Friday, March 29, 2024

Fonterra’s financial tide turns

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Fonterra has forecast a further billion-dollar reduction in debt this financial year, to bring its debt-to-capital ratio down from 48% to 38%.
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Half of the reduction will come from the already announced sale of its 50% of DFE Pharma, the European medical lactose company.

Savings will also come from improved earnings, lower capital spending and other divestments, chief financial officer Marc Rivers said.

Other forecasts for FY2020 are relatively modest as Fonterra’s top table said the year will be one of transition towards a sustainably profitable company. 

Capital spending will be no more than $500 million and operating expenditure will be maintained at the 2016-17 level of $2.3 billion.

It has also forecast gross margins for the ingredients and consumer-food service divisions will be unchanged from last year.

The first forecast for earnings a share was between 15c and 25c, compared with 17c achieved in FY2019.

Fonterra’s head count fell by 1400 in FY19 and chief executive Miles Hurrell said that was partly a result of the sales of subsidiaries and many of the people might still be working in their old roles for new owners.

More than 700 of the staff members who left earned more than $100,000.

Hurrell’s own package is worth $2.4m. His predecessor Theo Spierings’ take-home pays were two and even three times larger.

The reorganisation will result in job losses but the divisional needs and numbers have not been discussed or settled yet, he said.

Chief operating officer Robert Spurway resigned to pursue other management interests and his replacement will be Mercury chief executive Fraser Whineray, a former Dairy Board graduate.

Two other senior management team appointments are Kelvin Wickham as chief executive of the Africa, Middle East, Europe, North Asia, Americas division and Judith Swales as head of Asia and the Pacific.

Hurrell is recruiting a China divisional chief executive and hopes China consumer and food service chief Christina Zhu and China ingredients chief Teh-Han Chow will be on the short list.

Rivers said debt in relation to earnings before interest, tax, depreciation and adjustments (EBITDA) must get down to the range 2.5 to 3.5 times.

Last financial year it was 4.3 times and he predicts it will end between 3.3 and 3.9 times for FY20.

Fonterra is also aiming at 8.5% return on capital within three years and 10% within five years and is targeting earnings a share of 40c and 50c in the respective time periods.

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