Video | Agriculture | Confidence | Economy | Energy | Employment | Finance | Media | Property | RBNZ | Science | SOEs | Tax | Technology | Telecoms | Tourism | Transport | Search

 


Fonterra lifts sales in 1H; profit halves as margins shrink

Fonterra lifts sales in first-half; profit halves as margins shrink

By Jonathan Underhill

March 26 (BusinessDesk) – Fonterra Cooperative Group posted a 53 percent drop in first-half profit as the price of milk ran ahead of prices for products such as cheese and casein, slashing margins at the world’s biggest dairy exporter.

Profit fell to $217 million, or 13 cents a share, in the six months ended Jan. 31, from $459 million, or 28 cents, a year earlier, the Auckland-based company said in a statement. Sales climbed 21 percent to $11.3 billion in a period that included record December shipments to China of 110,000 metric tonnes.

Fonterra sees no let-up in the second half, with profit likely to undershoot its first-half result on continued negative impact on product mix margins and higher input costs making it hard to drive growth in its branded and food service businesses, it said today.

The price of whole milk powder, one of the reference commodities used to calculate the farmgate milk price, surged 60 percent in the first half, contributing to a 35 percent increase in revenue from NZ Milk Products, Fonterra’s biggest division. But non-reference products – the casein and cheese streams that count milk as their biggest input costs – didn’t rise as much, meaning the company couldn’t pass on the higher cost of milk.

“Sustained high prices, especially for milk powders, saw revenue increase … but these also led to higher input costs,” Fonterra said. “The increasing pressure on margins was also evident in our consumer and food services businesses. Here the balance needed to be struck between passing on rising costs immediately or continuing to build our market presence and volumes to secure long-term growth.”

Fonterra’s gross margin in the first half tumbled to 12.5 percent from 18.6 percent.

The company had already telegraphed the issues it has with product mix, where its factories can produce milk powder streams to cheese and casein streams at a ratio of 75 percent to 25 percent. In November it took a $157 million provision against inventory of specialised ingredients and branded consumer products at NZ Milk Products because of the margin squeeze. And in December it slashed its forecast 2014 dividend payment by two thirds, while keeping the farmgate milk price at a record high.

“We processed as much of this milk into the higher returning milk powder product streams as we could,” chief executive Theo Spierings said. “However, our current asset footprint meant that around 25 percent had to be processed into cheese, casein and other non-reference commodity products which earned negative returns over the period.”

As part of the company’s response, it will bring forward planned capital investments including building new capacity to reduce its product mix constraints. That will result in an additional $400 million to $500 million capital spending over the next three to four years.

Fonterra declared a first-half dividend of 5 cents a share and affirmed its forecast for full-year payments of 10 cents.

Units in the Fonterra Shareholders’ Fund, which are entitled to dividends on the ordinary shares, were last at $6.22 on the NZX and have fallen 8 percent in the past year while the NZX 50 Index climbed 18 percent. The units are rated a ‘hold’ based on the consensus of analysts polled by Reuters.

Among the company’s other divisions, Oceania reported a 53 percent decline in normalised earnings before interest and tax to $46 million. Sales fell 10 percent to $1.8 billion and its gross margin shrank to 18.8 percent from 21 percent. Oceania includes consumer and ‘out of home’ food service in Australia and New Zealand, dairy processing in Australia and the RD1 rural supplies chain.

Asia revenue was little changed at $1.05 billion from $1.049 billion while normalised EBIT dropped 68 percent to $32 million. Gross margin shrank to 26.6 percent from 34.5 percent. While volumes grew to China, sales volume to Sri Lanka, where the company was temporarily forced to suspend its market operations, fell 33 percent and had “a significant impact” on first half earnings for the division.

In Latin America, revenue rose 2 percent to $570 million and normalised EBIT climbed 6 percent to $71 million. The gross margin slipped to 26 percent from 26.5 percent.

(BusinessDesk)

© Scoop Media

 
 
 
 
 
Business Headlines | Sci-Tech Headlines

 

BusinessDesk: SkyCity Lifts Minimum Convention Centre Investment To $430M

SkyCity Entertainment Group, the casino operator, has lifted the minimum it will invest in the Auckland International Convention Centre to $430 million and said total costs including land may be $450 million to $470 million. More>>

Statistics: Drop In Dairy Prices Leads Fall In Exports

Total goods exports fell $240 million (5.5 percent) to $4.2 billion in April 2015 compared with April 2014, Statistics New Zealand said today. More>>

BusinessDesk: APN's NZME Sees Future In Paywalls, Growth In Digital Sales

APN News & Media has touted a single newsroom concept for its NZME unit in New Zealand, similar to what Germany's Die Welt uses, saying an 'integrated sales proposition' is helping it win market share, including ... More>>

Labour Party: Global Milk Prices Now Lowest In 6 Years

The latest fall in the global dairy price has brought it to the lowest level in six years and shows there must be meaningful action in tomorrow’s Budget to diversify the economy, says Labour’s Finance spokesperson Grant Robertson. “Dairy prices ... More>>

BusinessDesk: NZ Inflation Expectations Creep Higher In June Survey

May 19 (BusinessDesk) - New Zealand businesses lifted their expectations for inflation over the next two years, sapping any immediate pressure on the Reserve Bank to cut interest rates, and prompting the kiwi dollar to jump higher. More>>

BusinessDesk: Lower Fuel Costs Drive Down NZ Producer Input, Output Prices

May 19 - Producer input and output prices fell in the first quarter, mainly reflecting lower fuel costs and weakness in prices of meat and dairy products. More>>


Media: Fairfax Media NZ Announces Senior Editorial Team

Fairfax Media New Zealand has today confirmed its new editorial leadership team, as part of a transformation of its newsrooms aimed at enhancing local and national journalism across digital and print. More>>

Science: Flavonoids Reduce Cold And Cough Risk

Flavonoids reduce cold and cough risk Research from the University of Auckland shows eating flavonoids – found in green tea, apples, blueberries, cocoa, red wine and onions – can significantly reduce the risk of catching colds and coughs. The research, ... More>>

BusinessDesk: RBNZ House Alert Speech The Catalyst For Government Action

Prime Minister John Key all but conceded that pressure from the Reserve Bank of New Zealand for concerted action on rampant Auckland house prices was one of the main catalysts for the government's weekend announcements about tightly ... More>>

BusinessDesk: How To Fall Foul Of The New Housing Tax Rules: Tips From IRD

Just because you rented out your investment property doesn't absolve you from paying tax, says the Inland Revenue Department in a summary of commonly made mistakes by non-professional property investors when it comes to their tax liability.More>>

Legal: Superdiversity Law, Policy And Business Stocktake Announced

Mai Chen, Managing Partner at Chen Palmer New Zealand Public and Employment Law Specialists and Adjunct Professor of Law at the University of Auckland, today announced the establishment ... More>>

Housing: More House Price Gains Expected

House price expectations remain high, with a net 56% of respondents expecting house prices will increase. Fears of higher interest rates are fading, consistent with the RBNZ’s signals this year. Affordability and a lack of houses for ... More>>

Get More From Scoop

 
 
 
 
 
 
 
 
 
Business
Search Scoop  
 
 
Powered by Vodafone
NZ independent news