Fonterra posts strong half-year profits

FonterraNew Zealand dairy producer, Fonterra, posted a strong profit increase of $409 million, up 123 per cent from the previous corresponding period.

The company reported an earnings before interest and tax of $665 million, up 77 per cent on the comparable period.

Fonterra’s Business Performance chief executive, Theo Spierings, said the company’s strong performance reflected a sustained effort in three main areas.

“We focused on the efficiency of our ingredients business and capturing demand for ingredients in a wide range of markets. We aimed to make the most of global consumption growth by building demand for higher-value products in our consumer and foodservice markets.”

“Our working capital has improved significantly, and our inventory levels are lower than in recent periods for this time of year – down nine per cent in volume terms due to strong sales.”

The Auckland-based company has also increased its dividend to help struggling farmers in the country cope with the collapse in dairy prices.

Company chair John Wilson said the supply and demand imbalance in the globally traded dairy market has brought prices down to unsustainable levels for farmers around the world, and particularly in New Zealand. The strong New Zealand dollar has also had a negative impact on milk prices.

The challenging global environment had put “unprecedented pressure” on their farmers, Wilson said.

“The timing of these payments is a specific response to the current, very challenging, financial conditions farmers are facing and does not signal any intention to move away from Fonterra’s normal practice of twice-yearly dividends paid in April and October,” he said.

Wilson said the company’s management is, “aware of the need for strong performance to ensure that we get every possible cent back into farmers’ hands during a very tough year”.

“We have lifted profitability from last season to this season, resulting in higher earnings per share to help offset low global dairy prices. As a result, we have delivered an interim dividend of 20 cents per share, up from an interim dividend for last year of 10 cents per share,” he added.

Wilson said if they want to continue the company’s solid performance, they will have to continue, “to work on capturing demand and margins in the second half of the year, just as it did in the first half, by focusing on our consumer and foodservice volumes and those of specialty ingredients”.

“Our net debt is $6.9 billion and we are expecting this to reduce significantly in the second half of the year. We are on track to reduce gearing to 40-45 per cent by the end of the current financial year,” he added.

Fonterra shares fell by 0.3 per cent in New Zealand following its results.

This article first appeared in our sister site Inside Retail NZ.

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