Fonterra Suppliers Confident in Mainland Dairy Future
Fonterra's 460 milk suppliers in Australia, who will switch to Lactalis end of this month, are unfazed with the impending change.
Last week the co-op revised its forecast milk collections for the 2025/26 season from 1,490 million kgMS to 1,525 million kgMS.
Fonterra chief executive Miles Hurrell says favourable weather conditions experienced during the previous season are forecast to continue through spring, supporting pasture growth.
The co-op reaffirmed the 2025/26 forecast Farmgate Milk Price of $10/kgMS with a range of $9 - $11/kgMS.
“Global Dairy Trade prices continue to be robust, as does demand from customers for our products sold off GDT. However, the risk of potential volatility in commodity prices and exchange rates from geopolitical dynamics remains,” says Hurrell.
Fonterra’s FY26 forecast earnings from continuing operations, which excludes the businesses to be divested, is 45-65c/ share.
“Our forecast earnings for the year ahead exclude earnings from the businesses to be divested and is in line with the strong performance we’ve delivered in FY25,” he says.
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As well as targeting earnings to return to current levels in three years, Fonterra has confirmed it is maintaining the strategic targets and policy settings announced in September 2024, if Mainland Group is divested. This includes a target average return on capital of 10-12% from FY26, which is above Fonterra’s 5-year average.
“We have amended our debt to EBITDA target to less than 3 times and maintained our target gearing ratio of 30-40%, reflecting an appetite to maintain conservative balance sheet settings,” he says.
While there are always risks that may impact future performance, Fonterra continues to target dividend payments within its policy range of 60%- 80% of earnings in the medium term, he says.
“Our ongoing balance sheet strength, combined with our focused strategic direction, means the co-op is well prepared for the future and positioned to continue delivering positive returns to shareholders,” says Hurrell.
Special Meeting
Fonterra shareholders will hold a special meeting on October 30 to vote on its divestment plant.
They will vote on selling the co-op’s consumer and associated businesses in Oceania and around the world to Lactalis for $4.22 billion.
The co-op is targeting a capital return of $2/share from the divestment proceeds if it progresses, which is equivalent to $3.2 billion.
Chief executive Miles Hurrell says the Fonterra board intends to make a final decision on the amount and timing of the capital return once the sale agreement is unconditional, cash proceeds are received in New Zealand and having regard to other relevant factors including Fonterra’s debt and earnings outlook at the time.
The sale is subject to approval from farmer shareholders, certain regulatory approvals, and separation of the businesses from Fonterra.
