Fonterra reports NZ$391m profit after tax in 2021 interim results

‘Despite the major impact Covid-19 is having around the world, the co-op is staying focused on what it can control’

Dairy giant Fonterra published its interim financial results for the six months to the end of January, which show the co-op has had a positive half-year.

Fonterra announced total group normalised earnings before interest and tax of NZ$684m, up 17% from the previous year and a normalised profit after tax of $418m, 43% more than in the previous year. The co-op will pay an interim dividend of 5 cents alongside a strong forecast Farmgate Milk Price.

Profit after tax was $391m, down 22% on the previous year, but CEO Miles Hurrell said the business was pleased with this figure.

“While down on this time last year at a headline level, the 2020 financial year benefited significantly from the divestments of DFE Pharma and foodspring.

“Despite the major impact Covid-19 is having around the world, the co-op is staying focused on what it can control – looking after our people, making progress on our strategy to drive sustainable value for New Zealand milk and remaining committed to our 2021 priorities.”

He said the co-op would continue to focus on “being there for farmers and employees”, hitting its financial targets, exceeding customer expectations, supporting communities through its nutrition programmes and making New Zealand’s low carbon farming model a powerful point of differentiation.

“I would like to thank our team for delivering this result. While we’ve been fortunate here in New Zealand, many of our people overseas are still in lockdown and have now been working from home for 12 months. Our farmer owners have shared words of support for our teams and this has provided a sense of purpose and encouragement when it’s been needed the most. It’s during these times you really can see what makes our Co-op special,” he added.

Mr Hurrell praised the business’ Greater China division, which delivered a 38% increase in normalised EBIT to $339 million. He said the result was due to the strength of Fonterra’s Foodservice business in this region, improvements in its Consumer business and China’s strong economic recovery following the initial impact of Covid-19.

However, after reviewing its assets portfolio Fonterra decided to sell its JV farms in China to focus on New Zealand milk.

“As shown through our results today, Greater China continues to be one of our most important strategic markets. We remain committed to growing the value of our Greater China business, which we’ll do by bringing the goodness of New Zealand milk to Chinese customers in innovative ways and partnering with local Chinese companies to do so,” said Mr Hurrell.

Fonterra will also continue to work of its social and environmental goals. The co-op is working with more farmers in New Zealand to develop farm environment plans. Around 42% of supplying farms have one already and the co-op is on its way to achieving the target of 100% by 2025. Other initiatives include working with Royal DSM to test whether a feed additive called Bovaer can reduce methane emissions in New Zealand’s pasture-based farms.

In terms of the outlook for the second half of the year, Fonterra reaffirmed the forecast Farmgate Milk Price range of $7.30 – $7.90 per kgMS and forecast normalised earnings guidance of 25-35 cents per share.

“Fortunately, we are in a position, where so far, New Zealand dairy is proving to be resilient in a COVID-19 world. It’s a staple in people’s diets around the world and demand is strong.

“Despite a strong first half, we are expecting our earnings performance to come under significant pressure in the second half.

“The strong milk price is great for farmers. It’s good for New Zealand too – with a mid-point of $7.60 per kgMS, it would see us contribute more than $11.5 billion to the New Zealand economy.

“However, the increasing raw milk prices through the first half and now into the second half puts a lot of pressure on our sales margins and this will be seen through the second half of the year.

“We will face into this challenge in the same way we are with others – that’s focusing on what’s in our control and staying on strategy,” added Mr Hurrell.