Fonterra lifts financial performance, but no dividend due to coronavirus

The result is a big turnaround for the dairy giant, however it said there could be challenges ahead.
The result is a big turnaround for the dairy giant, however it said there could be challenges ahead. Photo credit: Newshub

Dairy giant Fonterra has recorded a much improved six-month financial result, however the company has decided not to declare an interim dividend due to uncertainty around coronavirus.

The co-op reported a normalised net profit after tax of $293 million for the six months ending January 31st.

The result is up from $72 million for the same period the year before.

Total group normalised earnings before interest and tax (EBIT) were $584 million, up from $312 million. 

The interim 2020 result is a big turnaround for the co-op, after it recorded a loss of $605 million for the 2019 financial year. 

CEO Miles Hurrell said Fonterra had built on the work done in 2019 and had continued to reset its business, introducing a new strategy, reorganising and resizing its teams so there was greater focus on customers, and at the same time, significantly lifting its financial performance.

"We are now a very different co-op to this time last year - we're prioritising New Zealand milk and staying focused on what we know we're good at and what makes a difference to our farmer-owners, unitholders, employees and communities," said Hurrell.

CEO Miles Hurrell said the co-op had continued to reset its business.
CEO Miles Hurrell said the co-op had continued to reset its business. Photo credit: Newshub

Despite the strong earnings performance so far this year, Fonterra board Chairman John Monaghan said no interim dividend would be announced.

"After considering the current uncertainty of the impact COVID-19 could have on earnings in the second half of the year, the board has elected to not pay an interim dividend. 

"At the end of the financial year the Board will reassess the co-op's financial position and review the decision to pay a dividend," said Monaghan.

Looking forward, Fonterra CEO Miles Hurrell reaffirmed the forecast Farmgate Milk Price range of $7.00-$7.60 per kgMS and forecast normalised earnings guidance of 15-25 cents per share.

"Our underlying earnings are tracking well at the half-year, but there is no doubt that we have a number of risks that are outside our control in the second half - in particular, the potential impact of COVID-19 on global demand, geo-political risks in key markets such as Hong Kong and Chile, and ongoing dry weather conditions here in New Zealand which could impact collections and potentially input costs. 

"As a result, we have held our forecast earnings range at 15-25 cents per share," he said.

Fonterra had made good progress on reducing debt.

"We continue to reduce our debt. We completed the sale of DFE Pharma and Foodspring in the first half of the year with cash proceeds of $624 million and this has helped reduce net debt by 22 percent or $1.6 billion, compared to this time last year."

Fonterra's key financial targets for 2020 were to meet its earnings guidance of 15-25 cents per share, achieve a gross margin in excess of $3 billion, reduce debt so it is no more than 3.75x its earnings and ensure capital expenditure was no more than $500 million.

Interim Results Summary.

Total group normalised Earnings Before Interest and Tax (EBIT): $584 million, up from $312 million

Total group EBIT: $806 million, up from $312 million

  • Normalised Net Profit After Tax: $293 million, up from $72 million
  • Reported Net Profit After Tax: $501 million, up from $72 million
  • Free cash flow: $369 million, up from $(782) million
  • Net debt: $5.8 billion, down from $7.4 billion
  • Normalised Ingredients EBIT: $441 million, down from $464 million
  • Normalised Foodservice EBIT: $147 million, up from $61 million
  • Normalised Consumer EBIT: $116 million, up from $67 million
  • Full year forecast normalised earnings: 15-25 cents per share
  • Decision not to pay an interim dividend
  • Forecast Farmgate Milk Price: $7.00-$7.60 per kgMS
  • Forecast milk collections: 1,515 million kgMS
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