The company has raised its dividend policy to 60% to 80% of earnings, up from an average of 50% in the five years through 2023, it said yesterday. — Bloomberg
WELLINGTON: Fonterra Cooperative Group, the world’s biggest dairy exporter, is targeting higher dividend payments to farmers to ensure it retains its share of New Zealand milk collection.
The company has raised its dividend policy to 60% to 80% of earnings, up from an average of 50% in the five years through 2023, it said yesterday.
It also increased its target rate of return on capital to 10% to 12% from an average 8.6% and pledged to continue to grow the milk price it pays farmers.
Fonterra is acting to reverse a slide in its milk collection, which has dropped more than 6% in three years to 16 billion liters in the 2023-24 season.
The number of dairy farms that supply its New Zealand plants has been declining due to changing land use, such as switching to forestry, or because of new competitors.
The company is betting it can retain and attract farmers by paying them the strongest possible dividends and milk price and by using advance payments to improve their cash flow.
It will also target early-career farmers and connect with those who may want to leave the industry to keep that land.
Fonterra last week forecast the 2024-25 milk price could be NZ$9 per kg of milksolids, up from NZ$7.83 the previous season.
The refreshed strategy swings the attention onto the company’s Ingredients and FoodService businesses as the future drivers of earnings.
Fonterra reiterated it doesn’t see itself as the natural owner of the consumer business and continues to review the options for that unit, including divestment.
“The cooperative’s improved returns will primarily be driven by increased earnings in Ingredients and Foodservice along with operational efficiencies,” chief executive officer Miles Hurrell said.
“We also intend to make a significant capital return to shareholders if we divest our consumer business.”
Fonterra wants to deepen its partnerships with strategic Ingredients customers like Nestle and Mars Inc, while ensuring it adds to manufacturing capacity for high-value nutritional milk powders and milk-derived proteins.
In its FoodService business it wants to expand in more Chinese cities and increase its presence in South-East Asia where demand for products like cream cheese, UHT cream and mozzarella is growing.
The strategy envisages development of more innovative food products and continued efficiency gains at its manufacturing plants through use of robotics, automation and artificial intelligence. — Bloomberg
