Fonterra resumes first-half dividend payment
Fonterra’s first-half profit fell as the previous year’s earnings were inflated by one-off asset sales, however an improvement in its underlying performance means it has resumed paying dividends.
The co-operative posted a 22 per cent fall in net profit to $391 million in the six months to the end of January, with the previous period’s profits boosted by the sale of its half share in pharmaceutical supplier DFE Pharma and nutrition business Foodspring.
Fonterra’s normalised profit, which excludes one-time items and better reflects the underlying performance of the business, rose 43 per cent to $418m. The improvement enabled the board to resume the payment of a first-half dividend of 5 cents a share on April 15.
Chief executive Miles Hurrell said the Greater China business was the ‘‘standout performer’’ in the first half, with pre-tax earnings up 38 per cent to $339m helped by its strong foodservice business, improvements in its consumer business, and China’s strong economic recovery following the initial impact of Covid-19. The Greater China gross margin jumped to 17.7 per cent from 14.3 per cent.
Fonterra’s foodservice business was the biggest contributor to Greater China’s earnings, with its gross margin rising to 28.2 per cent from 20.3 per cent as it shifted milk into higher value products.
It developed more than 120 new ways of using its products for the Chinese market over the last six months, including fruit tea macchiato with whipping cream, baked cheese rice with mozzarella cheese and cream cheese Chinese pastry. It has released its first ambient cream that will enable it to supply cities that don’t have extensive cool supply chains, and added 22 cities to its foodservice network, taking the total to 372.
Consumption of dairy products is growing in China, stoking demand for imports and underpinning Fonterra’s business. Greater China is the largest of Fonterra’s three geographic markets, accounting for 46 per cent of pre-tax profit in the first half, up from 35 per cent in the previous period.
‘‘Greater China continues to be one of our most important strategic markets,’’ Hurrell said.
‘‘We remain committed to growing the value of our Greater China business, which we’ll do by bringing the goodness of New Zealand milk to Chinese customers in innovative ways and partnering with local Chinese companies to do so.’’
Since Hurrell took over in 2018, initially in an interim capacity, the co-operative owned by its 10,000 farmer shareholders has honed its focus on its core New Zealand milk business, selling overseas assets and underperforming plants, and reducing costs and debt, to improve its earnings. Its debt fell 3 per cent to $5.6 billion in the first half.
‘‘There’s still more work to do, but our improved performance and reduced debt levels are helping us build the financial strength of the co-op,’’ he said.
The Greater China business was the ‘‘standout performer’’.
Miles Hurrell Fonterra chief executive