Strong half year for Fonterra
Thursday 29 March 2012, 1:00PM
By Fonterra
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Other highlights compared to the same period last year include:
* Total sales volume growth of 51 per cent;
* Revenue up 7 per cent;
* Record milk collections, up 10 per cent for season to date;
* Net profit after tax up 18 per cent;
* Normalised earnings2 before interest and tax up 8 per cent;
* Earnings per share up 14 per cent;
* An interim dividend of 12 cents per share, up from 8 cents per share in the same period in 2011. Announcing the Co-operative's financial results for the half year to 31 January 2012, Fonterra confirmed its current forecast Payout range (before retentions) for the 2011/12 season of $6.75 - $6.85 for a fully shared up farmer.
The 2011/12 forecast Payout range (before retentions) is based on a forecast Farmgate Milk Price of $6.35 per kgMS and an unchanged net profit after tax range of $570-$720 million, equating to 40-50 cents per share.
Fonterra Chairman Sir Henry van der Heyden
"Good spring and early summer growing conditions across most of the country (with the notable exception of the lower South Island) led to strong growth in New Zealand dairy production and record volumes. Fonterra's milk collections for the season to date were up 10 per cent on the same period in 2011. These record milk collections flowed into record production, with a new export volume record achieved in December 2011.
"International dairy prices softened after the highs of last year but remained relatively stable throughout the first half of the year. These prices were supported by strong demand for quality dairy ingredients in emerging markets across a number of Asian economies, as well as Brazil and China, offsetting economic uncertainty in Europe," said Sir Henry.
CEO Theo Spierings
"The Standard & Premium Ingredients businesses' normalised EBIT2 was 44 per cent higher than the same period last year.
"We are now seeing the benefits of our focus on managing volatility in the business, with more favourable contract agreements, a closer pricing alignment between our sales book and the spot market, and targeting sales of products that deliver greater value," Mr Spierings said.
Performance in the consumer businesses was mixed, with a strong New Zealand dollar impacting the Asia/Africa and the Middle East, and Latin America businesses. The Australia-New Zealand consumer business felt the impact of pricing pressure which reduced earnings.
Sir Henry said an interim dividend of 12 cents will be paid on 20 April 2012.
"The Board has approved a change to the Co-operative's dividend policy so that a greater proportion of dividends can be paid out at the half year," Sir Henry said.
Previously, Fonterra's dividend policy allowed for the Co-operative to pay out 30 per cent of the forecast full year dividend at the half year, with the remainder paid out at the end of the financial year in October.
The change enables a payment of an interim dividend of 40-50 per cent of the forecast full year dividend.
Looking ahead, Fonterra CEO Theo Spierings said Fonterra would build enduring value for shareholders through a Group strategy refresh that sets the course for Fonterra's next decade.
"The strategy refresh builds on our considerable strengths: access to efficiently produced, high quality milk; an integrated business model; strong global reach; established customer relationships; and strong consumer brand positions in selected markets.
"We have sharpened our focus and made choices around the geographies and product portfolios that will deliver the best growth opportunities, particularly those in the emerging markets of China, Asia and Latin America where we can leverage our strengths from milk sourcing through to branded sales," said Mr Spierings.
Half Year Financial Highlights
Revenue of $10 billion, 7 per cent higher than the corresponding period in FY 2011, primarily reflecting the impact of higher volumes and commodity prices. Total sales volume grew 51 per cent, reflecting growing global demand for dairy ingredients and branded consumer products.
Net Profit After Tax of $346 million, 18 per cent higher than the corresponding period in FY 2011 driven primarily by growth and improved margins in the Standard & Premium Ingredients business. This improvement led to earnings per share for the first half increasing to 24 cents per share, 3 cents per share higher than the same period last year.
Gearing ratio3 was 47 per cent at 31 January 2012, an improvement of 160 basis points from 31 January 2011.
Milksolids collection in New Zealand for the season to 31 January 2012 was 10 per cent ahead of the same period last season, reflecting good spring and early summer growing conditions across most of the country.
Standard & Premium Ingredients is Fonterra's largest operation, which collects, processes, sells and distributes a range of ingredients made from milk. Standard & Premium Ingredients' revenue for the half year was 10 per cent higher at $8 billion, reflecting a stronger sales volume of 1.24 million metric tonnes, up 7 per cent, and a 10 per cent increase in average USD prices achieved across all dairy categories. Higher average price achievement helped improve gross margin and made a significant contribution to the growth in earnings. Normalised EBIT2 was up 44 per cent to $273 million, compared to $189 million in the previous period.
Australia/New Zealand revenue was down 4 per cent to $2 billion from $2.1 billion in the same period last year, reflecting a challenging retail environment, and an ongoing pricing battle that has resulted in pressure on major suppliers' margins. Normalised EBIT2 was $124 million, 19 per cent down on the six months to 31 January 2011. (Excluding the results of the Western Australia business sold in March 2011, sales revenue was up 2 per cent, sales volumes up 44 per cent and normalised EBIT2 16 per cent lower).
Asia/Africa, Middle East (Asia/AME) achieved strong growth in revenue up 7 per cent to $947 million, and sales volume which was 44 per cent more than the same period last year. These results reflected steady consumer demand, and margins maintained despite higher input costs. Normalised EBIT2 was $84 million which was 13 per cent lower than the previous period. The decline reflected the negative impact of the depreciating Asian basket of currencies against the New Zealand dollar (on a constant currency basis normalised EBIT2 would have fallen only 5 per cent); higher advertising and promotional investment to build market share and invest in growth markets; and the disruptive impact of extreme weather events on Asia/AME's supply chain.
Latin America revenue declined 5 per cent to $385 million. On a constant currency basis, however, the performance was strong, driven largely by Soprole in Chile, with Soprole's revenue up 3 per cent and normalised EBIT2 up 15 per cent on the previous period. Fonterra's share of profits from Dairy Partners of America (DPA) was $17 million, compared to $19 million last year. DPA's performance reflects the impact of tough trading conditions in its largest market Brazil. Normalised EBIT2 was $62 million, down 3 per cent from the same period last year, reflecting resilience in a tough environment.
1 Excluding the sales volume of the Western Australia dairy business which was sold in March 2011.
2 Normalised earnings before interest and tax, adjusted for non-recurring items.
3. Gearing is measured as economic net interest bearing debt over net interest bearing debt plus equity (reflecting the effect of debt hedging in place at reporting date). Equity excludes the cash flow hedge reserve.
4.External sales volumes.