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Fonterra Full Year Profit Sours 11%

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Blame wet weather (and the big dry in eastern Australia) for the weak full year profit from Fonterra the world’s biggest dairy exporter.

The dairy giant yesterday revealed that net profit fell in the year to July 31 as poor weather hit milk volumes.

And that poor weather came from a rolling series of storms from Australia (which hit parts of southern states like Victoria), but caused flooding rains, snow and wind storms in NZ in the closing months of the year. The succession of storms continued into August and September.

A series of large high pressure systems have dominated weather patterns across Australia and led to the early signs of drought (El Nino) in parts of the East Coast, especially NSW, parts of Queensland and Tasmania.

Fonterra sad yesterday revenue rose 12% year on year to NZ$19.2 billion, but earnings before tax and interest (EBIT) was $1.155 billion, down 15%.

And net profit after tax fell 11% to NZ$745 million in the twelve months to end of July, compared to 2015-16.

Fonterra shares ended down 0.3% in Australia at $5.60.

“Despite lower milk volumes due to poor weather in parts of the season, the business delivered a good result by prioritising higher value Advanced Ingredients and growing our sales of these in-demand and specialised products by 473 million LME (liquid milk equivalent) this year,” Fonterra chairman John Wilson said in yesterday’s statement.

Sales volumes rose 9% year on year for advanced ingredients – products including functional proteins and extra-stretch cheese – accounting for 19% of the company’s total external sales volumes.

The dairy giant lifted the final payout to farmers for the 2016-17 season to $NZ6.12 per kilogram of milksolids, plus a dividend of 40c per share for a total of $NZ6.52.

Fonterra maintained its earlier farmgate forecast set in July for the 2017-18 season at $US6.75 per kgMS, with an earnings per share range of 45-55c for a total of $US7.20−$US7.30.

Fonterra’s Chinese farms, which have shown a loss for the past few years, were back in black, but the investment in Chinese partner Beingmate was written down in the latest year with a $NZ35 million impairment.

Chairman John Wilson said the co-operative had made significant progress in the value-add side of the business.

"Despite lower milk volumes due to poor weather in parts of the season, the business delivered a good result by prioritising higher value advanced ingredients and growing our sales of these in-demand and specialised products by 473 million litres this year."

"Our consumer and food service business continues its strong performance. This year we sold more than 5.5 billion litres, an additional 576 million litres on last year. This volume growth across these two portfolios has delivered normalised EBIT of $614m, an increase of 6 per cent on last year," Wilson said.

Chief executive Theo Spierings said Fonterra had prioritised higher margin products and tapped into the expertise of staff to come up with innovative ways to generate higher returns.

It had commissioned or announced new investments including new UHT lines at Waitoa, butter and cream cheese expansions at Te Rapa, construction of the its 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.

Fonterra but debt reduced by $NZ900 million to $NZ5.4 billion. This result compares more than adequately with the weak performance of Australia’s biggest dairy group, Murray Goulburn.

View More Articles By Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

At the AFR he was a finance writer, Finance Editor, News Editor and Chief of Staff. At the Nine Network he was supervising producer of Business Sunday for more than 16 years. He has also written for other online and analogue print publications here and overseas.



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