What Would Synlait Be Worth to Fonterra or a2 Milk?
Speculation of a possible joint move by Fonterra and a2 Milk to buy Synlait raises a much bigger strategic question, says agribusiness expert Dr Nic Lees.
They are the culmination of a huge amount of hard work put in by everyone across the co-op, led by chief executive Miles Hurrell and his management team. They must be commended for continuing to deliver consistently strong financial results in an increasingly volatile world.
The results also delivered relief to Fonterra’s 10,000 farms, whose owners have a stake in the co-op. Life on farms has been tough thanks to high input costs and interest rates over the past few years.
Fonterra is an extension of the farm businesses. Peter McBride, Fonterra chair, says the co-op exists to provide certainty and manage risk on their behalf, while maximising returns via a competitive and sustainable milk price, and a respectable return on the capital they invest in Fonterra.
Stable earnings across the co-op - Ingredients, Foodservice and Consumer channels- contributed to earnings before interest and tax (EBIT) from continuing operations of $1.6 billion.
Last year the co-op’s Foodservice channel was the standout performer with a return on capital of 19.6%.
Fonterra finished the year in a strong position - a solid return on capital of 11.3%, significantly above its five-year average and with a gearing ratio of 24%, a drop of almost 50% over the previous year.
A strong balance sheet delivers benefits and Fonterra farmers will receive an extra dividend of 15c/share.
Fonterra farmers, like other sectors of the agriculture sector, have been doing it tough for the past few years.
For many farmers, the extra cash this season would be used to catch up on deferred farm maintenance and improve cash flows, making life a bit easier on the farm in the coming months.
