Fonterra Co-operative Group (FCG) H2 2024 earnings summary

Executive summary

• Delivered strong annual results, maintaining a robust balance sheet and meeting strategic promises, despite a year-over-year decline in operating profit and earnings per share.

• Consumer and Foodservice margins were pressured by rising milk costs in Q4 but are expected to recover as price increases are passed through.

• Growth projects and capital investments are value accretive, with strict hurdle rates for approval.

• Return on capital delivered at 11.3% for the year, down from 12.4% year-over-year.

• Total payout per share was $8.38, with a dividend of $0.55, up from $0.50.

Financial highlights

• In-scope businesses delivered just under NZD 300 million EBIT for FY 2024, with group EBIT from continuing operations at $1,560m, down from $1,755m year-over-year.

• Net debt reduced to $2.6b, with gearing ratio improving to 24.0% from 28.8%.

• Group profit after tax from continuing operations was $1,168m, with discontinued operations posting a loss after tax.

• Foodservice and Consumer EBIT improved, offsetting lower Ingredients earnings.

• Special dividend highlighted, with balance sheet gearing well below previous expectations.

Outlook and guidance

• Expectation of stable to slightly growing earnings in Foodservice and Consumer for FY 2025 as pricing adjustments take effect.

• FY25 forecast Farmgate Milk Price is $8.25–$9.75 per kgMS, with forecast earnings of 40–60 cents per share.

• IT and digital transformation spend will peak in FY 2025, with efficiency gains anticipated.

• Effective tax rate projected around 25%, with dividends expected to be 100% imputed.

• No specific EBIT guidance for in-scope businesses, but positive trajectory expected to continue.