March 29, 2013

 

Fonterra posts 33% increase in net profit

 

 

Fonterra announced a 33% increase in net profit after tax to US$459 million for the half year to January.

 

On the back of that performance, it lifted its forecast cash pay-out for the 2012-13 season to US$6.12 a kilogramme of milk solids for a farmer with full shares. The higher forecast was based on a forecast farm gate milk price of US$5.80 a kilogramme/milk solids, which was up US$0.30, and a forecast dividend of US$0.32 per share.

 

Chief executive Theo Spierings said the on-going 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, 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.

 

The pay-out forecast followed a particularly robust performance by New Zealand 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 US$693 million while revenue dropped 7% to US$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, 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 US$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.

 

DairyNZ chief executive Tim Mackle said farmers were going to need the forecast rise in pay-out 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 5,500 kilogrammes of milk solids for the months of January, February and March, amounting to about US$30,000 of lost income for the average farmer.

 

Increased feed costs amounted to at least another US$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, Mackle said. DairyNZ estimated the revenue lost to North Island farmers to be about US$630 million for the season to date.