Lending Association

Fonterra releases strong half year results underpinned by stronger margins and volumes

New Zealand’s Fonterra Co-operative Group and its farmers and cows have had a great six months to the end of last December with a 23% lift in earnings..

The group said the reported profit after tax rose strongly to $NZ674 million, compared with $NZ546 million in the December, 2022 half year.

Fonterra said it was helped by a combination of higher volumes and fatter margins in some areas, as well as lower associated costs in some of its major markets.

The group lifted its interim dividend 50% to 15 NZ cents from 10 cents in the previous first half.

The Co-op also upgraded its full year forecast normalised earnings from 50-70 cents per share to 55-75 cents per share and announced a proposed tax free capital return to farmer owners and unit holders of around 50 cents per share, subject to completion of the sale of its Soprole business in Chile.

As expected, Fonterra narrowed its current milk price forecast to $NZ7.50 per kg of milksolids to $NZ8.10, keeping the mid-point unchanged at $NZ7.80.

“While supply and demand dynamics remain finely balanced, with continuing global uncertainty, we are now well progressed through the season,” CEO Miles Hurrell said in Thursday’s stock exchange release.

“This lift in earnings is thanks to our Co-op’s scale and ability to move our farmer owners’ milk into products and markets where we’re seeing favourable prices.

“With whole milk powder prices down, we moved more milk into skim milk powder and cream products to optimise our Farmgate Milk Price.

“We also made the most of favourable margins in our cheese and protein portfolios, by moving a higher proportion of current season milk into these products which has benefited our earnings.

“Our ability to capture these higher margins is reflected in our Ingredients channel performance, with normalised EBIT up $NZ494 million, or 118%, on the same time last year to $NZ911 million.

“Our Consumer and Foodservice channels benefited from improved in-market prices, with Foodservice normalised EBIT up $NZ81 million, or 95%, to $NZ166 million. However, higher input costs and ongoing pressure on margins have impacted overall Consumer channel performance.

“Our domestic consumer business, Fonterra Brands New Zealand (FBNZ), has been under margin pressure for some time and is not improving as fast as planned. Performance of our Asia consumer brands has been impacted by weakening currency in the markets they operate, higher interest rates and a declining economic environment in some South East Asian markets.

“For these reasons, we have revised down the valuation of FBNZ by $NZ92 million and our Asia consumer brands Anlene, Chesdale and Anmum by $NZ70 million.

“As a result of market conditions and the impact of impairments, our overall Consumer channel normalised EBIT is down $NZ177 million to a loss of $NZ94 million.