Fonterra has announced its 2013 results. Sales volumes were flat at 4 million metric tonnes. Revenues, at NZ$18.6 billion, were down 6% - but net profit was up 18% to $376 million. The Co-operative announced a cash payout of NZ$6.16 for the 2013 year for a 100% share-backed farmer, comprising a Farmgate Milk Price of $5.84 per kgMS and a dividend of 32 cents per share.
Chairman John Wilson said that while the Payout was higher than forecast at the beginning of the season, it was 4% down on the previous year.
“2013 was a year that tested our resilience,” said Wilson. “After a superb first six months for both production and performance, our farmer shareholders endured a drought which in some regions was the worst in nearly 70 years.”
“The extremely dry conditions meant a drop in New Zealand milk production of 9% in the last six months of the season. Overall, New Zealand milk production declined 2% to 1,463 million kgMS for the season to 31 May 2013, which hit our farmers and the business financially.”
“Our strong balance sheet, with a debt to debt plus equity ratio of 39.6%, and operating cash flows meant we were able to support farmers through the drought’s immediate impact by raising the Advance Rate paid to farmers for their milk. This change, however, contributed to a 28% drop in operating cash flows compared with the previous year.”
Fonterra chief executive Theo Spierings said Fonterra had made good progress with its strategy during the year, particularly in foodservice, everyday nutrition and advanced nutrition. Climatic and market conditions, however, frustrated efforts to achieve higher earnings.
“The combined impact of the drought and the reshaping of Fonterra’s Australian business, saw the Co-operative’s normalised EBIT of $1 billion for the 2013 year fall 3% short of last year.
“The business achieved strong EBIT growth in Asia, Africa, the Middle East and in our Soprole business in Chile. However, this was offset by a weaker second half from NZ Milk Products and a 37% decline in normalised EBIT in Australia and New Zealand (ANZ) as we make changes to our Australian business.
“The extreme drought caused unprecedented volatility – reflected in a 64% spike in Whole Milk Powder prices from January 2 to April 16. This, in turn, had a significant impact on the cost of milk purchased by NZ Milk Products, and meant the high returns achieved in the first half as a result of price premiums, product mix, cost savings and productivity gains were eroded in the second half.”
“Although the New Zealand consumer business grew its earnings in a tough trading environment, Australia faced heightened competition for lower milk volumes, and continuing margin squeeze for consumer brands. We expect the significant reshaping of our Australian operations, which is going to plan, will turn performance around. The business has already achieved a 7% reduction in operating expenses of $49 million (after excluding the impact of the closure of the Cororooke site and Brand impairments),” said Spierings.
Fonterra previously provided guidance to the market about an increase to its Forecast Farmgate Milk Price for the 2014 season, and the likely impact on earnings for the current financial year.
The Co-operative announced that it has increased its Forecast Farmgate Milk Price for the 2014 season by 50 cents to $8.30 per kgMS. The increase – along with an estimated dividend of 32 cents per share - amounts to a Forecast Cash Payout for 2014 of $8.62.
The record Forecast Farmgate Milk Price reflected continuing strong international prices for dairy, particularly Whole Milk Powder driven by robust demand from Asia, especially China. Fonterra is still facing high volatility around the world.
The business also faced headwinds, especially in the first half of the current financial year when earnings were expected to be significantly lower than the strong performance in the first half of 2013.
The higher cost of goods will make it more difficult to drive earnings growth in Fonterra’s consumer and foodservice businesses in the first half of this financial year. The Co-operative also expects to see a negative impact on product mix returns during the first half of the current year as milk powder prices significantly outpace the relative prices of cheese and casein.
Prospects for the second half look more positive for Fonterra’s consumer businesses, but remain uncertain for NZ Milk Products.
Chairman John Wilson said that while the Payout was higher than forecast at the beginning of the season, it was 4% down on the previous year.
“2013 was a year that tested our resilience,” said Wilson. “After a superb first six months for both production and performance, our farmer shareholders endured a drought which in some regions was the worst in nearly 70 years.”
“The extremely dry conditions meant a drop in New Zealand milk production of 9% in the last six months of the season. Overall, New Zealand milk production declined 2% to 1,463 million kgMS for the season to 31 May 2013, which hit our farmers and the business financially.”
“Our strong balance sheet, with a debt to debt plus equity ratio of 39.6%, and operating cash flows meant we were able to support farmers through the drought’s immediate impact by raising the Advance Rate paid to farmers for their milk. This change, however, contributed to a 28% drop in operating cash flows compared with the previous year.”
Fonterra chief executive Theo Spierings said Fonterra had made good progress with its strategy during the year, particularly in foodservice, everyday nutrition and advanced nutrition. Climatic and market conditions, however, frustrated efforts to achieve higher earnings.
“The combined impact of the drought and the reshaping of Fonterra’s Australian business, saw the Co-operative’s normalised EBIT of $1 billion for the 2013 year fall 3% short of last year.
“The business achieved strong EBIT growth in Asia, Africa, the Middle East and in our Soprole business in Chile. However, this was offset by a weaker second half from NZ Milk Products and a 37% decline in normalised EBIT in Australia and New Zealand (ANZ) as we make changes to our Australian business.
“The extreme drought caused unprecedented volatility – reflected in a 64% spike in Whole Milk Powder prices from January 2 to April 16. This, in turn, had a significant impact on the cost of milk purchased by NZ Milk Products, and meant the high returns achieved in the first half as a result of price premiums, product mix, cost savings and productivity gains were eroded in the second half.”
“Although the New Zealand consumer business grew its earnings in a tough trading environment, Australia faced heightened competition for lower milk volumes, and continuing margin squeeze for consumer brands. We expect the significant reshaping of our Australian operations, which is going to plan, will turn performance around. The business has already achieved a 7% reduction in operating expenses of $49 million (after excluding the impact of the closure of the Cororooke site and Brand impairments),” said Spierings.
Fonterra previously provided guidance to the market about an increase to its Forecast Farmgate Milk Price for the 2014 season, and the likely impact on earnings for the current financial year.
The Co-operative announced that it has increased its Forecast Farmgate Milk Price for the 2014 season by 50 cents to $8.30 per kgMS. The increase – along with an estimated dividend of 32 cents per share - amounts to a Forecast Cash Payout for 2014 of $8.62.
The record Forecast Farmgate Milk Price reflected continuing strong international prices for dairy, particularly Whole Milk Powder driven by robust demand from Asia, especially China. Fonterra is still facing high volatility around the world.
The business also faced headwinds, especially in the first half of the current financial year when earnings were expected to be significantly lower than the strong performance in the first half of 2013.
The higher cost of goods will make it more difficult to drive earnings growth in Fonterra’s consumer and foodservice businesses in the first half of this financial year. The Co-operative also expects to see a negative impact on product mix returns during the first half of the current year as milk powder prices significantly outpace the relative prices of cheese and casein.
Prospects for the second half look more positive for Fonterra’s consumer businesses, but remain uncertain for NZ Milk Products.
