Fonterra’s milk price down

Fonterra Co-operative Group doesn’t expect to pay a final dividend this year to bolster its balance sheet after paying Danone over the 2013 botulism scare and writing down its Beingmate Baby & Child Food investment.

The Auckland-based company affirmed normalised earnings per share guidance of 25-30 cents, implying earnings of $403 million to $484m, however it indicated it’s likely to be at or slightly below this range, and anticipates dividends will be only the 10 cents per share already paid in April, it said. The co-operative previously lowered its forecast dividend to 15-20 cents per share in May as rising milk prices squeezed margins, from an earlier projected payment of 25-35 cents per share.

Fonterra also trimmed its 2017/18 forecast farmgate milk price to $6.70 per kilogram of milk solids from $6.75/kgMS. It didn’t comment on the 2019 forecast for $7/kgMS. New chairman John Monaghan said the moves departed from the amount calculated by the milk price manual to strengthen the balance sheet after the ¤105m ($182m) settlement with Danone and a $405m impairment charge on Beingmate.

“During the process of closing our books for the financial year end the need for these actions has become clear. Our forecast performance is not where we expected it would be,” Mr Monaghan said. “While the numbers are not finalised, our margins were less than we forecast right across our global ingredients and consumer and food service businesses.”

In May, Fonterra raised the milk price 20 cents to $6.75/kgMS and gave the bullish opening forecast for 2019 due to strong global demand for dairy products.

“You never want to have to reduce the milk price at the season’s end, but it is the right thing to do and $6.70 remains a strong milk price,” Mr Monaghan said.

Prices were steady at last week’s Global Dairy Trade auction, and with a strong shortterm demand for whole milk powder. The co-operative’s full year results will be announced on September 13.