Dairy giant Fonterra posting a big lift in profit  underlines the importance of the dairy industry as NZ’s main export earner

Dairy giant Fonterra  has posted a 50% lift in net profit to $546m, doubled its interim dividend, and is proposing a return of capital of  50c  a share, injecting  a  note of optimism  into the nation’s  dairy industry.

Fonterra’s strong performance is against a backdrop of market volatility. It underlines  to the  rest of the country  how  vital the dairy industry is proving once again  as  NZ’s leading  export earner – and shows how  absurd  has been the lobby group Greenpeace’s protest action today  at Fonterra’s HQ in Auckland on the  climate change issue.

For Fonterra’s  farmer-shareholders  the co-op has demonstrated  how  under its  current  leadership it is  now  operating  more effectively  than it did in the  previous decade, and is once  again the  nation’s  main export earner.

CEO Miles Hurrell said  the co-op’s scale and diversification across channels and markets had enabled it to navigate through disruption and make the most of favourable market conditions in a number of areas.

“While milk powder prices have softened recently, impacting our forecast Farmgate milk price range, protein prices have been high, and this is reflected in the lift in earnings,” he said.

The co-op has forecast a milk price of $8.20 to $8.80 per kg for the current season.Earnings per share came to 33 cents. In proposing a return of capital of 50 cents per share and per unit, it said this is subject to completion of the sale of Soprole. It has also upgraded its full-year normalised earnings forecast from 50-70 cents per share to 55-75 cents per share.

 Hurrell said the outlook for NZ dairy remained positive.Return on capital came to 8.6%, up from 6.1% in the comparable period.

The lift in earnings was down to the co-op’s scale and ability to move milk into products and markets where there were favourable prices, he said.

“With whole milk powder prices down, we moved more milk into skim milk powder and cream products to optimise our farmgate milk price. “We also made the most of favourable margins in our cheese and protein portfolios, by moving a higher proportion of current season milk into these products which has benefited our earnings.”

Fonterra’s ability to capture these higher margins was reflected in the Ingredients channel performance, with normalised ebit up $494m, or 118%, on the same time last year to $911m.

“Our Consumer and Foodservice channels benefited from improved in-market prices, with Foodservice normalised ebit up $81m, or 95%, to $166m.”

However, higher input costs and ongoing pressure on margins have impacted overall Consumer channel performance.

The co-op’s domestic consumer business, Fonterra Brands New Zealand (FBNZ), had been under margin pressure for some time and is not improving as fast as planned.

The performance of Fonterra’s Asia consumer brands has been impacted by weakening currency in the markets they operate, higher interest rates and a declining economic environment in some South East Asian markets.

Fonterra had therefore revised down the valuation of FBNZ by $92m and its Asia consumer brands Anlene, Chesdale and Anmum by $70m.

As a result of market conditions and the impact of impairments, Fonterra’s overall Consumer channel normalised ebit is down $177m to a loss of $94m.

Fonterra said severe storms and flooding across the North Island in January and February temporarily delayed some product getting onto ships

The co-op said it remained focused on inventory management, which seasonally peaks through February and March.

Meanwhile, Greenpeace protested at Fonterra’s Auckland headquarters this morning to raise issues climate change.

“Greenpeace is installing flooding images around the windows that make the Fonterra headquarters look as if it’s underwater,” the group said.

Crime tape being deployed along with the ruined remains of people’s household items, to highlight the liability of Fonterra and the intensive dairy industry for destabilising the climate.”

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