FSF
26/03/2014 08:30
HALFYR
REL: 0830 HRS Fonterra Shareholders' Fund (NS)
HALFYR: FSF: Fonterra 2014 Interim Results
Reporting Period Six months ended 31 January 2014
Previous Reporting Period Six months ended 31 January 2013
31 January 2014
(NZD million) 31 January 2013
(NZD million) Percentage
Change
Revenue from sale of goods 11,292 9,334 21%
Net profit attributable to Shareholders of the company[1] 206 449 (54)%
Non-controlling interests 11 10 10%
Net profit for the period 217 459 (53)%
[1] Net profit attributable to shareholders of the company is equivalent to
profit from ordinary activities after tax attributable to shareholders of the
company (as required to be disclosed pursuant to Clause 1.2 of Appendix 1 of
the NZSX and NZDX Listing Rules).
Interim/Final Dividend Amount per Security
(NZ cents) Imputed Amount per Security
(NZ cents)
Interim 5.0 nil
Record Date Interim: 10 April 2014
Dividend Payment Date Interim: 17 April 2014
Comments On 25 March 2014, the Board of Directors declared an interim
dividend of 5.0 cents per share payable on 17 April 2014 to Shareholders on
the share register at 10 April 2014.
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FONTERRA INTERIM PROFIT DOWN
RECORD FORECAST CASH PAYOUT MAINTAINED
Click here to review the Interim Results presentation and Interim Report.
Interim Results Highlights
o Forecast Cash Payout for the 2013/14 Season of $8.75, up 42 per cent
- Farmgate Milk Price $8.65 per kgMS
- Estimated full year dividend of 10 cents per share
o Revenue $11.3 billion, up 21 per cent
o Normalised EBIT $403 million, down 41 per cent
o Net profit after tax (NPAT) $217 million, down 53 per cent
o Earnings per share 13 cents, down 54 per cent
o Interim dividend of five cents per share
Strong forecast Cash Payout
Fonterra Co-operative Group is on track to deliver the highest-ever returns
to Farmer Shareholders and the New Zealand economy, with a forecast Cash
Payout of $8.75.
Chairman John Wilson said the forecast Cash Payout - comprising a forecast
Farmgate Milk Price of $8.65 per kgMS and an estimated dividend of 10 cents
per share - is strong compared with last season's final Cash Payout of $6.16
per kgMS.
"A forecast Cash Payout of $8.75 represents a $13.8 billion injection into
the New Zealand economy. An estimated 50 cents in every $1 of payout is
spent by our farmers locally, meaning the benefits will be felt in urban as
well as rural communities[1]," said Mr Wilson.
"Our current Season forecast reflects sustained strong milk powder prices
which, on average, are ahead by US$1,200 per tonne compared to last season.
"Although we are forecasting the highest-ever Farmgate Milk Price returns and
have achieved strong revenue growth, NPAT is down 53 per cent to $217
million. Normalised EBIT is also down 41 per cent to $403 million, compared
with the very strong earnings in the first half of last year," said Mr
Wilson.
Business Performance
The first half has been exceptional for the Co-operative, as a result of high
volatility driven by record demand for milk powders, resulting in a 21 per
cent increase in revenue, said CEO Theo Spierings.
"The Season saw record milk volumes collected across the October - November
peak period, and milk volumes collected for the Season to date increased by
four per cent on the prior year to 1,120 million kgMS.
"We processed as much of this milk into the higher returning milk powder
product streams (Reference Commodity Products) as we could. However, our
current asset footprint meant that around 25 per cent had to be processed
into cheese, casein and other Non-Reference Commodity Products which earned
negative returns over the period," said Mr Spierings.
The divergence between Reference Commodity Product and Non-Reference
Commodity Product returns accounted for the Co-operative's highest-ever
forecast Farmgate Milk Price being 70 cents per kgMS less than that
calculated in the Farmgate Milk Price Manual.
"The past six months has been a period of mixed fortunes for the
Co-operative," said Mr Spierings.
"Volatility is a fact of life in dairy. We are very focused on delivering a
consistently strong Farmgate Milk Price, as well as stable and growing
earnings over the medium to long term.
"Higher dairy commodity prices have put increasing pressure on margins in our
consumer and foodservice businesses. We had to strike a balance between
passing on rising costs immediately or continuing to build our market
presence to secure long term growth.
"Taking the longer term view has constrained profitability during this run of
strong commodity pricing, but we are positioning ourselves for the future
with consumer and foodservice volumes in key strategic markets like Asia (up
10 per cent, excluding Sri Lanka which was affected by the temporary
suspension of operations in August 2013).
"Being disciplined with operating expenses, which were flat for the period,
contributed to our ability to offset some of the rising input costs," he
said.
Strategy Update
"Our V3 business strategy developed in 2012 has accurately predicted growing
demand for dairy in emerging markets, and that demand would outstrip supply
growth," said Mr Spierings. "The past six months have shown that the trends
identified in our strategy are moving faster than expected. We are focusing
on five priorities:
o Optimising our global ingredients sales and operations footprint
o Growing significantly in everyday nutrition
o Continuing our foodservice growth momentum
o Capturing high margins in advanced nutrition
o Enabling growth by expanding beyond New Zealand to selectively invest in
milk pools, matching demand with the best market opportunities.
"We need to ensure our farmers can confidently grow supply. We are in a
competitive market for milk, so retaining and growing our New Zealand supply
is always a priority. Returning the highest Farmgate Milk Price is crucial,
as good returns enable our Farmer Shareholders to cover their rising costs
and to invest in their farms and futures.
"To support on-farm growth we are successfully offering more flexible supply
contracts which offer staged payment options for Shares. We have also
provided more financial flexibility for Farmer Shareholders by piloting a
Guaranteed Milk Price scheme, enabling them to lock in the price paid for a
percentage of their milk. We will continue looking at new ways of providing
financial flexibility over the course of this year.
"Delivering the highest shareholder returns means making the products which
earn the best returns over time. Since our inception in 2001, we have
consistently invested in growing the capacity that counts, especially in milk
powders. We will continue down this path but at a faster pace, ensuring
assets come on stream ahead of expected increases in milk production.
"We are bringing forward planned capital investments which will provide:
o Greater flexibility to take advantage of relative market prices;
o The additional capacity will reduce forced making of lower returning
products;
o The ability to take higher volumes from existing suppliers and new volume
from joining suppliers.
"This will result in additional capital expenditure of $400 - $500 million
over the next three to four years.
"Even with fast-tracked investments, adding capacity will take time so we
also have a programme in place to increase throughput in existing plant
during the 2015 financial period.
"Milk sourced in New Zealand will always be our top priority. But it is also
important we maintain our global view of both manufacturing and milk supply
to ensure a win-win for Fonterra and our Farmer Shareholders," said Mr
Spierings.
Outlook
"Looking ahead, the outlook for dairy remains strong, and the business has
plans in place to profit from the continued rise in global dairy demand,"
said Mr Spierings.
"Global dairy commodity prices, however, remain volatile. While we are
maintaining the current forecast Farmgate Milk Price, we will continue to
review it and update the market, as required."
The Board is therefore maintaining its 65 to 75 per cent dividend payout
ratio. It has declared an interim dividend of five cents per share,
equivalent to 50 per cent of the forecast dividend for the current financial
year. The record date for the interim dividend is 10 April, and the payment
date is 17 April.
1. New Zealand Institute of Economic Research, Report to Fonterra and Dairy
NZ - "Dairy's role in sustaining New Zealand the sector's contribution to the
economy", December 2010.
End CA:00248696 For:FSF Type:HALFYR Time:2014-03-26 08:30:06
