September 24, 2015

 

Strong 2nd half lifts Fonterra profit to US$317 million

 

 

New Zealand dairy giant Fonterra announced Thursday its net profit surged to NZ$506 million (US$317 million) by the end of the financial year ended July 31, 2015, which was up 183% from NZ$179 million the previous year.

 

The world's largest dairy processor attributed the rise to a stronger second-half performance despite difficult market conditions that had the global milk prices falling 36%.

 

"Falling global dairy prices due to a supply and demand imbalance impacted the milk price, while the dividend reflected higher funding costs following significant investment in capacity to support milk growth in New Zealand, essential investments in the key strategic market of China, and the costs of maintaining a higher advance rate through the season", said Fonterra chairman John Wilson.

 

Saying that this year's market "is one of the most difficult I've known", Chief Executive Theo Spierings explained that demand was affected by geopolitical turmoil in the Middle East and Russia, Ebola in Africa, falling oil and mineral prices and a slowdown in China, which had previously fuelled a massive boom in dairy products.

 

He added that despite drought in some regions and floods late in the season, milk collection across New Zealand for the 2014-15 season to May 31, 2015, was 1.614 billion kg Milksolids, up 2% on the previous season. 

 

2nd-half rebound

 

Spierings said improved second-half results in the 2015 financial year were driven by a strong focus on cash and costs. "We focused on improving our sales mix, achieving more efficiencies, maximising our gross margins and achieving our strategic goals faster. Our efforts contributed to a second-half rebound in our performance and profitability".

 

Spierings said he expects the world markets to remain difficult in the medium term but that, because of the efficiency measures Fonterra had taken, "we will be more than ready when the market turns".

 

The company said that during the 2015 financial year, it completed the Pahiatua dryer and distribution centre; expanded the anhydrous milk fat, milk protein concentrate and reverse osmosis plants at Edendale; and upgraded the dryer at Lichfield due for commissioning in 2016. These facilities are all in New Zealand and, combined, they represent 8.2 million litres in additional capacity.

 

"Our $230 million investment in the past two years on capacity to support our consumer and foodservice performance is generating the volume and value growth we want, especially in Asian markets", said Spierings. --Rick Alberto (rickalberto@efeedlink.com)