Fonterra's interim result tomorrow will have its farmers and Shareholders Fund unit holders running the rule over the result. Stephen Jaquiery.
Fonterra's forthcoming first-half financial result will come
under close scrutiny this week from analysts and farmers
alike, including expectation of a revision in financial
Following guidance announced earlier by Fonterra in December,
including possibly withholding almost $1 billion from the
farm gate payout this year, there are also questions about
declining earnings before interest and tax (ebit).
The complexities of global commodity prices, supply and
demand, and balancing the payouts to farmers and dividends to
Fonterra Shareholders Fund unit-holders will all be addressed
in Fonterra's interim financial results, scheduled for
Forsyth Barr broker Andrew Rooney said he expected the first
half of 2014 to deliver ''a weak operating result'', which
overall would be determined by the milk price Fonterra
management decided to use.
In late February, Fonterra hiked its forecast farm-gate milk
price to a record $8.65 per kg of milk solids, with the 35c
increase equating to an increase in dairy incomes of about
It meant a forecast cash payout to farmers of $8.75 per kg
for the 2013-14 season, with the previously announced
estimated dividend of 10c a share, but the latter having been
cut from 32c.
Mr Rooney was forecasting ebit decline of 69% on the same
period last year, to $214 million.
''Revised guidance, due to changes in the market conditions,
is likely, while the sensitivity of Fonterra's downstream
value-added divisions to increased input costs will be
highlighted,'' Mr Rooney said.
He said a ''significant proportion'' of the forecast ebit
decline, from full-year 2013 to estimated full-year 2014, was
on the back of Fonterra's inability to pass on substantial
increases in costs, during that period to its customers.
He said there had been ''margin contraction'' across
divisions associated with value-added product, because of
increasing input costs, which were ''well above the projected
[product] price increases''.
He said while Fonterra had flagged in December guidance
full-year 2014 product mix losses of about $800 million, Mr
Rooney expected the extent of losses to have since decreased,
given a recovery in the relative prices of key commodity
''Fonterra's downstream value-add divisions, particularly
those that rely on inputs from New Zealand Milk Products,
will face significant margin pressure over the next 12 to 18
months,'' he said.
At this week's GlobalDairyTrade auction, dairy prices fell
5.2% on the back of late-season milk production exceeding
expectations, a nine-month low, but the price movements were
expected to be temporary, in tandem with the temporary supply
Craigs Investment Partners broker Peter McIntyre similarly
saw that Fonterra's having signalled withholding of $1
billion from the farm gate payout this year, that held little
prospect of an increased profitability for New Zealand Milk
Products, the Fonterra foods arm where investors hold shares
through the Fonterra Shareholders Fund.
Mr McIntyre said that during January and into February whole
milk powder prices had held up and with no reduction in
reference commodity prices, he anticipated the farmer payout
should still be in a range of $8.50 to $9 per kg of milk