The pressure of paying out a higher milk price squeezed Fonterra's margins, particularly in the consumer and food service businesses.
Total group normalised gross margin was 14.9 per cent, down from 17.4 per cent.
Net debt was $5.6b, down 8 per cent and the company's gearing ratio improved to 44.1 per cent versus 47.3 per cent this time last year. Further reductions in debt and gearing were expected by the end of FY22.
The company announced chief financial officer Marc Rivers would leave the job after the annual meeting later this year. He joined the world's sixth-largest dairy company by revenue in 2018.
Chief executive Miles Hurrell said the earnings achieved showed the company was performing well even with a high farmgate milk price as it moved from a major strategy reset to creating growth and value.
It reaffirmed its forecast of a record milk payment of $9.30-$9.90/kg milksolids to farmers this dairy season, which the company says at a mid-point of $9.60 would mean an injection of nearly $14b for the New Zealand economy. That's $2.5b more than last year.
Hurrell said looking forward to full-year 2022, forecast normalised earnings guidance of 25-35c per share remained unchanged.
"While the milk price is at a record high, pricing in our ingredients business, for both reference and non-reference products, has been supportive of both milk price and earnings and we expect this to continue in the second half.
"In the medium term, we expect the supply and demand outlook (high demand, constrained supply) to go some way towards underpinning a strong milk price next season."
Risks to the outlook included the war in Ukraine adding to an already complex pandemic operating environment, affecting global supply chains, oil prices and the global supply of grain. Ukraine is the world's biggest wheat producer.
Total group operating expenditure at $1b was up 1 per cent on the same period last year.
Normalised ebit for the Greater China business was down 20 per cent at $236m.
Also down was normalised ebit for the Asia Pacific business, which posted a 33 per cent ebit decrease at $158m.
Normalised ebit for Africa, Middle East, Europe, North Asia and the Americas division was up 25 per cent at $250m.
Hurrell said the company was making progress on the divestment of its Chilean business and the ownership review of the Australian operations.
"Both Soprole [Chile] and Fonterra Australia are performing well and our priority is to maximise the value of both businesses to the co-op."
"We will take our time to ensure the best outcomes from these processes and remain confident on delivering on our intention to return around $1 billion of capital to our shareholders and unit holders by FY24."
The company was also continuing to work with the Government on a regulatory framework which supports its new capital structure, voted in by shareholders late last year.
Jarden head of research Arie Dekker said Fonterra was well-placed to deliver in the top half of its earnings guidance for FY22.
The company had achieved half year normalised earnings of 22c per share, down slightly on the same period last year (25c per share).
"FY guidance sits at 25-35c per share with a continuation of 1H weighted earnings. We expect FSF is well placed to deliver in the top half of guidance - Jarden estimate 33c per share - which we think would be a good result against the backdrop of record high milk prices," said Dekker.
"Not surprisingly, margins in foodservice and consumer are well down but ingredients has performed well and, critically, the outlook for non-reference product pricing in 2H is good with them keeping up with the strong performing WMP (whole milk powder sales)."
Dekker said there had been no meaningful update on divestments but Jarden was encouraged by the strong results in the half from both Chile and Australia.
"We see stable earnings in FY22 on FY21 as a good result in the circumstances. Reducing liquidity and Fund (Fonterra Shareholders' Fund) size since capital structure changes were announced together with a strategy heavy in investment, are likely to see investors remain on sidelines with earnings benefits to take some time to show through. Divestments in Chile/Australia and a capital return are shorter-dated catalysts to keep an eye on."
