Fonterra announces net profit of $745 mln; drops season end milk price by 3c to $6.12, making final payout of $6.52

By David Hargreaves

Giant dairy co-operative Fonterra's announced an 11% fall in after-tax profits to $745 million for the year to July 31 and has trimmed the final farmers' milk price payout to $6.12 per kilogramme of milk solids.

With the previously announced dividend of 40c this gives a cash payout of $6.52 for the year. Fonterra makes no mention in its main announcement to NZX why the final milk price has been reduced from the last signalled price of $6.15.

The reduction in profit of the co-op was to be expected as, somewhat contradictorily, Fonterra's cost of goods increases if the milk price rises - as it has in the past year.

Fonterra maintained its forecast for the current year of a milk price of $6.75 per kgMS with a forecast earnings per share range of 45-55 cents per share. The 45-55c per share eps figure is the same as in the past year, which produced a 40c dividend. So, this would suggest a current target of a cash payout of $7.15 in the current year.

ASB senior rural economist Nathan Penny said: "Fonterra continues to make financial par, but no more than that."

He said it was not surprising that the lift in the milk price over 2016/17 put the squeeze on profits.

"Interestingly, Fonterra anticipates making a similar profit this season despite the likely further improvement (of around 60 cents) in the milk price. In our view, delivering on this expectation would represent material financial performance progress for Fonterra. However, time will tell on that front.

"On the farmgate milk price side, we are more confident - we continue to forecast a 2016/17 milk price of $6.75/kg. Although as we have stated recently, if the weather and NZ production don’t improve, we expect to lift our milk price forecast to $7.00/kg or above in the next month or so."

Chairman John Wilson said Fonterra was "well positioned to deliver higher volumes and new product formats in our Consumer, Foodservice, and Advanced Ingredients portfolios, and are confident in our forecast earnings per share range of 45-55 cents”.

As far as the year recently completed goes, Fonterra gave this set of highlights:

Highlights

• 2016/2017 Total Cash Payout $6.52, up 52% on last season
- Farmgate Milk Price $6.12 per kgMS
- Dividend of 40 cents per share
• Revenue $19.2 billion, up 12%
• Normalised EBIT $1.155 billion, down 15%
• Net Profit After Tax (NPAT) $745 million, down 11%
• 46c earnings per share
• Significant growth in Consumer and Foodservice – additional 576 million LME
• Advanced Ingredients sales growth up 9%
• Group Return on Capital of 11.1%

As stated there, revenue increased by 12% to $19.2 billion, with rising prices offsetting a 3% decline in volumes at 22.9 billion LME. Normalised EBIT of $1.2 billion was down 15% as a result of reduced margins across the business which also influenced net profit after tax, down 11% at $745 million.

Wilson said Fonterra's ability to maintain its forecast dividend despite the Milk Price increasing by 57% over the year and the impact of negative stream returns "was an excellent result".

“We will always need to manage variability across our Co-operative – both in global markets and in our local farming conditions. We’ve demonstrated our ability to deal with those conditions and deliver on our strategy again this year,” said Mr Wilson.

“Over recent seasons, our farmers have made significant personal sacrifices to reduce costs through a sustained low milk price period.

“As part of our continued business transformation, the Co-operative has also made a fundamental shift in the way it operates, continuing the strong focus on increased efficiency and developing new revenue streams.

“Despite lower milk volumes due to poor weather in parts of the season, the business delivered a good result by prioritising higher value Advanced Ingredients and growing our sales of these in-demand and specialised products by 473 million LME this year.”

You can click here for:

The media release to NZX

The results presentation

The annual review

The financial statements

The farmgate milk price statement

See here for dairy payout history.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

We welcome your comments below. If you are not already registered, please register to comment or click on the "Register" link below a comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current Comment policy is here.

17 Comments

The CEO aptly rewarded for the outstanding results?

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=1192...

A well deserved reward no doubt. At the end of the day it's mostly farmers, shareholders and the chinese being taken for a ride by executives and senior managers so why would I be bothered?

What would he have been paid if the profits had increased?

Saw tweet from Theo today. "Volume is down, and inventory is lowest ever. But we're still up by milk price of 57%"
Isn't that Supply and demand 101?
So why the heck is Volume one of Fonterra's three Vs.

As expected.
"New Zealand dairy giant Fonterra has confirmed it has lodged a bid for Australian co-operative Murray Goulburn, while revealing it was poised to overtake its rival to become this country's biggest buyer of milk."

Cost to conned-sumer is up too...so must be ok.

Must be a God send. ..for the poor and needy...

Perhaps Theo could donate his excesses for the good of man-kind....so they can get a free milk, now and again....not being Milked...always..eh.
Plus the Farmers could donate a packet of dried milk....so they can have some in the pantry, when we get some clean water .....Naturally.

Irony is in the eye of the Beholder.

Kick Start breakfast programme has served more than 14million breakfasts since it started. It is a partnership between Fonterra, Sanitarium and The Ministry of Social Development and is available to all schools.

Fonterra provides milk to more than 170,000 Primary school children every day.
https://www.fonterramilkforschools.com/

I think you will find it is the Consumer who pays for all that...plus any and all wages, fees, debt, spoiled waterways,I could go on but the list is endless.

When all expense taken into account, Profit is down. So prices go up... to pad out the suckers debts....which you as a consumer must bear. OK if not poor. Nothing is free in this strange world of ours.

But also no accounting...for taste.

So what business doesn't the consumer/client pay for business costs you mentioned?

You don't have to buy Anchor branded milk - there are cheaper alternatives. We only have one large supermarket in our town and it refuses to stock Anchor milk as the town is mainly families and they buy on price, so that counts Anchor milk out for the supermarket owners. Yet Anchor Butter is cheaper by up to around $1.50/500gms at out local BP station, so why would you pay more at the supermarket - it is a choice to do so.

Sanitarium is not a good example to choose - all taxpayers subsidise their endeavours.

Wholly owned by the Seventh-day Adventist Church, Sanitarium's arms on both sides of the Tasman are exempt from paying company tax on their earnings because their profits help fund the church's charitable and religious activities. Read more

Agree Stephen, but they are part of the Kick Start programme - didn't want it to appear I was making it look like a Fonterra only programme. ;-)

Unrelated to this topic but rural none the less. Post election, three months of backlog that will now see the light of day

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=1192...

A 250ha farm near Kaiwaka is the latest Northland property to be sold to overseas interests, according to the Overseas Investment Office.
The sale was approved on July 4 but the decision has just been released.

At this rate how long before the majority of NZ land is owned by foreign interests? Is this how "strong and stable' government works?

Sure looks that way

Looks like the relentless war on farmers is having the desired affect then.

I wonder what they thought would happen.

All that is required is a diary note by the OIO to do a follow up in 2 years time to go see if they have landed and living there - as per requirement

What powers does the OIO have if they haven't, can they force resale?