Fonterra profits jump 65% despite ongoing challenges in dairy markets

Despite ongoing challenges in the dairy market, Fonterra, the New Zealand-based co-op, has posted a 65% increase in profits for the 2015/2016 financial year.

The co-op has seen net profits increase to a record high of NZ$834m (€548.6m) for the financial year ending July 2016.

Along with the jump in profitability, the co-ops debt levels have been significantly reduced over the past 12 months, falling from NZ$5.5 billion (€3.62 billion) to NZ$1.5 billion (€1 billion).

The co-ops annual results also show that sales volumes have increased by 4%, while revenues have declined by 9% to NZ$17.2 billion (€11.3 billion).

Key performance figures:
  • Sales volumes increase by 4% to 23.7 billion Liquid Milk Equivalents.
  • Revenue of NZ$17.2 (€11.3) billion, down 9%.
  • Normalised EBIT NZ$1.4 (€0.9) billion, up 39%.
  • Net profit after tax $834 million (€548.6m), up 65%.
  • Return on capital 12.4%, up from 8.9%.
  • Ingredients inventories down 25%.
  • Gearing ratio reduced to 44.3% from 49.7%.
  • Debt reduced by $1.6 (€1) billion to $5.5 (€3.62) billion.

Fonterra Chairman, John Wilson, said that the 2015/2016 season had been incredibly difficult for farmers, their families and rural communities as global dairy prices where at unsustainable levels and the co-op has responded.

“We continued with the significant and necessary changes we began in the business over three years ago to support our strategy and its priorities, and worked hard to return every possible cent of value back to our farmers.

“Our business strategy is serving us well.

“We are moving more milk into higher-returning consumer and food service products while securing sustainable ingredients margins over the Global Dairy Trade (GDT) benchmarks, especially through specialty ingredients and service offerings,” he said.

He also said that after a period of deliberate and disciplined attention to the business, the co-op has become stronger.

Commenting on the results, the co-ops Chief Executive, Theo Spierings said that selling more volumes of milk at higher value is to the heart of Fonterra’s strategy.

“We’ve seen the real strength of our ingredients business this year.

“The money our farmers have invested in stainless steel is giving us more choice, and we have matched production to the highest value customer demand,” he said.

Fonterra increases farmgate milk price

Earlier this week, Fonterra increased its 2016/2017 Farmgate Milk Price by 50c to NZ$5.25/kgMS.

When combined with the forecast earnings per share range for the 2017 financial year of 50-60c, the total payout available to farmers in the current season is forecast to be NZ$5.75-5.86/kgMS.

Fonterra Chairman John Wilson said that since the co-op last reviewed its forecast milk price in August, global milk supply has continued to reduce and demand has remained stable.

“Milk production in key dairying regions globally is reducing in response to low milk prices.

Milk production in the EU for 2016 is beginning to flatten out and our New Zealand milk collection is currently more than 3% lower than last season.

Wilson also said that some improvement has been seen in GDT auction prices recently, but the high New Zealand Dollar/US Dollar exchange rate is offsetting some of these gains.

“There is still volatility in global dairy markets and we will continue to keep our forecast updated for our farmers over the coming months.” he said.