Fonterra Co-operative Group CEO Miles Hurrell says higher margins and sales volumes in the co-op's Foodservice and Consumer channels, which helped offset lower returns in its Ingredients business, were behind its strong performance in the first half of FY24.
Hurrell said the Ingredients channel earnings were down year on year due to historically high price relativities in FY23 and lower margins in Australian Ingredients during FY24.
“Global Markets’ reported profit after tax is up NZ$230 million to NZ$380 million, due to lower input costs in Southeast Asia, Sri Lanka and Fonterra Brands New Zealand. Fonterra Australia’s performance was impacted by the higher Australian milk price,” Hurrell said.
All $ figures are NZ$.
Snapshot
- Reported profit after tax: $674 million, up 23% prior corresponding period (pcp);
- continuing operations EBIT: $986 million, up 14% pcp;
- earnings per share: 40 cents per share;
- return on capital: 13.4%, up from 8.6% pcp;
- interim dividend: 15 cents per share, up from 10 cents per share pcp;
- maintained forecast FY24 continuing operations earnings range of 50-65 cents per share;
- forecast Farmgate Milk Price range narrows: NZ$7.50 - $8.10 per kgMS; and
- forecast milk collections: 1,465 million kgMS, down 1% pcp.
Fonterra Australia’s earnings before interest and tax (EBIT) was NZ$42m (AU$39m), a drop of 43 per cent on the prior corresponding period, which it said was mainly due to the high cost of milk in Australia and its disconnect with global commodity prices.
It reported gross profit of NZ$138m (AU$128 million), a decline of 19 per cent pcp.
Gross margin was down 1.8 per cent, operating expenses remained steady, and milk collections and sales volumes are in line with the prior first half, Fonterra said.
Fonterra Australia managing director René Dedoncker said while earnings were down the business had solid fundamentals.
“Our Australian business remains profitable with good domestic demand, and we continue to see value growth in Consumer and Foodservice.
“Our Consumer brands remain number one in the Butter & Spreads and Cheese categories… despite a shift in consumer demand to private label and lower-price competitor products,” Dedoncker said.
In February, the co-op announced it would merge its Australian business with Fonterra Brands New Zealand to create Fonterra Oceania in a bid to strengthen its trans-Tasman offering in what was an ‘increasingly competitive marketplace’.
“The financial performance of our Ingredients business is impacted when the milk price is high relative to commodity pricing. However, we are pleased to be growing our value-add proposition and have increased sales for our proteins, functional nutrition, and probiotics.
“The Australian market has been challenging for many dairy processors over the last 12 months.
“For Fonterra, our focus is on reducing our costs and improving return on capital. Work is well underway to identify and implement a range of initiatives which will deliver cost savings for our business,” Dedoncker said.
Hurrell said while global inflationary pressures were easing, the co-op was monitoring for any potential volatility due to geopolitical instability.
