Fonterra profit slump

By Dairy News

Fonterra has posted an 11 per cent decline in full-year profit as margins fell across its ingredients and consumer and food service divisions.

The co-operative’s profit was $745 million in the 12 months ended July 31, from $834 million a year earlier, the Auckland-based company announced in September.

Sales rose to $19.2 billion from $17.2 billion while cost of sales climbed to about $16 billion from $13.6 billion.

Rising prices offset a three per cent decline in volumes at 22.9 billion litres of milk equivalent.

Normalised earnings before interest and tax dropped 15 per cent to $1.2 billion, which Fonterra said reflected “reduced margins across the business”.

The final cash payout was $6.52 for the 2016–17 season, for a 100 per cent share-backed farmer.

Chair John Wilson said being able to maintain its forecast dividend “despite the milk price increasing by 57 per cent over the year and the impact of negative stream returns was an excellent result”.

The results include an impairment loss of $35 million on Fonterra’s investment in Beingmate, its distribution partner in China, reducing the carrying value to $617 million.

Still, “the market fundamentals remain strong and the changes to the regulatory regime, anticipated to be effective from 1 January 2018, are expected to have a positive impact on Beingmate’s financial performance,” it said.

The company has also announced it is planning to grow its Australian milk supply and processing capacity now that it has firmly established its place in the domestic market and as a global ingredients hub for Fonterra’s cheese, whey and nutritionals portfolio.

Fonterra Australia managing director René Dedoncker said the business was generating sustainable returns and was now looking to grow to meet higher demand for dairy.

“We have hit all of our performance targets, we have a clear strategy which is delivering and we have the right assets and product mix on the ground,” Mr Dedoncker said.

“We are now looking to build on that base with further expansion linked to growing customer demand for consumer dairy, food service products and dairy ingredients.

“With our plants full we will be accelerating our capital investments in regional Victoria and Tasmania, playing to our strengths in cheese, whey and nutritionals.”