Fonterra’s after-tax profits are up 50% to $546 million and it will pay an interim dividend of 10 cents a share, it announced in its half-year results.
Its total earnings per share were 33c and the forecast farmgate milk price range was $8.20-8.80/kg MS.
The co-op also upgraded its full-year forecast normalised earnings from 50-70c per share to 55-75c per share and announced a proposed tax-free capital return to farmer owners and unit holders of around 50c per share, subject to completion of the sale of its Chilean Soprole business.
This earnings upgrade was based on better-than-expected margins in its ingredients business.
Chief executive Miles Hurrell said the results for the first half of the year show the co-op is performing well, with profit up 50%, against a backdrop of ongoing market volatility.
“Our co-op’s scale and diversification across channels and markets has enabled us to navigate through disruption and make the most of favourable market conditions in a number of areas,” Hurrell said.
“While milk powder prices have softened recently, impacting our forecast farmgate milk price range, protein prices have been high, and this is reflected in the lift in earnings we’re reporting today.
“With less milk collected and whole milk powder prices down, we have produced less whole milk powder and more skim milk powder and cream products, and this has allowed a higher return. We have also made the most of higher margins in our protein portfolio, notably casein, caseinate and cheese products.
“Our improved earnings and strong balance sheet have enabled us to pay an interim dividend of 10c per share, which is positive news for our farmer owners and unit holders. We also expect to be able to pay a strong full-year dividend, in addition to our proposed capital return.
“The outlook for high-quality sustainable New Zealand dairy remains positive. We have a clear strategy and are well-positioned to take advantage of this demand,” Hurrell said.
Hurrell acknowledged how close to the breakeven margin the $8.50 midpoint forecast is, with on-farm inflation rates at much higher levels compared to other sectors.
“The costs of fertiliser, fuel, input costs and labour are all starting to really impact.”
The co-op has delivered a profit after tax of $546m, up $182m compared to the same time last year, and a return on capital for the past 12 months of 8.6%, up from 6.1% in the comparable period.
Hurrell said Fonterra is committed to sustainability improvements both on farm and off farm to retain its competitive edge.
“At last year’s annual meeting, we signalled to farmers that the co-op will announce a target for our on-farm (scope 3) emissions.
“Having a target will help us secure and retain high-value customers and enable the co-op and our farmer owners to meet regulatory requirements and access finance.
“We acknowledge making change on farm is not easy. Over the coming months, we will be talking with our farmer owners about how collectively we’d achieve a target.”
Hurrell described the conversations so far with farmers as “engaging”. While a date has not been set for when that target will be made public, he said it would be announced this calendar year.
“At the same time, we’re continuing to invest in R&D and new technologies to help reduce emissions on farm. We currently have 18 methane reduction projects underway and 30 active trials of potential solutions.
“This includes a new private-public partnership joint venture announced in November, through which government and partners from across the food and fibre sectors will work together to reduce methane emissions.
Watch our latest On Farm Story on time-saving agritech to help farmers manage biosecurity on-farm below