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Fonterra Cooperative Group does not expect to pay a final dividend this year in an effort to bolster its balance sheet after paying Danone over the 2013 botulism scare and writing down its Beingmate Baby & Child Food investment.
The Auckland-based company today affirmed normalised earnings per share guidance of 25-30 cents, implying earnings of $403 million to $484 million, however it indicated it's likely to be at or slightly below this range, and anticipates dividends will only be the 10 cents per share already paid in April, it said in a statement.
The cooperative previously lowered its forecast dividend to 15-20 cents per share in May as rising milk prices squeezed margins, from an earlier projected payment of 25-35 cents per share.
Fonterra also trimmed its 2017/18 forecast farmgate milk price to $6.70 per kilogram of milk solids from $6.75/kgMS. It didn't comment on the 2019 forecast for $7/kgMS.
New chair John Monaghan said the moves were a departure from the amount calculated under the milk price manual to strengthen the balance sheet which had been stretched by the €105 million ($183 million) settlement with Danone and a $405 million impairment charge on Beingmate.
"During the process of closing our books for the financial year end the need for these actions has become clear. Our forecast performance is not where we expected it would be," Monaghan said.
"While the numbers are not finalised, our margins were less than we forecasted right across our global ingredients and consumer and foodservice businesses."
In May, Fonterra raised the milk price 20 cents to $6.75/kgMS and gave the bullish opening forecast for 2019 due to strong global demand for dairy products. Prices were steady at this week's Global Dairy Trade auction, and AgriHQ analyst Amy Castleton noted strong short-term demand for whole milk powder.
"You never want to have to reduce the milk price at season's end, but it is the right thing to do and $6.70 remains a strong milk price," Monaghan said.
Fonterra sought a trading halt in its listed securities yesterday to allow for a "variation" in earnings guidance.
Monaghan chaired his first board meeting yesterday after John Wilson stepped down due to ill health. Monaghan, who has been a director on the board since 2008, has taken over at a time when Fonterra and outgoing chief executive Theo Spierings have faced criticism due to the poor performance of the cooperative's Beingmate investment and lacklustre earnings growth.
Spierings announced in March that he would leave the position in the course of this year, and pressure had been mounting for Wilson to also step down.
Fonterra shareholders' fund units last traded at $5.11 and have dropped 20% so far this year.