Fonterra Co-operative Group delivered a half year profit after tax of NZ$364 million despite higher input costs and the average cost of milk being 30 per cent higher than this time last year.
In presenting the co-op’s FY22 interim results CEO Miles Hurrell said Covid continued to be a challenge.
“COVID-19 continues to be a challenge in our markets and here at home. We’re seeing more of our employees having to isolate and continued disruptions in our supply chain.
“Margins in our Ingredients channel improved in the first half. However, the higher milk price put pressure on our margins in Foodservice and Consumer, and we also felt the impact of COVID-19 in many of our markets. Lower New Zealand milk collections reduced our total production, and this impacted our overall sales volumes,” Hurrell said.
Snapshot
- revenue NZ$10,797m, up 9%
- reported profit after tax NZ$364m, down 7%
- NPAT: NZ$364m, down 13%
- normalised EBIT: NZ$607m, down 11%
- net debt: NZ$5.6bn, down 8%
- normalised gross profit: NZ$1,607m, down 7%
- normalised gross margin: 14.9% down from 17.4%
- total group operating expenditure: NZ$1,062m, up 1%
- normalised Africa, Middle East, Europe, North Asia, Americas (AMENA) EBIT: NZ$250m, up 25%
- normalised Greater China EBIT: NZ$236m, down 20%
- normalised Asia Pacific (APAC) EBIT: NZ$158m, down 33%
In regard to the sale of its Chileans business and a possible IPO for Australian operations, announced in September, Hurrell said they were making progress but the priority was to maximise their value and both were performing well.
“We will take our time to ensure the best outcomes from these processes and remain confident on delivering on our intention to return around $1 billion of capital to our shareholders and unit holders by FY24,” he said.
The total group’s normalised EBIT of NZ$607 million was down $77 million, which reflected the much higher milk price.
Fonterra saw decent demand in Greater China, particularly for its Ingredients business, but Covid was still having a major impact on foodservice.
Hurrell said regional marketing campaigns had also been effective – in China a social media campaign to put mozzarella on dumplings gained attention in the lead-up to Lunar New Year.
It’s collaboration with VitaKey was ahead of schedule, Hurrell said.
“VitaKey specialises in precision delivery of nutrition which would allow us to design dairy products that incorporate targeted and time-controlled release of specific dairy nutrients in a way that allows the nutrients to be more beneficial in our bodies.
“The project is ahead of schedule, and we’ve expanded the scope to include several micronutrients, such as Vitamin D.
“Meanwhile, in the area of nutrition science solutions, we are continuing our work to understand this health and wellness trend and where we can build a competitive advantage,” he said.
Hurrell said the co-op’s focus on sustainability was also gaining recognition and helping to maintain and win business.
“Finding a solution to the methane challenge will be a gamechanger. That’s why the results of the next phase in the Kowbucha trials - a probiotic which could switch off the bugs that create methane in cows - are so exciting. After moving from the lab to farm, initial results have shown a reduction in methane of up to 20 per cent when fed to calves. The trial is now continuing to the next phase.
“We have an aspiration to be net zero by 2050, and over the next decade we intend to invest around $1 billion in sustainability initiatives to support that,” he said.
CFO resigns
Fonterra CFO Marc Rivers has announced his resignation and will leave at the end of the year following the AGM.
Hurrell said Rivers joined the business in 2018 and had played a critical role in restoring the financial health of the coop.
“It’s been clear from day one that Marc felt a great sense of responsibility to our farmer owners, unit holders and also New Zealand’s economy.
“Our balance sheet is now in a strong position. We have a long-term strategy with clear targets out to 2030 and our farmer owners have given the green light on our Flexible Shareholding capital structure. Marc has been instrumental in all of these areas.
“We are moving from reset to a new phase of creating value, and Marc has decided that this is a natural point in time for a move,” Hurrell said.
For Rivers, it has been a learning experience.
“We have worked together to rebuild the health and wellbeing of Fonterra and I look forward to seeing the goodness the Co-op creates over the coming years,” he said.
