Fonterra reports NZ$659m profit after tax

The co-operative will pay a dividend of 5 cents per share for the 2019/2020 season

New Zealand dairy giant Fonterra has returned to profit following a difficult 2019.

The co-operative, which is owned by 10,000 farmer members, reported an after tax profit of NZ$659m, up $1.3bn on 2019. It announced a final Farmgate Milk Price of $7.14 per kgMS and a dividend of 5 cents per share for the 2019/20 season, bringing the final cash payout for farmers to $7.19 per kgMS.

CEO Miles Hurrell said 2019/20 was a good year for the co-op, with profit up, debt down and a strong milk price.

He said: “We increased our profit after tax by more than $1bn, reduced our debt by more than $1bn and this has put us in a position to start paying dividends again.

“I’m proud of how farmers and employees have come together to deliver these strong results in a challenging environment. They have had to juggle the extra demands and stress of COVID-19 and have gone above and beyond. I would like to thank them for their hard work and support.”

Over the past 12 months, the co-op has been resetting the business in line with a new strategy.

“This time last year we were announcing our new strategy and customer-led operating model,” said Mr Hurrell. “We were clear that to build a sustainable future we needed to focus on three interconnected goals – Healthy People, a Healthy Environment and a Healthy Business.

“We went on to deliver a strong performance for the first half. However, what none of us could have ever predicted was what then played out – a world facing COVID-19. The flow-on effects of the pandemic did impact our performance in the second half, particularly in our Consumer and Foodservice businesses.”

Mr Hurrell said the co-op had contributed around NZ$11bn into New Zealand’s rural economies through the milk price, in line with its priorities.

It also achieved its 2020 target to reduce energy intensity across its New Zealand manufacturing sites by 20%, from a 2003 baseline.

“Cumulatively, that’s enough energy saved to power all the households in New Zealand for 1.5 years,” said Mr Hurrell.

He added: “The work we’ve done to strengthen our balance sheet has allowed us to focus on managing Covid-19. So far, demand for dairy has proved resilient and our diverse customer base and ability to change our product mix and move products between markets has meant we can continue to drive value.

“We’re at our best when we’re clear on what we need to do, why and how, and the whole Co-op is focused on it. When I look back on last year, it’s great to see how this clarity has helped us respond to challenges, adapt and deliver results.”

Despite the financial impact of Covid-19 in many of its markets and trade disruptions caused by the pandemic, the Total Group normalised EBIT was also up from NZ$812m to $879m.

Mr Hurrells attributed the positive performance to a strong normalised gross profit in the Ingredients business and the strong sales and gross margins from the Greater China Foodservice business in the first half of the year.

Fonterra chair John Monaghan added: “This year marks a return to paying dividends, a position we expect to maintain in the future, assuming normal operating conditions.

At 5 cents per share, the dividend is at the lower end of the 5-7 cent range calculated under the board’s dividend policy guidelines.

“In the context of so much uncertainty, as COVID-19 continues to impact our key markets and customer confidence, distributing a 5-cent dividend is a prudent decision and one that balances our aims of further reducing debt and distributing earnings.”

Mr Monaghan said the dairy business remained concerned about the global outlook and how new waves of COvid-19 might impact global demand.

“The best way of coping with uncertainty is to stay on strategy and focus on what is within our control –delivering for our farmers, unit holders and customers, and maintaining our financial discipline.

“We need to stay agile and draw on our strengths across the supply chain to manage and adapt to the changing global situation,” he added.