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Fonterra Half-Year Profit Surpasses $409 Million
March 22, 2016

Fonterra’s half-year profit has more than doubled to $409 million, bringing welcome news to struggling farmer-shareholders. While the co-operative will pay dividends earlier than usual, it will not extend a loan support scheme for those feeling the squeeze of low dairy prices.

Fonterra’s net¬†profit soared 123 per cent in the six months to January 31 compared to the same previous period.

Earlier this month, it announced it was dropping its milk payout forecast to $3.90 per kilogram of milk solids.

That is the lowest payout since the 2006/2007 season and well below the estimated $5.30 break-even point for many farmers.

The company announced a forecast full-year dividend of 40 cents a share, suggesting a cash payout of $4.30.

The interim dividend of 20c is twice as much as that paid last year.

It will be followed by a further 10c in May and 10c in August, earlier than the usual October payment date.

Chairman John Wilson said the earlier payment was designed to help support farmers at a time when cash flows would be extremely tight.
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It remained subject to the board’s approval, as well as Fonterra staying on track to hit its financial forecasts.

Wilson said the board had considered an extension to the support loan provided early in the season, but decided paying the final dividend earlier was the better option.

Low dairy prices had placed a great deal of pressure on incomes, farm budgets, and farming families, he said.

“Our 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,” he said.

The result saw an additional 235 million litres of milk converted into higher-returning consumer and foodservice products.

Wilson said the priority was to generate more value out of every drop of milk.

Federated Farmers dairy chairman Andrew Hoggard¬†said¬†the¬†dividend changes¬†would definitely help with farmers’ cash flows over the next six months.

The improved business performance was also good news following a lot of negative press over the past month.

“At the end of the day we still need a sustainable milk price, a much better one than we currently have but it’s a world dominated issue. Fonterra has control over the dividend, it doesn’t have control over the world milk price so there’s not a lot they can do about it.”

There¬†was some frustration that the good financial¬†result had not filtered through to an improved milk price, but that price reflected milk’s value within the global market.

“Which right now is sweet F¬†all,” he said.

“You can’t really blame Fonterra for the milk price, but you can hold them to account over the dividend.”

The bulk of the country’s sharemilkers would not see any of that dividend because they did¬†not own shares.

The challenge for the dairy industry now was to look at ways of re-thinking aspect of sharemilking contracts to make them fairer, Hoggard said.

“The industry keeps evolving and we need to make sure sharemilking keeps evolving too.”

ASB rural economist Nathan Penny said the result was unlikely to make a big difference to confidence, or to the broader economy.

The forecast dividend was about 5c more than farmers were banking on, and bringing it forward was helpful.

“[But] farmers are still doing it tough at the moment.”

Penny said the result showed Fonterra’s performance was heading in the right direction, albeit from a low point.

Fonterra Shareholders’ Council chairman Duncan¬†Coull¬†said the result was in line with expectations.

Farmers expected the value-add side of the business to provide the much talked about counter-cyclical benefits of low milk prices, he said.

“The results in this regard are encouraging in that the business, on the back of weaker global demand, has moved volume into higher value.”

Looking ahead, Wilson said Fonterra was still on track to hit its forecast earnings of 45c to 55c a share.

Net debt of $6.9 billion was expected to reduce “significantly” in the second half of the year.

Fonterra chief executive Theo Spierings said global economic conditions remained challenging.

European dairy production had increased more than expected, and imports into China and Russia were lower.

“This imbalance is likely to continue in the short term, with prices expected to lift later this calendar year,” Spierings said.

He said the long-term outlook for global dairy also remained positive, with demand expected to increase by 2 to 3 per cent a year.

By: Richard Meadows & Gerald Piddock



Summer 2018