Dairy giant posts profit, pays 5c dividend
AUCKLAND: Fonterra has reported a $659 million net profit for the July year and said it will resume dividend payouts, starting with a final dividend of 5 cents per share.
The profit, reflecting its first full year under a revised strategy, compares with a $605 million loss last year. The previous year’s loss was driven by $826 million in writedowns.
‘‘We increased our profit after tax by more than $1 billion, reduced our debt by more than $1 billion and this has put us in a position to start paying dividends again,’’ chief executive Miles Hurrell said in a statement.
Fonterra’s normalised net profit after tax of $382 million was up
$118 million on the previous year’s, and in line with market expectations.
The cooperative said it experienced a strong first half, but that parts of the business were hit hard by the impact of Covid19 in the second half.
At 5 cents per share, the dividend was at the lower end of the 57 cent range calculated under the board’s dividend policy guidelines and was well down from market expectations of about 9 to 10 cents a share.
Fonterra did not pay a dividend in 2019, or in the first half of its latest financial year.
Its normalised earnings before interest and tax came to 24 cents per share, the upper end of its 15 to 25c forecast range.
For the current year, it forecast a 20 to 35 cps earnings per share range.
The current season’s milk price forecast was pitched in a $5.90 to
$6.90 per kg band, unchanged from its previous forecast.
For the season just past, Fonterra settled on $7.14 per kg. With the dividend, the final cash payout comes to $7.19 per kg.
Under its new customerled operating model, Mr Hurrell said the cooperative had delivered a strong first half but that the pandemic had affected the second half, particularly in its consumer and food service businesses.
Fonterra had achieved its key financial targets with normalised earnings of 24 cents per share, a total group normalised gross profit of
$3.2 billion, a $181 million reduction in capital expenditure and a
$1.1 billion reduction in debt.
The ratio of debt to ebitda had now improved to be 3.4 times earnings, down from 4.4 times.
The stronger balance sheet had allowed Fonterra to focus on managing Covid19.
‘‘So far, demand for dairy has proved resilient and our diverse customer base and ability to change our product mix and move products between markets has meant we can continue to drive value,’’ he said.
The main drivers of the underlying business performance were a strong normalised gross profit in the ingredients business and, although there was the disruption from Covid19, the strong sales and gross margins from the Greater China food service business in the first half of the year.
Ingredients’ normalised ebit had risen from $790 million last year to $827 million this year, with normalised gross profit up
$165 million to $1.6 billion.
‘‘As we moved through the second half, we saw restaurants, cafes and bakeries close and intermittent spikes in supermarket sales, creating uncertainty across the global dairy market. This uncertainty resulted in softening milk prices, which helped improve the gross margin and gross profit in Ingredients.’’
Greater China food service’s normalised ebit increased from
$114 million last year to $169 million.
Mr Hurrell said the business achieved strong yearonyear sales growth in the first half of the year but was then hit hard by Covid19 when many food outlets were closed.
Normalised gross profit started to rebound in the third quarter, although it was still not back to normal, he said.
As earlier advised in its third quarter guidance, Fonterra’s food service businesses in Asia, Oceania and Latin America were affected by Covid19 in the fourth quarter, all three markets reporting losses in the second half.
Despite this, normalised ebit for food service overall was up 14% on last year, to $209 million.
The consumer business’ normalised ebit reduced to $149 million from $227 million, mainly as a result of impairments of $57 million relating to the Chesdale brand and New Zealand consumer business’ goodwill.
Mr Hurrell said the Australian consumer business performed strongly, with sales continuing to increase thanks to its popular beverage, spreads and cheese products. — The New Zealand Herald