Yesterday, the world's largest dairy exporter announced normalised earnings before interest and tax of $665 million for the six months ended January 31, up 77% on the previous corresponding period. Reported profit was up 123% to $409 million, while revenue fell 9.3% to $8.8 billion.
Chairman John Wilson said the co-operative's management was aware of the need for strong performance to ensure it could got ‘‘every possible cent back into farmers' hands'' during a very tough year.
The lift in profitability resulted in higher earnings per share to help offset low global dairy prices and, as a result, it had doubled its interim dividend from 10c to 20c per share.
The forecast total dividend for the current financial year was 40c per share; a 20c interim dividend would be paid in April while the remaining 20c would be declared in two dividends of 10c in May and 10c in August.
Fonterra has reaffirmed its $3.90 milk price forecast for 2015-16, the lowest in a decade. The break-even milk price for the average New Zealand dairy farmer is estimated by DairyNZ to be $5.25.
The timing of the payments would help farmers' cashflows at the time of the season they needed it most and it was a specific response to the ‘‘very challenging'' financial conditions farmers were facing, Mr Wilson said in a statement.
The board felt paying the final dividend earlier was a better option than an extension to the interest-free support loan provided early in the season.
The May and August dividends were subject to the board's approval at the time and Fonterra's financial performance continuing to support its forecast earnings per share of not less than the current 45c to 55c forecast range per share, Mr Wilson said.
The payments did not signal any intention to move away from Fonterra's normal practice of twice-yearly dividends paid in April and October.
Labour's economic development spokesman David Clark said the profit announcement offered little relief for struggling farmers who would ‘‘still be forced to borrow billions more from the banks to keep afloat''.
ASB rural economist Nathan Penny said the improvement in financial results was encouraging, although comparisons with last season's very weak results tended to ‘‘gloss over'' what were still relatively weak absolute profit levels.
It was a step in the right direction for Fonterra's performance and its value-add strategy but there was ‘‘still a long way to go''.
The higher and earlier dividend payments would help ease farm cashflows ‘‘to a degree'' but might not be enough to improve the very weak dairy sector sentiment.
That would have to wait for a material improvement in milk price, Mr Penny said.
Fonterra Shareholders Council chairman Duncan Coull said the early payment would be very well received by farmer shareholders and go some way to alleviating immediate on-farm cash-flow pressures.
The interim results announcement was in line with forecasts and the expectations of the council, Mr Coull said.
It was important the board continued to drive the business forward as the performance of some business units, including Australia, Venezuela and China Farms, were having a negative effect on the business.
The council looked forward to the ‘‘current positive momentum'' continuing and translating into more cash for farmers. Chief executive Theo Spierings said the co-operative's strong performance reflected a sustained effort in three main areas.
It had focused on the efficiency of its ingredients business and capturing demand for ingredients in a wide range of markets.
It aimed to make the most of global consumption growth by building demand for higher-value products in its consumer and foodservice markets.
Working capital had improved significantly and inventory levels were lower than in recent periods for this time of year, down 9% in volume terms due to strong sales.
It had maintained strict financial discipline to keep lifting its return on capital and a strong cash flow had enabled the co-operative to strengthen and reduce gearing.
At a glance
| 2016 ($m) | change (%) | |
| Revenue | 8838 | (9.3) |
| Earnings before interest and tax | 665 | 77 |
| Profit after tax | 409 | 123 |
| Interim dividend | 20cps | 100 |
| Volume | 12.6 billion liquid milk | up 8% |
| Gross Margin | 21% | up 16% |
Forecast cash payout $4.30 kg/ms
