Fonterra’s gross margin and earnings have fallen in the FY2022 interim results because of the average cost of milk for further processing being up almost 30% on the same time last year.
In entirety, Fonterra reported group revenue up 9% to $10.8 billion, profit after tax down 7% of $364 million, and group normalised earnings before interest and tax (Ebit) down 11% to $607m.
The giant cooperative appears to be on track for a full-year revenue over $22b, of which $14b will be passed back to farmers, a 20% increase on the $11.6b paid out in FY2021.
Chief executive Miles Hurrell reaffirmed the record farmer payout forecast and full-year earnings guidance of 25 cents to 35c a share, while commenting on the significantly higher input cost of milk.
The giant ingredients division reported earnings of $413m, up $117m on the previous corresponding period.
Foodservice division took a big hit, down 66% to $85m, and consumer products were down 19%.
Geographically, Africa, the Middle East, Europe, North Asia and the Americas returned $350m, up $50m or 25%, compared with Asia Pacific down 33% and Greater China down 20%
Chief financial officer Marc Rivers added that net debt was down to $5.6b, with a gearing ratio of 44.1%, compared with $6.1b and 47.3%.
Operating expenditure was in line with last year, but total normalised gross margin at 14.9% was down from 17.4%.
That measure shows the headwinds against Fonterra’s earnings because of the record milk price and the inflationary effects of increased costs like labour, fuel and freight.
It also helps explain why the interim dividend is only 5c a share and investor unit, notwithstanding the confirmed guidance.
Directors preferred to be cautious and retain the bigger portion of the expected dividend for the end of the financial year.
Hurrell explained that the higher milk price particularly impacted gross margins in foodservice and consumer businesses in South East Asia and New Zealand.
“In Greater China, we have continued to see firm demand for dairy as our team finds new ways to drive demand,” Hurrell said.
“Ingredients benefited from strong demand and good margins.
“However, normalised Ebit is down 20% to $236 million, particularly in foodservice where, despite steady volumes, the higher milk price impacted gross margins.”
He did repeat Fonterra’s intention to return around $1b of capital to shareholders and unitholders by FY2024.
