Latest business update shows Fonterra 'tracking well', set to contribute $11 billion to economy this year

Due to the pandemic the dairy market is volatile,  the co-op said.
Due to the pandemic the dairy market is volatile, the co-op said. Photo credit: Newshub.

Fonterra has forecast a 2020/21 farmgate milk price range of $5.40 - $6.90 per kgMS, with the advance rate set at the mid-point of $6.15 per kgMS.

The dairy cooperative made the announcement in its third-quarter business update on Thursday. 

"We're tracking well for this year but need to do everything in our power to keep swimming against the tide of COVID-19," Fonterra said on Twitter.

It also narrowed its 2019/2020 forecast farmgate milk price range for the season to $7.10 - $7.30 per kgMS, with a mid-point of $7.20 per kgMS.

Chief executive Miles Hurrell said despite the challenges posed by COVID-19, the co-operative’s total group normalised Earnings Before Interest and Tax (EBIT) for the nine months to 30 April was $815 million, an increase of $301 million on this time last year.

"The work done over the last year to strengthen our balance sheet, and the co-op’s ability to respond quickly has helped us manage the COVID-19 situation over the last few months," Hurrell said. 

"We’re drawing on our global supply chain and diverse product and customer base to minimise disruptions for our customers and our business."

He said due to the pandemic, the dairy market was volatile and the outlook uncertain.

"This is a tough environment for everyone...like other businesses, we will feel the impact of COVID-19 and its flow-on effects but how and to what extent is still uncertain. We are drawing on all our experience in managing market volatility."

The co-op would contribute about $11 billion to New Zealand economy through milk price for the year, Hurrell said.

Fonterra chairman John Monaghan said the narrowing of the price range and a reduced mid-point came in response to a softening in demand relative to supply.

"One of the main drivers of the softening demand is that many foodservice businesses remain closed," said Monaghan. "On the supply side, the EU and the US have just been through the peak of their season and that milk is flowing into export markets and increasing competition for sales. As a result, prices are softening across the board."

Third quarter summary

  • Total Group Earnings Before Interest and Tax (EBIT): $1.1 billion, up from $378 million
  • Total Group normalised EBIT: $815 million, up from $514 million
  • Total Group normalised gross margin: $2.5 billion, up from $2.2 billion
  • Normalised Total Group operating expenses: $1,665 million, down $148 million from $1,813 million
  • Free cash flow: $698 million, up $1.4 billion
  •  Net debt: $5.7 billion, down from $7.4 billion
  • Normalised Ingredients EBIT: $668 million, up from $615 million
  • Normalised Foodservice EBIT: $208 million, up from $135 million
  • Normalised Consumer EBIT: $187 million, up from $128 million
  •  Full year forecast underlying earnings: 15-25 cents per share
  • 2019/20 forecast Farmgate Milk Price range: $7.10 - $7.30 per kgMS
  • Opening 2020/21 forecast Farmgate Milk Price range: $5.40 - $6.90 per kgMS
  • 2020/21 Advance Rate Schedule has been set off the mid-point of $6.15 per kgMS
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