Dairy giant Fonterra Co-operative Group has reported a $1.3 billion jump to $659 million profit after tax in its FY20 results. CEO Miles Hurrell says 2019/20 was “a good year” for the co-op.
Snapshot
- Final cash payout for 2019/20 season: $7.19 per kgMS
- Final 2019/20 Farmgate Milk Price: $7.14 per kgMS
- 2019/20 dividend: 5 cents per share - Reported Profit After Tax: $659 million, up $1.3 billion
- Normalised Profit After Tax[1]: $382 million, up $118 million
- Total Group Earnings Before Interest and Tax (EBIT): $1.1 billion, up $1.2 billion
- Total Group normalised EBIT: $879 million, up $67 million
- Total Group normalised gross profit: $3.2 billion, up $200 million
- Total Group normalised operating expenses: $2.3 billion, down $14 million
- Free cash flow: $1.8 billion, up $733 million
- Net debt: $4.7 billion, down $1.1 billion
- Debt to EBITDA ratio: 3.4x improved from 4.4x
- Full year normalised earnings per share: 24 cents
- 2020/21 forecast Farmgate Milk Price range: $5.90 - $6.90 per kgMS. Mid-point of $6.40 per kgMS
- 2020/21 forecast earnings: 20 – 35 cents per share
After a strong first half, Hurrell said no-one could have predicted COVID-19 and its flow-on effects. Consumer and foodservice businesses were particularly impacted.
“2019/20 proved to be a year of two halves,” he said.
The co-op achieved financial targets with normalised normalised earnings of 24 cents per share; a Total Group normalised gross profit of $3.2 billion; a $181 million reduction in capital expenditure; and a $1.1 billion reduction in debt so the ratio of Debt to EBITDA has now improved to be 3.4 times our earnings, down from 4.4 times.
Total Group normalised EBIT was significantly up on last year from a loss of $17 million to earnings of $1.1 billion. This includes gains from asset sales, and impairments and costs relating to the strategic review, it said.
Once those were taken out, Total Group normalised EBIT, which the Co-operative uses to show its underlying business performance, was also up from $812 million to $879 million, despite the financial impact of COVID-19 in many of its markets.
Hurrell said the main drivers was a strong normalised gross profit in the ingredients business, and strong sales and gross margins from its foodservice business in China despite COVID-19 disruption.
Ingredients’ normalised EBIT improved from $790 million last year to $827 million this year, with normalised gross profit up $165 million to $1.6 billion.
Its Greater China Foodservice business’ normalised EBIT increased from $114 million to $169 million this year. After being hit hard by the pandemic, Fonterra saw a quick rebound in the third quarter but it is still not at pre-COVID-19 levels, Hurrell said.
Foodservice businesses across Asia, Oceania and Latin America were all affected by COVID-19 in the fourth quarter and all reported losses in the second half.
“Despite this, normalised EBIT for Foodservice overall was up 14% on last year to $209 million, which is a result of the strong performance by the Greater China business in the first half,” Hurrell said.
“Our cash flow has improved and our debt has reduced by 19% or $1.1 billion compared to last year. Increased earnings, reduced capex, as well as the sale of DFE Pharma and foodspring,” he said.
Fonterra chair John Monaghan said in terms of earnings outlook, the co-op forecasts a full year of normalised earnings per share range of 20-35 cents per share. The wider range than usual was due to the ongoing uncertainties due to COVID-19
"We’ve continued to reduce our environmental footprint, including hitting our 2020 target to reduce energy intensity across our New Zealand manufacturing sites by 20 per cent, from a 2003 baseline – cumulatively, that’s enough energy saved to power all the households in New Zealand for 1.5 years," Hurrell said.
