Fonterra announces half-year profit after tax of $674m
Fonterra has announced an interim profit after tax of $674 million, up 23% on the previous year.
Chief executive Miles Hurrell said performance had been driven by higher margins and sales volumes.
“I’m pleased to report we’ve continued the positive momentum seen in our earnings performance and delivered an interim dividend of 15 cents for our Co-op’s farmer shareholders and unit holders, up from 10 cents this time last year,” Hurrell said.
“The forecast Farmgate Milk Price has also lifted recently, with a current midpoint of $7.80 per kg of milk solids, following volatility earlier in the season,” he said.
“While supply and demand dynamics remain finely balanced, with continuing global uncertainty, we are now well progressed through the season. This gives us the confidence to narrow our forecast Farmgate Milk Price range to $7.50 to $8.10.”
“The co-op is in good shape, and we are looking forward to the rest of the year,” Hurrell said.
Fonterra’s reported profit after tax was up $128m on this time last year, with earnings before interest and taxation from continuing operations up 14% to $986m. The co-op has reported a return on capital for the last 12 months of 13.4%, up from 8.6% on this time last year, and earnings per share of 40 cents, up from 33 cents.
Fonterra’s result will be welcome to dairy farmers, who have had to cope with weak dairy prices, which last year prompted Fonterra to embark on a $1 billion costsaving plan.
The dairy co-operative is in the process of merging two of its Fonterra Brands New Zealand and Fonterra Australia business units into a single entity called Fonterra Oceania.
Hurrell said changes made in the past year at Fonterra had resulted in more farmers deciding to join the co-operative.
“Our new capital structure has been in place for a year and encouragingly, we’re seeing new co-op farmers citing it as a reason for returning to the co-op,” he said.
“We have also been utilising our scale, optionality, and strong balance sheet to deliver benefits to farmers. This includes getting cash to farmers sooner through our revised Advance Rate guideline.”
“Earlier this financial year, we returned $800m to farmer shareholders and unit holders following the divestment of Soprole. We also completed the sale of our DPA Brazil JV with Nestlé to Lactalis.”
Fonterra continued to progress its emissions reduction plan, and had commissioned a wood biomass boiler at Waitoa and announced plans to electrify its Edendale site.
“Since announcing our on-farm emissions target, we have been working with customers to commercialise our farmers’ sustainability credentials. This includes introducing to customers our regenerative agriculture position, which recognises our farmers’ pastural farming system,” he said.
Earlier this month, Federated Farmers said concerns about high interest rates, poor commodity prices and excessive red tape continued to weigh heavily on farmers, but rural confidence had risen from last year’s record lows.
Last year farmer confidence hit its lowest ebb in 15 years, Federated Farmers said, but confidence rebounded, partly as a result of the change of government, which many farmers hope will see the roll-back of what Federated Farmers called “impractical and expensive regulation”.
A Federated Farmers survey in January indicated around a fifth of dairy farms were making a loss, and just under 40% were only breaking even.
Fonterra’s operating expenses for continuing operations were up $52m due to increased labour costs, professional fees and investment in IT infrastructure, but Hurrell said the co-op remained focused on reducing costs across the business.
Earnings from Fonterra’s consumer business, which supplies retailers with products, and its foodservice business, which supplies bakeries, tea houses, coffee shops, restaurants, convenience store chains and supermarkets with dairy products, both recorded earnings increases.
Fonterra saw its Greater China profit after tax rise by $94m to $232m, primarily due to strong performance in the Foodservice channel. That was driven by demand for UHT cream, Fonterra said.
Its ingredients business, which supplies food manufacturers, saw earnings fall.