Fonterra's performance in the quarter ended October 31 built on the strong second half of the 2015 financial year, which ended on July 31. Photo / File
Fonterra's performance in the quarter ended October 31 built on the strong second half of the 2015 financial year, which ended on July 31. Photo / File
Fonterra reports performance targets met as it increases support scheme payout
An improved financial performance from Fonterra over the first quarter is serving to at least partly counterbalance a decline in global dairy prices.
The co-operative yesterday raised its earnings per share forecast range for the current year to 45-55c, from an earlier forecast of 40-50c, despite very low dairy prices.
With a forecast farmgate milk price of $4.60 a kg of milksolids, the earnings upgrade would lift the total available for payout to $5.05-5.15 per kg and would currently equate to a total forecast cash payout of $4.95-$5 per kg, after retentions, Fonterra said.
The $4.60/kg forecast rests on whole milk power prices reaching US$3000 a tonne by the first half of next year compared with their last GlobalDairyTrade (GDT) average price of just US$2453 a tonne.
John Wilson is up for re-election. Photo / Richard Robinson
Chairman John Wilson - who is up for re-election as a director this month - said Fonterra's performance in the quarter ended October 31 built on the strong second half of the 2015 financial year, which ended on July 31.
"While it is tough on farm due to low global milk prices, farmers will welcome the ongoing improvement in Fonterra's performance delivering increased returns," he said. "Performance is well ahead of last year and we are hitting our targets on gross margins and operating and capital expenses."
Fonterra also increased the rate at which farmers are paid 50 cents per kg under its farmer support scheme. Payments from the scheme are graduated, and farmers will get 25c/kg from the scheme in December, up from 18c previously. Management would recommend an annual dividend of 35-40 cents per share.
Chief executive Theo Spierings said the scheme - which amounts to an interest free loan until May 31 2017 - was supporting farmers while milk prices were low.
Fonterra reiterated that it expected a reduction in milk collections for the current season of at least 5 per cent - equivalent to about 150,000 tonnes of whole milk powder.
Since August, Fonterra had reduced the amount of product it expects to offer on the GDT platform over the year by 146,000 tonnes. In addition, an increased portion of product is being sold through bilateral customer agreements, for a premium on prices achieved on GDT. Ingredients inventory levels for the first quarter were in line with the same period last year, it said.
Spierings said the performance in the first quarter built on the strong finish to 2015, with margins increasing across the group from 14 per cent to 23 per cent compared to the same period last year. Capital expenditure of $258 million was down 37 per cent, and operating expenses were down by 4 per cent to $628 million.
In its global market update, Fonterra said the rate of milk production growth from the major exporting countries - excluding the European Union - had eased as farmers responded to lower global dairy prices.
New Zealand production from January through to September had fallen by 1 per cent. For the month of September, it was down 8 per cent. China's dairy imports increased by 25 per cent in September - the third consecutive increase compared with the same month last year, with increases in all the major dairy categories.
Fonterra's news of an improved financial performance comes as dairy futures continue to weaken markedly, with latest pricing suggesting this week's GDT will be off by about 10 per cent, following falls in each of the two previous sales.
"Traders continue to push the whole curve down, dampening the prospects of a return in better milk prices next year for whole milk powder," OM Financial said.
The derivatives specialist said the $4.60/kg forecast looked likely to be reset if current futures pricing was anything to go by. Analysts expect a downward revision in the milk price next month.
Board elections are already under way and a result is expected by November 23. Fonterra has named six candidates. There is pressure to reduce the number of directors. Wilson, Blue Read and Nicola Shadbolt are retiring by rotation and are eligible for re-election. The new candidates are Murray Beach (Marlborough), Greg Maughan (Marton) and Ashley Waugh (Te Awamutu). The annual meeting is on November 25.
