Fonterra 2017 revenue up but profits fall 15%

By Jim Cornall contact

- Last updated on GMT

Fonterra's Te Rapa plant was one of those benefiting from investments.
Fonterra's Te Rapa plant was one of those benefiting from investments.
Fonterra has announced its 2017 annual results, which show revenue up to NZ$19.2bn (US$14bn), but net profit after tax dropped by NZ$745m (US$542m), an 11% reduction.

The New Zealand co-operative confirmed a final cash payout of NZ$6.52 (US$4.74) for the 2016/2017 season for a 100% share-backed farmer. This is made up of a Farmgate Milk Price of NZ$6.12 (US$4.45) per kgMS and a dividend of 40 cents (US$0.29) per share. 

Chairman John Wilson said Fonterra’s ability to maintain its forecast dividend despite the milk price increasing by 57% over the year and the impact of negative stream returns was an excellent result.

“We will always need to manage variability across our co-operative – both in global markets and in our local farming conditions. We’ve demonstrated our ability to deal with those conditions and deliver on our strategy again this year,”​ Wilson said.

New investments

He said continuing business transformation has made a fundamental shift in the way Fonterra operates, by focusing on increased efficiency and developing new revenue streams.

The consumer and foodservice business delivered normalised EBIT of NZ$614m (US$447m), an increase of 6% on last year.

Chief executive Theo Spierings said over the past year Fonterra had commissioned or announced new investments across the full range of consumer and foodservice product portfolio.

This included new UHT lines at Waitoa, butter and cream cheese expansions at Te Rapa, construction of the co-operative’s largest mozzarella plant at Clandeboye, two new cream cheese plants at Darfield, and the reopening of its cheese and whey plants at Stanhope in Australia.

V3 strategy

“Foodservice, in particular, is a demand-led business and each of these investments is backed by a growing customer order book. Having the capacity and agility to quickly meet demand in this segment is critical to developing customer relationships and is our ticket to the game in many of our key markets,”​ Spierings said.

“Our V3 strategy of driving more Volume into higher Value at Velocity is at the heart of our ambition, and provides the foundation for us to fund and drive innovation and sustainable value creation. This year, our V3 strength has secured our ability to deliver solid earnings in an environment of rapidly increasing milk prices.”

While consumer and foodservice normalized EBIT increased by NZ$614m, gross margin was down 26.8%.

For its ingredients division, normalized EBIT decreased by NZ$943m (US$686m). The China division normalized EBIT was up by $NZ1m (US$727,000).

The co-operative’s debt to EBITDA ration rose from 2.8 in 2016 to 3.5 in 2017, although this is still down on the ratio of 4.7 in 2015.

The annual results​ also revealed Spierings’ salary for 2017 at NZ$8.32m (US$6.05m).

Outlook

The forecast total available for payout to farmers in the 2017/18 season is NZ$7.20-$7.30 (US$5.24-$5.31) per kgMS, made up of a forecast Farmgate Milk Price of NZ$6.75 (US$4.91) per kgMS and forecast earnings per share range of 45-55 cents (US$0.33-$0.40) per share.

Globally, Fonterra said the outlook for dairy remains strong, with improved prices, however, volatility will continue.

Related topics: Manufacturers, Fonterra

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