Good day, and thank you for standing by. Welcome to Fonterra Co-operative Group, FY 2024 Q3 Investor Call. At this time, all participants are on a listen-only mode. After the speaker's presentation, there will be a Q&A session. To ask a question during the session, you'll need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference call is being recorded. I would now like to hand the conference over to your first speaker today, Miles Hurrell, CEO. Please go ahead.
Good morning. Thanks, everyone, for joining us. I'm here in the room with Simon Till and Selena Robb. By now, hopefully, you've had a quick look at our release of the third quarter results, which includes an update of our earnings for the full year, milk price forecast for both the current and the season ahead. So I'll quickly run through that, and then we'll hand over for some questions. High level on the first slide, the co-op has continued to perform strongly and building on the results that we reported at half year. Profit after tax for the continuing operations is just over NZD 1 billion, which is up NZD 20 million on the prior year.
And this equates to an earnings per share of NZD 0.61, which is one cent lift on last year. Strong performance in the quarter has meant we have lifted our earnings guidance for the full year to NZD 0.60-NZD 0.70, and I'll cover more detail when I talk about the outlook. On a 12-month basis, our return on capital is 11.9%, which is more or less in line with our forecast. We do expect that to taper towards the end of the season, down to 10%-11%. Balance sheet remains strong, due to the underlying earnings performance and, of course, our lower debt position. Slide five, on the numbers actually, but your second slide, sorry.
Overall, we're pleased with the operating performance for the quarter, particularly a strong margin performance in both consumer and food service. A year-on-year growth in both those channels is largely offset by the ingredients performance, where the margins have returned to more normal levels, and the margins we refer to there is predominantly the stream returns. Overall, the co-op's operating performance for continuing operations is NZD 1.4 billion, which is NZD 86 million lower than last year. This is set by the lower financing costs from both lower leverage, lower average earnings, of course, lower cost of funds, coupled with a reduced tax expense. This resulted in a profit after tax for continuing operations being up NZD 20 million, or as I say, just over NZD 1 billion, which is equivalent to NZD 0.61.
We've also shown the impact of the discontinued operations, which last year included the earnings and the net gain on sale for the Soprole business in Chile. The Co-op is well positioned going into the final quarter. We have lifted and narrowed our earnings guidance to NZD 0.60-NZD 0.70 per share, which is up from the NZD 0.50-NZD 0.65 previously. The lift reflects a strong third quarter performance of, again, consumer and food service, with margins holding longer than anticipated. Noting, we still expect margins to squeeze in the last quarter as the higher milk price flows through these businesses, as well as the normal seasonal impact we have, following the milk curve. For the season, we're currently in our milk price.
We have maintained our NZD 7.80 midpoint, with the range being narrowed to NZD 7.70-NZD 7.90, reflecting where we are at this time of the year. In addition, given the strength of the balance sheet, we've also increased the rate at which we return cash to the farmers over the July to September payments. Looking ahead to the new season, milk supply and demand dynamics remain finely balanced. The China import volumes have not yet recovered to the historic levels.
Given where we are early in the season, the uncertainty in the outlook and the ongoing volatility in the markets, we are starting with a cautious approach of an NZD 8 milk price, with a range from NZD 7.25-NZD 8.75. So in summary, a really good performance, again, for the Co-op for the quarter. I'm pleased with the team's efforts and focus on closing out the year and look to the year ahead. That's all I intended to say at this point. I am now happy to open up with the rest of the team. Thank you.
Thank you. We will now conduct the Q&A session. As a reminder, to ask a question, please press star one one and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by as we compile the Q&A roster. Our first question comes from Nick Mar of Macqurie. Please go ahead.
Hi, guys. Just a couple of quick ones from me. Just on the earnings slide, you called out increased technology spend. Could you just put some quantum around it for the fourth quarter, and just talk about what this looks like in the next sort of, you know, three to five years? I sort of understand that it's a multi-year upgrade of some of the systems you have.
