Fonterra records a profit of $ 659 million and pays a dividend of 5 cents

Fonterra has reported a net profit of $ 659 million for the July year and said it would resume dividend payments, starting with a final dividend of 5 cents a share.

The profit, which reflects its first full year under a revised strategy, compares to a loss of $ 605 million last year. The prior year’s loss was driven by $ 826 million in write-offs.

“We increased our after-tax earnings by more than $ 1 billion, reduced our debt by more than $ 1 billion, and this has put us in a position to begin paying dividends again,” Chief Executive Officer Miles Hurrell said in a statement. .

Fonterra’s normalized net profit after taxes of $ 382 million increased $ 118 million from the prior year, and in line with market expectations.

The cooperative said it experienced a strong first half, but parts of the business were hit hard by the impact of Covid-19 in the second half.

At 5 cents per share, the dividend was at the lower end of the 5-7 cent range calculated under the board’s dividend policy guidelines and was well below market expectations of around 9-10 cents per share. action.

Fonterra paid no dividends in 2019 or the first half of its final financial year.

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The dairy cooperative’s normalized earnings before interest and taxes reached 24 cents per share, the upper limit of its forecast range of 15 to 25 cents.

For the current year, you forecast an earnings per share range of 20 to 35 cps.

The milk price forecast for the current season was in a range of $ 5.90 to $ 6.90 per kg, unchanged from its previous forecast.

For last season, Fonterra settled at $ 7.14 per kg. With the dividend, the final cash payment is $ 7.19 per kg.

Under its new customer-led operating model, Hurrell said the cooperative had had a strong first half, but the pandemic had hit the second half, particularly in its consumer and foodservice businesses.

Fonterra had achieved its key financial objectives with normalized earnings of 24 cents per share, a total normalized group gross profit of $ 3.2 billion, a reduction of $ 181 million in capital expenditures and a reduction of $ 1.1 billion in debt.

The debt to EBITDA ratio has now improved to 3.4 times earnings, down from 4.4 times.

The stronger balance sheet had allowed Fonterra to focus on managing Covid-19.

“The demand for dairy products so far has proven to be resilient and our diverse customer base and our ability to change our product mix and move products between markets has meant that we can continue to create value,” he said.

Hurrell said the main drivers of underlying business performance were a strong normalized gross profit in the Ingredients business and, although there was the disruption from Covid-19, strong sales and gross margins of the Greater China Food Services business in the first half of the year. year.

Ingredients normalized EBIT improved from $ 790 million last year to $ 827 million this year, with a normalized gross profit of $ 165 million to $ 1.6 billion.

“As we progressed into the second half, we saw restaurant, cafeteria and bakery closures and intermittent spikes in supermarket sales, creating uncertainty in the global dairy market. This uncertainty resulted in a softening of prices. of milk, which helped improve gross margin and gross profit in Ingredients. “

Greater China Foodservice’s normalized EBIT increased from $ 114 million last year to $ 169 million this year.

Hurrell said the business achieved strong year-over-year sales growth in the first half of the year, but was then hit hard by Covid-19 when many food outlets were closed.

Normalized gross profit began to recover rapidly in the third quarter, although it said it has not yet returned to normal.

There was significant growth across the Anchor Food Professional product range in China.

As stated earlier in its guidance for the third quarter, Fonterra’s foodservice businesses in Asia, Oceania and Latin America were affected by Covid-19 in the fourth quarter, with all three markets reporting losses in the second half.

Despite this, normalized EBIT for foodservice overall increased 14 percent from last year to $ 209 million.

Normalized EBIT of the consumer business decreased to $ 149 million from $ 227 million, primarily as a result of impairments of $ 57 million related to the Chesdale brand and goodwill from the New Zealand consumer business.

Hurrell said the Australian consumer business performed strongly and sales continued to grow thanks to its popular beverages, spreads and cheeses.

Despite the better performance this year, due to the post-Covid-19 economic outlook, future cash flow projections for Fonterra’s New Zealand Consumer business were lower than estimated, leading to a reduction in the fund. trade from $ 21 million to $ 699 million.

“This year marks a return to dividend payments, a position we hope to maintain in the future, assuming normal operating conditions,” said President John Monaghan.

“In the context of so much uncertainty, as Covid-19 continues to impact our key markets and customer confidence, distributing a 5 cent dividend is a prudent decision and balances our goals to further reduce debt and distribute the profits.” Monaghan said. .

Looking ahead, Monaghan says the impact of COVID-19 was still occurring globally.

“From a milk price perspective, the supply and demand outlook remains finely balanced and for that reason we maintain our previous forecast range for this season,” he said.

“There remain significant uncertainties, including how the global recession and new waves of Covid-19 will affect demand globally and what will happen to the price relativities between the products that determine the price of our milk and the rest of the world. our product range “.

Fonterra units listed on NZX last traded at $ 4.05, having risen 26.6 percent in the past 12 months.
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