Dairy cooperative Fonterra has reported a strong 50% increase in its first-half profit, doubled its first-half dividend and announced plans for an $800 million return to shareholders.
Key numbers for the six months that ended January compared with a year ago:
- Net profit $546m versus $364m
- Revenue $12.33 billion versus $10.8b
- Cost of goods $10.29b versus $8.70b
- Gross margin 17.3% versus 149%
- Interim dividend 10 cents a share versus 5 cents a share
In addition to the dividend, Fonterra said it would pay a Farmgate Milk Price in the range of $8.20 to $8.80 per kilogram of milk solids (kgMS).
It also proposed to make a tax free capital return to farmer owners and unit holders of about 50 cents per share, subject to completion of the sale of its Chilean Soprole business.
"We also expect to be able to pay a strong full-year dividend, in addition to our proposed capital return," chief executive Miles Hurrell said.
"The outlook for high quality sustainable New Zealand dairy remains positive. We have a clear strategy and are well-positioned to take advantage of this demand."
The cooperative offset a drop in whole milk powder prices by moving more milk into skim milk powder and cream products, Hurrell said.
"We also made the most of favourable margins in our cheese and protein portfolios, by moving a higher proportion of current season milk into these products which has benefited our earnings."
However, the result was made against a backdrop of ongoing market volatility, which hit its consumer business, Hurrell said.
"Our domestic consumer business, Fonterra Brands New Zealand (FBNZ), has been under margin pressure for some time and is not improving as fast as planned," he said.
"Performance of our Asia consumer brands has been impacted by weakening currency in the markets they operate, higher interest rates and a declining economic environment in some South East Asian markets.
"For these reasons, we have revised down the valuation of FBNZ by $92 million and our Asia consumer brands Anlene, Chesdale and Anmum by $70 million.
"As a result of market conditions and the impact of impairments, our overall consumer channel normalised EBIT is down $177 million to a loss of $94 million."
The foodservice business was more resilient, Hurrell said.
"We continue to exercise financial discipline with a focus on delivering returns, while managing higher costs and ongoing market disruption."
The company's net debt and working capital improved over the period, and it was able to clear more end-of-year inventory.
However costs increased by 27% to $1.4b due to softness in the New Zealand consumer business and Asia brands impairments, increased costs, including inflation and foreign exchange, and last year having a one-off favourable item.
Fonterra said it was aiming to reduce debt and return about $800m of capital to shareholders, or 50 cents per share or unit in late September.
"Implementation of the capital return will require a Scheme of Arrangement to be voted on by shareholders, and approval by the High Court, which is a common process for this type of transaction," Hurrell said.
"The outlook for dairy remains positive with high demand for New Zealand's quality, sustainable dairy nutrition, and global milk supply likely to continue be constrained," Hurrell said.
"We have full-year forecast normalised earnings of 55 - 75 cps, with a mid point of 65 cents per share."
The forecast earnings was an improvement on an early forecast of between 50 - 70 cents per share.
However, Hurrell said the outlook was subject to a number of risks, such as recent weather events in New Zealand.
"Our co-op's scale, diversity and strong balance sheet positions us well to manage these challenges and we will continue to prioritise higher value products and channels to deliver sustainable returns for farmer owners and unitholders."