Fonterra Shareholders' Council says 2015 payout disappointing, 2016 looking better

Thursday 24th September 2015

Fonterra Shareholders’ Council chairman Duncan Coull said the dairy company's final payout for the 2014/2105 season of $4.65 per kilogram of milk solids for fully shared up farmers is a disappointing result.

Fonterra Cooperative Group reported a 183 percent rise in net profit to $506 million for the year ended July 31 after shifting its production mix to higher-margin products in a challenging year in which revenue fell 15 percent to $18.8 billion.

Coull said while it was encouraging to see an improvement in Fonterra’s performance in the second half, farmers will be disappointed with the 25 cent dividend, which was at the lower end of their expectations given the slump in global dairy milk prices meant lower input costs for the value-add side of the business.

“This $506 million profit has been driven by solid returns from the ingredients and the consumer and food services businesses,” he said. “However, the international farming business suffered from the effects of lower global milk prices and we remain concerned with the performance of the Australian business.”

The council said it had been given an undertaking by the board and management that there is a strategy in place for turning Australian around, which chief financial officer Lukas Paravacini has said is “about half-way through”.

Coull said it had been somewhat of a transition year for the company's most capital investments, which have totalled $2.1 billion in the past three years. These have yet to provide any significant returns, he said.

Given milk production is forecast to fall 5 percent in New Zealand this season, Fonterra chief executive Theo Spierings said there was a danger of over-capacity with the investment in new plant and those investments would need to be be carefully phased in.

The cooperative has increased its forecast payout for the 2015/2016 season by 75 cents, through a boost in the farmgate milk price rather than the dividend. Coull said farmers would be buoyed by that and will move forward with cautious optimism, although the increase is “yet another illustration of the volatility in the global marketplace”.

The council will present a more detailed analysis and commentary on the cooperative’s 2015/2105 annual results in its annual report to farmers, due out in early November.

BusinessDesk.co.nz

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