Fonterra has earmarked NZ$1bn to spend on strengthening the New Zealand co-op’s ingredients and foodservice offering.
CEO Miles Hurrel announced the spending program, which will stretch over the next 3-4 years, is designed to generate value and drive efficiencies as the co-op focuses on B2B services following the proposed NZ$4.22bn divestment of its consumer and associated businesses (collectively known as Mainland Group) to Lactalis.
Key projects include growing the value of Fonterra’s protein portfolio; valorizing milkfat through new butter and cream cheese investments; and investing in site operations including an Enterprise Resource Planning system replacement, data, AI and automation.
In FY25, the co-op delivered a 30.6% increase in cash returns to shareholders, or NZ$16m, in FY25, with full-year dividend of 57 cents fully imputed, equating to $916m.
But due to the earnings impact of the consumer business divestment, for FY26, Fonterra’s forecast earnings stand at just 45-65 cents per share.
This is ‘in line with the strong performance’ delivered in the current fiscal year, according to Hurrell, who added the aim is for earnings to return to current levels within three years.
Protein and mozzarella among key sales drivers
Fonterra’s group operating profit rose 13% to NZ$1.7bn, up from NZ$1.5bn, with group revenue also up 15% to NZ$26bn. Profit after tax is down 4% at NZ $1.07bn with normalized earnings per share at 71 cents (no change). Return on capital is 10.9%, down from 11.3% but in line with the target range of 10-12%.
The final Farmgate Milk Price for the season is NZ$10.16 per kgMS, or NZ$15.3bn in payments, up $3.8bn on last year. Milk collections are up 2.6% in the current season. The 2025/26 forecast Farmgate Milk Price range is set to NZ $9.00 to $11.00 per kgMS.
Demand for protein as well as sales of UHT cream, butter and mozzarella in Greater China were key performance drivers during the fiscal year, the chief executive said. Meanwhile, Mainland Group – the divested consumer and associated businesses – recorded sales growth in the Consumer business and the Australia business thanks to a stable milk price.
What Miles Hurrell said
“We continue to see good demand from global customers for our high-quality products made from New Zealand farmers’ milk and this is driving returns through both the Farmgate Milk Price and dividends,” the co-op’s chief executive said.
“Our vision is to be the source of the world’s most valued dairy. Our strategy is designed to grow end-to-end value for farmers by focusing on being a B2B dairy nutrition provider, working closely with customers through our high-performing Ingredients and Foodservice channels.
“During the year, we’ve taken important steps towards this goal, including running a robust divestment process for global Consumer and associated businesses. This resulted in an agreement to sell the businesses to Lactalis for $4.22bn, subject to approvals.
“We’re also positioning the co-op to deliver further value through our Foodservice and Ingredients businesses, including continuing to invest in new manufacturing capability to meet growing customer demand for our high-value products.”
