Profit boost for Fonterra

The result comes two weeks after Fonterra announced a 25-cent downgrade of its forecast milk price (Reuters)
The result comes two weeks after Fonterra announced a 25-cent downgrade of its forecast milk price (Reuters)

Fonterra has announced a 123 percent increase in its half-year profit.

The cooperative made an after-tax profit of $409 million in the six months to January 31.

The result comes two weeks after Fonterra lowered its forecast farmgate milk price to $3.90 per kilogram of milk solids because of weak global prices.

Fonterra won't be offering new interest-free loans to farmers, but plans to speed up dividend payments to help shareholder farmers struggling with the low dairy prices.

The cooperative is forecasting total earnings per share for the full financial year of 45-55 cents. That is ahead of a forecast of 40 to 50 cents announced at the start of the season.

The lower dairy prices have helped lower input costs for Fonterra's value-add (packaged goods) business.

Earnings before interest and tax rose rose 77 percent to $665 million, compared to the same period a year ago.

Fonterra chief executive Theo Spierings says the improved profit reflected gains in three areas:

Fonterra intends paying a total dividend for the full financial year of 40 cents per share. The first 20 cents will be paid next month.

"We intend declaring the remaining 20 cents per share in two dividends of 10 cents in May and 10 cents in August," says chairman John Wilson.

"The timing of these payments will help farmers' cash flows at the time of the season that they need it most, and is a specific response to the very challenging financial conditions our farmers are facing."

He says the May to August period is typically the most difficult financially for farmers.

"We looked carefully at the available support options to us, and bringing forward payment of the total forecast dividend is the best way we can support our farmers while continuing to retain the financial strength of Fonterra."

Extending support loans was considered. But Fonterra felt it was better to bring forward payment of the final dividend for the year.

The cooperative has faced criticism from suppliers about its decision to extend payment times for around 15 percent of them.

Mr Wilson told today's media briefing it was never intended that small suppliers should have been included in the extended payment times. But he conceded that Fonterra could have done a better job of implementing the policy and of explaining it to suppliers.

Today's announcement means shareholder farmers will receive a total payment this season of $4.30. But the average breakeven point for farmers this year is $5.25.

Federated Farmers says today's profit announcement is a good result and it is pleasing to see the cooperative has made gains in its value add business. It says bringing forward the dividend payments will help farmers through the winter months.

The lower dairy prices are particularly challenging for farmers who have high debt. It's also difficult for sharemilkers who do not own the land they farm on, and who are not full shareholders in Fonterra.

The Reserve Bank says total dairy farmer debt now stands at around $38 billion.

Around 10 percent of famers hold about 30 percent of the debt. That is around $10 million for each of those farmers.

Newshub.

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