Source: Radio New Zealand
Outgoing chief executive Miles Hurrell said the changes to the forecast Farmgate Milk Price and earnings reflected improvement in global commodity prices and the co-op’s strong underlying margins and cost control. Supplied/LikeMinds
Fonterra delivered a strong first half result, beating market expectations, while lifting its full year earnings outlook and forecast farmgate milk price.
The co-operative said a “favourable product mix and resilient global demand for high value dairy Ingredients and Foodservice products” enabled Fonterra to deliver and better than expected result.
The dairy co-operative’s net profit for the six months ended January rose 3 percent, with group revenue up 9 percent.
Key numbers for the six months ended January compared with a year ago:
- Net profit $750m vs $729m
- Revenue $1.231b vs $1.107b
- Earnings per share 45 cents vs 44cps
- Normalised earnings per share 51 cps vs 47cps
- Return on capital 11.2% vs 10.4%
- Interim dividend 24cps vs 22cps
- Special Mainland dividend 16cps – Capital return of $2 a share – expected to be paid 14 April
Current forecast vs previous forecast
- FY26 forecast earnings guidance from continuing operations between 50 – 65cps vs 45 -65 cps
- Current season forecast Farmgate Milk Price midpoint $9.70 per kgMS vs 9.50 per kgMS.
- Reaffirms target to close Mainland underlying earnings gap of $300m – FY28 to match FY25
Outgoing chief executive Miles Hurrell said the changes to the forecast Farmgate Milk Price and earnings reflected improvement in global commodity prices and the co-op’s strong underlying
margins and cost control.
However, he said significant volatility remained, particularly as the conflict in the Middle East continued.
“The underlying performance of Fonterra’s continuing business is stable, allowing the Co-op to return all earnings associated with the Mainland Group business and lift our forecasts for the remainder of the year ahead,” Hurrell said.
“Demand for our products is strong, and we’re focused on our plan to maximise both the Farmgate Milk Price and earnings.”
The co-op also delivered a return on capital of 11.2 percent, in line with its target range.
“The first half of the year has been shaped by strong milk flows, with the Co-op collecting record milk volumes in the South Island so far this season,” Hurrell said, though several adverse weather events had put pressure on operations.
“Our performance shows that we are growing the high-value parts of our business through optimal allocation of milk solids across our product mix, which is driving a strong return on capital for shareholders and unit holders.”
Managing geopolitical volatility
Hurrell said war in the Middle East was having an impact on its supply chain through the region, with potential to increase Fonterra’s inventory levels and costs over the course of the second half of the year.
There was also the potential for further volatility in global commodity prices, he said.
“The conflict is a complex and dynamic situation that is changing daily, but we are confident that we’re on the right track to get product to customers.”
He said Fonterra’s business was designed to manage volatility.
“Our scale and strong relationships with customers and logistics provider Kotahi will help us to navigate through these challenges better than most.
“With this in mind, we remain focused on delivering on our strategic targets.”
Where the growth is coming from
The company said it was focused on deepending its position as a world-leading provider of dairy ingredients.
“In line with the co-op’s strategy, we have continued to focus on optimising our product mix by allocating milk solids effectively to the highest accessible demand.
“With milk collection tracking at 2.3 percent growth year-on-year, we have leveraged flexibility in our asset network and increased the manufacture of our highest returning product portfolios, such as cheese and proteins,” it said in its interim report.
Fonterra said it was also expanding its Foodservice business in and beyond China to grow earnings.
“Diversifying our cream portfolio and expanding our customer base remains a key focus. Anchor Easy Bakery Cream continues to perform strongly in China, valued for its functionality, quality and accessible price point.
“The cream has now launched in Indonesia and Thailand, with other markets across Southeast Asia to follow.”
In addition the company said it was investing more in operations.
“During the half, we continued to invest in our assets to drive growth in our Foodservice and Ingredients businesses, and in projects intended to improve energy security, operational resilience, and reduce the Co-op’s emissions.”
It was also investing more in science and technology.
“In line with our strategy, the co-op has continued to advance its innovation pipeline across products, processes, data and new business models.
“Our team and dedicated research and development centre remains focused on core dairy and advanced nutrition, manufacturing performance and capability, and strengthening in-market application capability to support long-term growth, efficiency and resilience.”
– Published by EveningReport.nz and AsiaPacificReport.nz, see: MIL OSI in partnership with Radio New Zealand
