Fonterra reports profit in 2020 interim results

The co-op will not pay an interim dividend, due to “the current uncertainty of the impact COVID-19 could have on earnings in the second half of the year.”

New Zealand dairy giant Fonterra has announced its interim 2020 results, which confirm increased underlying profit and reduced debt.

Over the past 12 months, the co-op has been resetting the business in line with a new strategy, following a difficult 2019 which saw a full-year net loss of NZ$605m (£310m) and the shedding of poorly performing overseas operations.

“We are now a very different co-op to this time last year – we’re prioritising New Zealand milk and staying focused on what we know we’re good at and what makes a difference to our farmer owners, unit holders, employees and communities,” chief executive Miles Hurrell said in a statement.

The co-op reported group earnings before interest and tax (EBIT) of NZ$806m (£398m), up from NZ$312m (£154m) in the previous year, while net profit after tax stood at NZ$501m (£247m), up from NZ$72m (£35m). Net debt was also reduced to NZ$5.8bn (£2.8bn), from NZ$7.4bn (£3.6bn) in 2019.

Mr Hurrells said the improved performance was due to stable underlying earnings from Fonterra’s Ingredients business, improving gross margins in Foodservice and reducing operating expenses. However, he added that the group was operating in a very different global context as a result of COVID-19. As such, despite the positive performance, the board has decided not to pay an interim dividend, due to “the current uncertainty of the impact COVID-19 could have on earnings in the second half of the year”.

“At the end of the financial year the Board will reassess the Co-op’s financial position and review the decision to pay a dividend,” added chair John Monaghan.

In terms of predictions for the second half of the year, Mr Hurrells reaffirmed  the forecast farmgate milk price range of NZ$7.00-$7.60 per kgMS (£3.4-3.7) and forecast normalised earnings guidance of 15-25 cents per share (7.42-12.36 pence).

“Our underlying earnings are tracking well at the half year, but there is no doubt that we have a number of risks that are outside our control in the second half – in particular, the potential impact of COVID-19 on global demand, geo-political risks in key markets such as Hong Kong and Chile, and ongoing dry weather conditions here in New Zealand which could impact collections and potentially input costs. As a result, we have held our forecast earnings range at 15-25 cents per share,” added Mr Hurrells.

“As I said a few weeks ago, we have already contracted a high percentage of this year’s milk supply. But our teams know we have to keep our foot on the pedal and navigate very carefully through the challenges we’ll face in the second half.”

Owned by around 10,500 New Zealand farmers, Fonterra is the world’s largest exporter of dairy products. The co-op has been struggling in recent years, having to sell assets, cut costs and axe jobs. Fonterra was unable to pay a dividend in 2019.