Why Fonterra accepted defeat in the dairy aisle
OPINION: Fonterra's sale of its consumer dairy business to Lactalis is a clear sign of the co-operative’s failure to compete in the branded consumer market.
The co-operative is attributing the $27m drop, compared to last year, to a higher milk price and market disruptions caused by Covid.
The co-op has also announced an interim dividend of 5c/share and is sticking with its record forecast farmgate milk price range of $9.30 to $9.90/kgMS for the season.
Fonterra chief executive Miles Hurrell says the co-op’s results for the first half of the financial year show it is performing well, while creating the momentum needed to achieve its 2030 targets.
“The world wants nutritious, sustainably produced dairy and that’s what we do well.
“We have continued to see strong demand for our products across multiple markets at a time of constrained supply.
“Our earnings have been achieved at a time when our input costs have been significantly higher with the average cost of milk up almost 30% on the same time last year.
“This shows we’re performing well even with a high Farmgate Milk Price.”
Hurrell says the board’s decision to pay an interim dividend will be welcome news for unit holders and farmer owners.
“The milk price is also good news for our farmer owners and the New Zealand economy. A midpoint of $9.60 would see the co-op inject over $14 billion into our local communities through milk price payments alone.”
Covid continues to be a challenge for Fonterra, both overseas and at home.
“We’re seeing more of our employees having to isolate and continued disruptions in our supply chain,” he says.
“However, by caring for our people and good management and planning, our manufacturing plants have continued to operate and we are getting products to our customers.”
Hurrell says the drop in net profit reflects the effects of significantly higher milk price.
“Margins in our Ingredients channel improved in the first half.
“However, the higher milk price put pressure on our margins in Foodservice and Consumer, and we also felt the impact of Covid-19 in many of our markets.
“Lower New Zealand milk collections reduced our total production and this impacted our overall sales volumes.”
Key results
- Total group revenue: $10,797 million, up 9%
• Reported profit after tax $364 million, down 7%
• Normalised profit after tax: $364 million, down 13%
• Total group normalised EBIT: NZ$607 million, down 11%
• Full year forecast normalised earnings per share: 25 - 35 cents per share
• Interim dividend: 5 cents per share
• Forecast Farmgate Milk Price range: NZ$9.30 - $9.90 • Net debt: NZ$5.6 billion, down 8%
per kgMS
• Forecast milk collections: 1,480 million kgMS, down 3.8%
