Fonterra Co-operative Group Ltd today released its 2023 Interim Results which show the Co-op has delivered a half year Profit After Tax of $546 million, an earnings per share of 33 cents, and a decision to pay an interim dividend of 10 cents per share alongside a forecast Farmgate Milk Price range of $8.20 – $8.80 per kgMS.
The Co-op also upgraded its full-year forecast normalized 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 Chilean Soprole business.
Fonterra CEO Miles Hurrell says the results for the year’s first half show the Co-op is performing well, with profit up 50 per cent, against a backdrop of ongoing market volatility.
“Our Co-op’s scale and diversification across channels and markets has enabled us to navigate through disruption and make the most of favorable market conditions in a number of areas.
“While milk powder prices have softened recently, impacting our forecast Farmgate Milk Price range, protein prices have been high, and this is reflected in the lift in earnings we’re reporting today.
“Our improved earnings and strong balance sheet have enabled us to pay an interim dividend of 10 cents per share which is positive news for our farmer owners and unit holders. We also expect to be able to pay a strong full year dividend, in addition to our proposed capital return.
“The outlook for high quality sustainable New Zealand dairy remains positive. We have a clear strategy and are well-positioned to take advantage of this demand,” says Mr Hurrell.
The Co-op has delivered a Profit After Tax of $546 million, up $182 million compared to the same time last year, and a Return on Capital for the last 12 months of 8.6%, up from 6.1% in the comparable period.
“This lift in earnings is thanks to our Co-op’s scale and ability to move our farmer owners’ milk into products and markets with favorable prices.
“With whole milk powder prices down, we moved more milk into skim milk powder and cream products to optimize our Farmgate Milk Price.
“We also made the most of favorable 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 normalized EBIT up $494 million, or 118%, on the same time last year to $911 million.
“Our Consumer and Foodservice channels benefited from improved in-market prices, with Foodservice normalized EBIT up $81 million, or 95%, to $166 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 $92 million and our Asia consumer brands Anlene, Chesdale and Anmum by $70 million.
“As a result of market conditions and the impact of impairments, our overall Consumer channel normalised EBIT is down $177 million to a loss of $94 million.
“This year our reportable segments have been updated to reflect an organisational change to better support our strategy. Group Operations is shown as a separate segment and the previous results of the AMENA and Asia Pacific segments are now combined into the new Global Markets segment.
“Group Operations represents the business activities that collect and process New Zealand milk through to selling the products to our customer-facing regional business units, Global Markets and Greater China.
“Group Operations normalised EBIT increased $412 million to $501 million, due to higher Ingredient prices, in particular proteins and cheese, relative to the products portfolio that informs the Farmgate Milk Price.
“Looking at our customer-facing regional business units, Global Markets normalised EBIT was down 4% to $267 million. Global Markets’ Ingredients channel in-market earnings increased by $145 million, mainly due to higher sales volumes and improved pricing. However, this was offset by the impairments and increased operating costs in its Consumer channel.
“Greater China normalised EBIT decreased 1% to $215 million, with the Foodservice channel showing resilience to market disruption from COVID-19. However, this was offset by the Consumer channel, which included a proportion of the Anlene brand impairment.
“We continue to exercise financial discipline with a focus on delivering returns, while managing higher costs and ongoing market disruption.
“Our Total Group normalised operating expenses are up from $1.1 billion to $1.4 billion due to the New Zealand consumer business and Asia brands impairments, increased costs including inflation and foreign exchange, and last year having a one-off favourable item.
“Since year end we have improved our net debt and working capital position through improved earnings and clearing the higher year-end inventory.
“Severe storms and flooding across the North Island in January and February temporarily delayed some product getting onto ships. We remain focussed on inventory management, which seasonally peaks through February and March.
“Our improved earnings and strong balance sheet put us in a position to pay an interim dividend of 10 cents per share,” says Mr Hurrell.