Hi, Nick, Simon here. Yeah, so that's sort of still being worked through in terms of the quantum. But I think if you look at maybe just a sense of what that looks like, where we show the increase in OpEx, about a third of that increase relates to technology. So if you sort of annualize that, you know, on an annual basis going forward, that gives you a good sense of that. That sort of covers a few areas, obviously just around systems, but also looking to make improvements in relation to the businesses, in particular, supply chain. So that's probably maybe a good guide to how you think about it going forward.
Sure. And is there, you know, a reasonable degree of betterment in terms of what you should get out of the technology versus just replacing stuff, the BAU? And is there a material sort of cost saving associated with it once it's all in place?
I think, I think probably the biggest component of that will relate to reduced complexity. So I think it's definitely gonna be a key enabler in terms of reducing and streamlining processes. So yeah, I think it's definitely an enabler to those efficiencies going forward.
Right. And then just sort of in terms of the earnings, you've had a number of years where things have, I guess, improved versus initial expectations and seems to be sort of sustaining at higher levels, notwithstanding a number of moving parts. And you obviously moved away from the outages within the sale of the consumer business. But just on a steady state basis, you know, are you confident enough to say that, you know, you probably are running ahead of where you were previously expecting on a sort of normal year basis?
Look, it's hard to say at this stage. I mean, yeah, all business units and channels are performing, you know, all slightly above expectation of where we sort of set out. There's not one or two that are standing out, which give us the confidence to say that we've sort of done a step change in that, clearly. But then and that, that's after you strip out stream returns, which has obviously been a big part of performance early in the season. You know, as we get into sort of thinking about the year ahead and our earnings guidance, we'll come out with a bit more clarity on that if we see if anything's changed.
But I wouldn't see too much in there at the moment, is probably my early take.
Okay, that's great. Thank you.
Thank you. Just a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. Our next question comes from Arie Dekker from Jarden. Please go ahead.
Good afternoon, and thanks for the update. Just one question from me. I mean, the earnings has, you know, clearly been pretty stable in the nine months to date, and the continuing operations, you know, this year and last, and even the, I guess, the relativity through this year have been across the quarters, have been relatively stable. Could you just sort of talk to where you see the key risks to earnings in the business at the moment, just with the environment you're in?
For the currencies, you know?
Just sort of, I guess, yeah, just looking ahead at the next sort of three to six months, yeah, where, I guess, you know, in terms of momentum, the risk areas that you might be sort of just watching, are?
Yeah. So yeah, as I've signaled for a while, that relativity's price relativity stream returns have unwound from where we were at the start of the season. So that... We've been signaling that for a while. And while we don't see any signs of that going into an inverse position, we need to just watch that doesn't play out. Now, that's unlikely to have a huge impact this year, for even if it does, that'll more sort of flow into sort of the following season. We need to look at that from an NRV position, depending on the stock that we hold at the end of the year, if we see that market, then the new season is gone is inverse.
But as I say, unlikely we're gonna see that, but that's certainly something we'll watch closely. You know, the rest of the business units are fine. We obviously go through the impairment tests of all our assets, which is a normal process this time of year, so we'll start to get clarity on those come you know towards the end of the season, end of the year. So if there's any, and we'll look at the headroom, of course, and some of those, so that's another area of focus for us. And I think we talked about at half year, there are a couple of things we need to see playing out, in Australia in particular.
The milk price position, where that lands in Australia will be important, as will some of those efficiency gains that we talked about in the half year. So those are probably a couple of things that we'll be putting more emphasis on. In terms of the underlying business, you know, consumer business is performing well. Obviously, we need to you know watch the process from here to make sure that we're all continuing to focus, which I don't have any concerns about at the moment. Food service goes from strength to strength, so I'm feeling okay there. And the ingredients that aren't related to stream returns, again, I'm feeling fine with. So, it'll need to be something sort of almost unforeseen, apart from the ones that I referred to, at this stage, Arie.
No, no, that, that, that's helpful. Thank you. And yeah, very pleasing result.
All right. Thanks, Arie.
Thank you. As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. Thank you. I see no further questions at this time. I will now hand back to Miles for closing remarks.
Great. Thanks everyone for making the time. I know it's a busy, busy time out there and reporting going on, so thank you for making the time, and the team are available for any follow-up questions from here. Thanks very much.
Thank you.
This concludes today's conference call. Thank you all for participating. You may now disconnect.