Fonterra profit soars 33%

The Fonterra result has been welcomed by drought-affected farmers. Photo by Stephen Jaquiery.
The Fonterra result has been welcomed by drought-affected farmers. Photo by Stephen Jaquiery.
Fonterra has warned its strong first-half earnings are unlikely to be repeated in the second half of the year.

Yesterday, the dairy co-operative announced a 33% increase in net profit after tax to $459 million for the half year to January.

On the back of that performance, it lifted its forecast cash payout for the 2012-13 season to $6.12 a kg of milk solids for a farmer with full shares.

The higher forecast was based on a forecast farmgate milk price of $5.80 a kg/ms, which was up 30c, and a forecast dividend of 32c per share.

Chief executive Theo Spierings said the ongoing volatility in commodity markets could have a negative impact on product-mix profitability.

Fonterra was expecting intensified competition in the second half in many of its consumer markets, particularly Australia, and in Asia there were signs of demand slowing, Mr Spierings said.

Federated Farmers Otago dairy chairman David Wilson described it as an ''excellent'' result and very timely for many farmers who had to buy extra feed because of the dry conditions.

''It will be more than welcome,'' he said.

The payout forecast followed a particularly robust performance by NZ Milk Products, which recorded total sales volumes up 9% to 1.474 million tonnes, and significant rises in sales volumes among Fonterra's Asian and Latin American brands.

Those achievements were partly offset by continuing challenges affecting the performance of the Australian business.

Normalised earnings before interest and tax were up 26% to $693 million while revenue dropped 7% to $9.3 billion, which reflected lower dairy commodity prices and the strength of the New Zealand dollar.

The new forecast reflected a recovery in global dairy commodity prices over the past two months, chairman John Wilson said.

Excellent spring and early summer growing conditions across most of the country had led to strong growth in production and record volumes in the first half.

However, the dry conditions in the North Island since January had created ''real challenges'', many farmers turning to supplementary feeds and shifting to once-a-day milking to maintain the condition of their herds.

Fonterra has increased the advance rate paid to farmers for their milk which, coupled with the higher forecast milk price, meant on average, farmer shareholders would receive $100,000 earlier in the season.

Fonterra Shareholders' Council chairman Ian Brown said the council had made the board very aware of the hardships being faced by many farmers and it was pleased the board had demonstrated ''some flexibility'' in the form of the increased advance rate, to help relieve some of the financial pressure on-farm.

Although the drought, which had affected most farmers, had taken much of the focus recently, it was important to ''sit back and feel very positive'' about the results delivered by Fonterra.

''Commodity prices have been low, but it is really encouraging to see the milk price improving and this should help farmers going forward,'' Mr Brown said.

DairyNZ chief executive Tim Mackle said farmers were going to need the forecast rise in payout to help with cash flows, given the lost production and extra feed costs associated with the drought.

Lost production on an average North Island dairy farm had been about 5500kg of milk solids for the months of January, February and March, amounting to about $30,000 of lost income for the average farmer.

Increased feed costs amounted to at least another $30,000-$50,000 per farm, but that would vary considerably depending on what feed options were available to farms, what they had contracted for and what supplement they might have produced in spring, Dr Mackle said.

DairyNZ estimated the revenue lost to North Island farmers to be about $630 million for the season to date.

Half-year result
• Total sales volume growth of 8% to 2.1 million tonnes.
• Net profit after tax up 33% to $459 million.
• Normalised earnings before interest and tax up 26% to $693 million (normalised ebit has been adjusted for $24 million cost associated with planned closure of Cororooke plant in Australia).
• Earnings a share up 21%.
• Interim dividend 16c a share, up 4c.
• Record milk volumes collected, up 6%.


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