Cost cutting boosts Fonterra profits to €280m

In its annual results Fonterra Co-operative Group has announced a net profit after tax of $506 million for the financial year up 183%.

Chairman John Wilson said extremely challenging trading conditions globally had affected all parts of the Co-operative’s business.

“Falling global dairy prices due to a supply and demand imbalance impacted the Milk Price, while the dividend reflected higher funding costs following significant investment in capacity to support milk growth in New Zealand, essential investments in the key strategic market of China, and the costs of maintaining a higher Advance Rate through the season.

“The strengthening of performance in the second half resulted in normalised earnings before interest and tax almost doubling, with good growth in our consumer and foodservice businesses and the results of a major push in our ingredients business to offset low milk prices with improved margins.”

Highlights
  • Total sales volumes up 9% at 4.3 million metric tonnes
  • Revenue $18.8 billion, down 15%
  • Normalised EBIT $974 million, up 94%
  • Net profit after tax $506 million, up 183%
  • Cash Payout $4.65, down 45%
  • Farmgate Milk Price $4.40 per kgMS
  • Dividend of 25 cents per share
  • 2015/16 forecast total available for payout up 75 cents to $5.00 − $5.10 per kgMS

Wilson said that despite drought in some regions and floods late in the season, milk collection across New Zealand for the 2014/15 season to 31 May 2015 was 1,614 million kgMS, up 2% on the previous season.

Chief Executive Theo Spierings said improved second half results in the 2015 financial year were driven by a strong focus on cash and costs.

“We focused on improving our sales mix, achieving more efficiencies, maximising our gross margins and achieving our strategic goals faster. Our efforts contributed to a second half rebound in our performance and profitability.”

“Significant progress was achieved in our consumer and foodservice strategy where we are aiming to win hearts, minds and especially market share in our eight strategic markets of New Zealand, Australia, Sri Lanka, Malaysia, Chile, China, Brazil and Indonesia.

Outlook

The Co-operative is lifting its forecast Farmgate Milk Price for the 2015/16 season to $4.60 per kgMS, an increase of 75 cents.

It has also reduced its New Zealand forecast production volumes by at least 5% compared with the previous season.

Wilson said the lift in profitability in the second half of the 2015 financial year was expected to carry through into the current financial year.

“Our track record this year in growing consumer and foodservice, along with our ingredients margins, make us confident in our forecast earnings per share range of 40-50 cents,” said Mr Wilson.

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