Fonterra earnings fall despite milk price rise
Fonterra has lifted the 2018-19 forecast farmgate milk price range to $6.30-$6.60 per kilogram of milksolids but has lowered share earnings, while announcing a ‘‘full strategic review’’.
The price has risen from the December forecast of $6-6.30, following a string of positive global dairy auctions.
Chief executive Miles Hurrell said the underlying performance of the business was not where it needed to be, adding that the dividend policy would be reviewed.
The forecast earnings per share dropped to 15-25 cents from the 25-35c announced in early December, and no interim dividend will be paid out.
Federated Farmers dairy chairman Chris Lewis said farmers would be heartened by the rise in the farmgate forecast as overall their returns would be higher, even with the drop in share earnings.
‘‘It reflects the fact [that in] the last half a dozen global dairy auctions have been positive and the dollar has been stable.’’
He said Fonterra’s forecast would put pressure on competitor processors to maintain parity.
Fonterra also predicted it will collect 1530 million kg/MS for the season, up 2 per cent on last year.
Hurrell said the most pressing areas of concern were the Australian ingredients and foodservice businesses in wider Asia.
‘‘We have also felt the impact of difficult trading conditions in Latin America, mainly due to geopolitical situations in some countries,’’ he said.
‘‘In addition, the increase in milk price, which is the primary cost input into our non-milk price products, has put pressure on the margins for those products, and they significantly contribute to our earnings.’’
The dairy giant has set a target of reducing debt by $800 million this financial year.
Hurrell said it was making good progress on its portfolio review and asset divestments, and was on track to meet targets for capital expenditure and operating expenses.
Chairman John Monaghan said that although global supply remained above last season’s levels, large milk producing regions including Australia had lowered production.
Monaghan said Fonterra’s earnings performance was not satisfactory. Interim results on March 20 would update progress.