Dairy giant Fonterra records €50 million profit after tax

One of the world’s largest dairy co-ops, New Zealand based Fonterra, has reported a return to profitability in its 2019 interim results, which show a net profit after tax (NPAT) of $80 million (NZD). This equates to approximately €49 million.

However, the report also highlights normalised earnings before interest and tax (EBIT) are down 29% on the same period last year to $323 million (€195 million).

The figures show a slight 2% increase in sales volume to 10.7 billion liquid milk equivalents (LME), and an overall revenue of $9.7 billion (€5.8 billion).

Fonterra’s NPAT has increased by 123% compared to the figure from 12 months ago.

Outside of milk processing, the co-op has begun a sales process for its 50% share of medical solutions company DFE Pharma, and has also completed the sale of South American processor Corporacion Inlaca.

Miles Hurrell, CEO of Fonterra, said that while he was happy that the company was “back in the black”, the earnings performance was not where it should be.

“The steady performance from New Zealand ingredients in the first half of the fiscal year 2019 has been offset by challenges in Australian ingredients, and this has seen our total ingredients EBIT decline by 17%,” explained Hurrell.

He added: “Our Australian 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.”

Other key figures from Fonterra’s 2019 interim results include (in euro):

  • Total normalised gross margin: €904 million;
  • Ingredients gross margin: €477 million (down 9%);
  • Consumer and foodservice gross margin: €462 million (down 7%);
  • Full-year forecast earnings: up to 15c/share;
  • Forecast farmgate milk price: €3.80 to €3.98/kgMS.

Speaking about the future outlook for the co-op, Hurrell said that the focus would be to “fundamentally reset” the business so it can “deliver sustainable earnings”.

“Our three-point plan involves taking stock of our business and conducting a portfolio review, getting the basics right and improving our forecasting. We’ve made good progress so far and we will continue to take these steps,” he said.

Commenting on the prospective sale of Fonterra’s 50% stake in DFE Pharma (which the co-op founded in a joint venture), Hurrell said that the decision, and other portfolio changes, would contribute to cutting its debt.

“We are well on track to meet our target to reduce end-of-year debt by $800 million (€482 million),” he claimed.