20 Mar 2019

Fonterra makes half-year profit of $80m

9:17 am on 20 March 2019

Fonterra has returned to profitability but the giant dairy co-operative says it is far from satisfied with the result.

Fonterra's interim chief executive Miles Hurrell discussing the annual results.

Fonterra chief executive Miles Hurrell Photo: RNZ / Dan Cook

The co-operative made a first half net profit of $80 million in the six months to January, while the underlying profit was down 29 percent on the same period last year.

Sales fell slightly to $9.75 billion.

Chief executive Miles Hurrell said the steady performance from New Zealand's ingredients business had been offset by challenges in Australia which has been affected by a drought.

"We can see it in the decline of Australian milk collections and aggressive price competition for milk, which is resulting in the underutilisation of manufacturing assets and tightening margins," Mr Hurrell said in a statement.

"Consumer and Foodservice is tracking behind last year with an EBIT [earnings before interest and tax] of $134m. This part of the business has been held back by disruptive political and economic conditions as well as high input costs in Latin America.

"In addition, in our China Foodservice business, demand slowed due to higher prices and in-market inventory levels growing for butter at the end of FY18.

"In Sri Lanka, our performance was impacted by price constraints."

In light of the disappointing performance the company was revising the full year earnings guidance down to 15-25 cents per share in February.

Fonterra will sell its half of DFE Pharma as part of its review of its portfolio, the company said.

That is in addition to previously announced plans to sell the Tip Top icecream business as well as options for selling its stake in its Chinese dairy partner BeingMate.

Fonterra recently raised its forecast milk payout to suppliers to between $6.30 to $6.60 per kilogram of milk solids, up 30 cents on the previous range.

Fonterra interim results: key figures

  • Sales volumes 10.7 billion liquid milk equivalents, up 2 percent
  • Revenue $9.7bn, down 1 percent
  • Normalised EBIT: $323m, down 29 percent
  • NPAT: $80m, up 123 percent
  • Total normalised gross margin: $1.5bn
  • Ingredients Gross Margin: $791m, down 9 percent
  • Consumer and Foodservice Gross Margin: $766m, down 7 percent
  • Full year forecast earnings: 15-25 cents per share
  • Forecast Farmgate Milk Price: $6.30-$6.60 per kg of milk solids
  • Sales process started for Fonterra's 50 percent share of DFE Pharma

Get the RNZ app

for ad-free news and current affairs