Thursday 22 September 2016 09:03 AM
Fonterra full-year profit rises 65% as cost cuts, cheaper milk make up for lower sales
Sept. 22 (BusinessDesk) - Fonterra Cooperative Group, which has raised its forecast milk payout twice in as many months, posted a 65 percent gain in full-year profit as cost cutting and cheaper milk prices made up for a decline in sales.
Profit rose to $834 million in the 12 months ended July 31, from $506 million a year earlier, the Auckland-based company said in a statement. Sales fell 9 percent to $17.2 billion while cost of goods sold, which is primarily made up of New Zealand sourced cost of milk, fell about 13 percent to $13.6 billion.
The latest annual results cover most of the 2015/16 season that chairman John Wilson described as "incredibly difficult for farmers, their families and rural communities, with global dairy prices at unsustainable levels". Since then the price of whole milk powder has gained about 38 percent to US$2,782 a tonne, although that's still well below the high of US$5,245 a tonne reached in April 2013 and Wilson said today that global milk prices are still too low.
“Current global milk prices remain at unrealistically low levels, but as the signs in the market improve, we are very strongly positioned to build on a good result in the year to come,” Wilson said.
The cooperative's cash payout for the 2016 season was $4.30, made up of $3.90 per kilogram of milk solids and a dividend of 40 cents a share. This week Fonterra raised its forecast payout for the current season by 50 cents/kgMS to $5.25/kgMS, for a total payout of $5.75-to-$5.85 including forecast earnings of 50 to 60 cents.
The 2016 accounts show Fonterra trimmed its selling, marketing and distribution expenses and reduced its finance costs. Debt reduced by $1.6 billion to $5.5 billion while its gearing ratio fell to 44.3 percent from 49.7 percent.
Units in the Fonterra Shareholders' Fund, which are entitled to dividend payments from the underlying shares, last traded at $5.93 and have gained 15 percent in the past 12 months, while the S&P/NZX 50 Index gained 28 percent. They are rated a 'buy' based on the consensus of five analysts polled by Reuters.