.

The co-op also considered publicly floating the business or selling a partial stake in its Australian enterprise.

The company has since announced the sale of its Chilean arm Soprole after an ill-fated expansion effort and refocused on exports from New Zealand.

On Thursday, Fonterra reported an 11 per cent increase in total revenue of $NZ23.4 billion ($A20.6 billion).

Its normalised profit after tax was up one per cent, a total of $NZ591 million. However, Fonterra's reported net profit fell three per cent to $NZ583 million. Both figures were hampered by inflation.

The company paid out a record farmgate milk price of $NZ9.30 per kilogram in the 2021/22 financial year.

Mr Hurrell said robust demand and higher dairy prices in the US and Europe buoyed Fonterra's profits.

The company initially announced intentions to return $1 billion to shareholders by 2024, but has delayed the deadline to 2030 so it can retain its Australian assets.

"Even though we have decided not to sell a stake in our Australian business, we are still committed to targeting a significant capital return to our shareholders," Mr Hurrell said.

Fonterra maintains a positive forecast for the upcoming financial year thanks to an easing of geopolitical events like China's COVID-19 lockdowns and political tensions in Sri Lanka, as well as long-term optimism for dairy.

It predicts a farmgate milk price of $NZ8.50 - $10.00 in 2022/23.

"The strength of our balance sheet means we remain in a strong position to weather uncertainty and market volatility," Mr Hurrell said.