New Zealand dairy giant Fonterra has announced a 76 per cent tumble in net profit to NZ$179 million for the year to July and has cut its milk purchase price due to an ongoing fall in global dairy prices.
Pointing to a build up in milk powder inventories in China, Fonterra has cut the price it pays its farmer shareholders for raw milk to NZ$5.30 per kg of milk solids, down from its forecast of NZ$6.00.
"The forecast reflects an uncertain outlook for the global economic environment and an expectation of continued volatility for dairy prices driven by geopolitical events and the supply/demand imbalance," the company's CEO Theo Spierings said.
Fonterra also announced a 76 percent fall in net profit to NZ$179 million for the year ended July, down from $736m last year, while earnings before interest and taxes fell 50 percent to NZ$503 million, which was down 50 per cent on the previous year, in line with the company's downgraded forecast.
According to the company, the profit fall was due to a higher milk price paid to farmers, and higher interest and tax.
The company also reported revenue of $22.3 billion, an increase of 19 per cent on the previous year.
Fonterra CEO Theo Spierings said the Co-operative had come through a very demanding year.
“We have continued to stay on track with our strategy, focusing on securing the best returns to our farmer shareholders.”
“Constrained margins in our foodservice and consumer businesses and on non-milk powder products were the knock-on effect, contributing to a 27 per cent rise to $19.8 billion in the cost of goods sold. However, we maintained our focus on efficiency and achieved a two per cent reduction of $46 million in our operating costs.”
“Our higher cost of goods sold, along with higher interest and taxation, saw our net profit after tax decline by 76 per cent to $179 million.”
Spierings also said Fonterra's New Zealand and Australian businesses had a challenging year “due to much higher input costs and competitive pressure that constrained our ability to pass these on.”
Total sales volumes of 832,000 MT for Australia and New Zealand were 6 per cent lower than the previous year, in part due to the sale of the Norco liquid distribution business in 2013, decreased nutritional volumes from the Australian ingredients business and reduced yoghurt volumes in Australia.
“These businesses are now on a firmer footing to lift their performance in the current financial year,” Spierings said.
