25 Sep 2017

Fonterra's full-year profit slumps by 11 percent

10:23 am on 25 September 2017

Fonterra has reported a weaker full-year profit, as the rebound in milk prices hits its profit margins.

Fonterra milk truck picking up Simon Mackle's milk.

Strong milk prices lifted the cost of raw material for Fonterra's value-added consumer items. Photo: RNZ / Rebekah Parsons-King

The dairy co-operative's net profit for the year ended July fell 11 percent to $745 million, compared with last year's $834 million.

Revenue climbed about 12 percent to $19.2 billion, but milk volumes fell about 3 percent.

"Despite lower milk volumes due to poor weather in parts of the season, the business delivered a good result by prioritising higher value advanced ingredients and growing our sales of these in-demand and specialised products," said chairman John Wilson.

The company said the strong recovery in milk prices had been good for suppliers, but it also raised the cost of raw material for its value-added consumer items, which squeezed its margins to 17 percent, from 21 percent a year ago.

Fonterra reconfirmed its forecast payout to its farmers of $6.75 a kilo of milk solids for the current season, with earnings on top of that between 45 and 55 cents.

"We are well positioned to deliver higher volumes and new product formats in our consumer, foodservice, and advanced ingredients portfolios, and are confident in our forecast earnings," Mr Wilson said.

It has confirmed the final total payout for the recently completed season was $6.52.

Fonterra said sales to China had risen, but it had found it tougher in the rest of Asia, while Australia and Latin America were marginally softer.

However, its investment in Chinese dairy company Beingmate continued to weigh on earnings, with Fonterra taking a $76m hit through a share in its losses and writing down the value of the asset.