Fonterra Co-operative Group has reported a $76 million first-half net profit. Newly confirmed chief executive Miles Hurrell says it’s good to be back in the black but performance is not where it should be.
Fonterra’s net profit attributable to shareholders for the six months ended Jan. 31 compares with a $354 million loss in the same six months a year earlier.
Normalised earnings before interest and tax fell 29 percent to $323 million. While sales volumes rose 2 percent, revenue fell 1 percent to $9.7 billion.
The dairy giant says it has begun a process to sell its 50 percent share of DFE Pharma, and completed the $16 million cash sale of Corporacion Inlaca in Venezuela to Mirona. Write-downs and other non-cash adjustments means Fonterra will book a loss of $126 million on the Inlaca sale overall.
Hurrell says Fonterra is well on track to meet its target of reducing year-end debt by $800 million.
“The steady performance from New Zealand ingredients in the first half of full-year 2019 has been offset by challenges in Australia ingredients and this has seen our total ingredients ebit decline by 17 percent to $461 million,” Hurrell says.
“Our Australia ingredients business continues to feel the impact of the drought. We can see it in the decline of Australian milk collections and aggressive price competition for milk, which is resulting in the under-utilisation of manufacturing assets and tightening margins,” he says.
“Consumer and Foodservice is tracking behind last year with ebit of $134 million. 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 growth for butter at the end of full-year 2018. In Sri Lanka our performance was impacted by price constraints.”
Hurrell says the focus for the full year is to meet the earnings guidance – which he confirmed should be 15-25 cents per share – deliver the three-point plan and fundamentally reset the business so it can deliver sustainable earnings. That target excludes the 8 cents per-share impact of the expected loss on the Inlaca sale.
He also confirmed the forecast farmgate milk price at $6.30-6.60 per share.