Fonterra praised for turnaround but openness sought

AUCKLAND: Fonterra has staged a welcome turnaround in its financial performance but it needs to reveal more detail for the market to gain confidence in its new strategy, Jarden head of research Arie Dekker says.

The cooperative last week reported a $659 million net profit for the July year, reversing the previous year’s $605 million loss, and resumed dividend payouts.

Fonterra (FSF) has paid off more than $1 billion in debt and sold assets bought under its previous policy of increasing volume.

The cooperative’s new strategy focuses on raising value, with a renewed focus on its New Zealand production base.

‘‘At this point, we would characterise FSF’s key achievement as having been in halting a strategy that resulted in meaningful value destruction,’’ Mr Dekker said.

‘‘FSF moved away from its core capabilities and pursued a strategy that was not consistent with its capital structure.

‘‘But FSF’s transition is still in its very formative stages and, importantly, we believe FSF needs to start to put more flesh around what its new strategy means for farmer shareholders . . . we would like FSF to give more visibility on direction, highlighting its confidence and allowing for more scrutiny and accountability.

‘‘We continue to wait for a better understanding of what FSF’s embedded New Zealand capacity is capable of producing and how that aligns with what it wants the product mix to be in five years’ time.’’

Fonterra’s net economic debt was down to $4.7 billion, with the potential to fall further by $400 million to $500 million without a meaningful loss of earnings.

Mr Dekker said there was a link between Fonterra’s disappointing performance of the past decade and a lack of openness.

He said the market needed more visibility on. —

The investment required and expectations FSF had for its core value add growth products and markets over the next five years, given the still mixed performance in consumer and food services in Greater China and Asia.

What FSF’s plans were for noncore offshore businesses that fit outside, or on the edges of, FSF’s New Zealandfocused strategy, such as Chile, Australia Ingredients.

The framework in which FSF assessed and thought about its retention of mature markets, in the context of its growth investment priorities and capital structure considerations. How large should the coop be?

What FSF’s substantial research and development investment was going into and what the investment requirements and expectations were from earlystage products.

Capital structure and milk supply.

Mr Dekker said while FSF was moving in the right direction on earnings, having achieved FY20 normalised earnings per share of 24c, its performance remained substantially below where it sat 10 years ago, when it was consistently around 40cps50cps.

Fonterra’s guidance of 20cps35cps in 2021 highlighted that a targeted return to 50cps in 2024 was possible, but annual results remained subject to volatility.

‘‘Consistent sustained earnings growth is key from here,’’ Mr Dekker said. — The New Zealand Herald

❛ At this point, we would characterise FSF’s key achievement as having been in halting a strategy that resulted in meaningful value destruction