Fonterra has reported a drop in net profit for the 2012 season and cut its final payout to farmers - citing the negative effect of record breaking milk production on global dairy prices.
The New Zealand-based dairy co-operative, which is the world’s largest dairy processor and exporter, reported net profit for the year ended 31 July 2012 of NZ$624m ($512.5m, €398m) – down 19% on the 2011 season.
It recorded revenue for the period of NZ$19.8bn ($16.25bn, €12.6bn) – compared with $19.9bn posted last year.
The firm, which is owned and supplied by its 10,500 farmer shareholders, has attributed its results to the falling price of dairy products during the year as a result of increased milk production. Fonterra reported an 11% increase for the 2012 season.
Alongside its results, Fonterra announced a final payout of NZ$6.40 per kilogram of milk solids (kgMS) for fully shared up farmers for the 2012 season – a 19% decrease on the $7.60 paid out last year.
Record milk production
“All around the world, we saw record dairy production which was mirrored back here in New Zealand,” said Fonterra chairman, Sir Henry van der Heyden.
“Global dairy demand held up reasonably well but this ocean of milk obviously impacted on global commodity prices, with the GlobalDairyTrade (GDT) index reaching its lowest value in 34 months in May.”
“This contributed to a lower Farmgate Milk Price in the 2012 year, however, the impact of this decline on overall earnings for farmers has been eased a little by the much higher volumes of milk they produced.”
The “aggressive” Australian market has also been pinpointed as a factor in the firm’s profits decrease.
Fonterra’s Australia New Zealand (ANZ) division reported a 20% decline in adjusted earnings for the 2012 season, hitting NZ$204m.
“Normalised earnings were up slightly in New Zealand; however, the trading environment in Australia remains challenging with a continued downturn in consumer spending and aggressive competition,” said Fonterra’s results statement.
In response to the results, Fonterra announced that its ANZ business would implement a plan to increase profitability and maximise its cash flow.
Meanwhile, Fonterra’s NZ Milk Products segment had a “strong year”, reporting adjusted earnings of NZ$515m - a 23% increase on last year.
The firm’s Asia, Africa and Middle East division also achieved “good results” and strong performances in Sri Lanka, Vietnam, Hong Kong, Philippines and Malaysia. A 3% sales increase contributed to revenue growth of NZ$62m, Fonterra revealed.
In Latin America, Fonterra’s adjusted earnings increased by 16% as a result of growth in demand for milk powders and beverages.