Fonterra reassures with profit rise
Dairy farmers rued a ‘‘once in a generation’’ period of bad weather but Fonterra chairman John Wilson believes they have adapted to meet market volatility.
There was still a way to go, however, to repair the pain of two years of low prices also not seen for a significant period.
Fonterra, New Zealand’s largest company, posted a net profit of $418 million for the six months to January 31, up 2 per cent on last year. The result was on revenue of $9.2 billion, up 5 per cent on the same period last year.
At the same time the dairy giant has confirmed its farmgate forecast price of $6 per kilogram of milksolids, but with a revised forecast earnings per share range of 45 cents to 55c, down from the earlier range of 50c to 60c.
After retentions, the forecast payout is $6.40, and an interim dividend of 20c a share would be paid in April.
Fonterra chairman John Wilson said it had been another interesting year on the farm, typified by a remarkably tough spring.
In October, the company forecast volumes would drop 7 per cent, but after recent heavy rain this reduced to a 3 per cent drop.
‘‘We had, right in spring, which is our peak production season, cold and wet conditions,’’ he said.
‘‘The whole lot of New Zealand was rueing it at the time, and our farmers more so than anybody. Those cold, wet conditions meant that our production over the peak was significantly down, particu- larly across the North Island and even in Canterbury as well.’’
He said it had been incredibly tough for farmers and rural communities, but the forecast $6 milk price would put more than $3b into the New Zealand economy.
Wilson said the break-even point for farms was down to a milk price in the low $5 range, rather than the previous high $5 mark.
‘‘That doesn’t come without pain,’’ he said. ‘‘What we’re seeing is much stronger balance sheets on farm, but there’s still a way to go, of course … We talked about a once in a generation spring this year; we haven’t had two years of this level of low pricing for quite a significant period of time.
‘‘So it’s been quite an unprecedented period. That is the reality of dairy farming in New Zealand now,’’ Wilson said.
The co-operative’s consumer and food-service business – where it adds more value – leapt by 30 per cent to an earnings before interest and tax result (EBIT) of $313m.
It managed to shift an additional 227 million litres of milk into consumer and food-service products, compared with 235 million for the same period the year before.
World dairy prices remained volatile but the fundamentals were sound enough to support the $6 payout forecast, and Fonterra was confident about achieving a target dividend of 40c per share.
Chief executive Theo Spierings said the result showed the move to focus on value-added products was paying off, and that Fonterra was on track to achieve its target of moving an additional 400 million litres of milk to higher-value products by year end.
Greater China was proving profitable through the company’s food-service business, and the Chilean market had grown after brand relaunches. The Australian business also showed improvement, Spierings said.
The latest results reflect a $42m gain through the sale of Fonterra’s plant in Darnum, Australia.