Fonterra has announced its 2021 interim results with the co-operative posting a net profit after tax of $319 million.
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Chief executive Miles Hurrell says while there’s still more work to do, Fonterra’s improved performance and reduced debt levels are helping build the financial strength of the co-op.

It will pay an interim dividend of 5c a share.

Total group normalised Ebit was $684m

Chief executive Miles Hurrell says Fonterra is pleased with its normalised profit after tax: $418m.

“While down on this time last year at a headline level, the 2020 financial year benefited significantly from the divestments of DFE Pharma and foodspring,” Hurrell said.

“Despite the major impact covid-19 is having around the world, the co-op is staying focused on what it can control – looking after our people, making progress on our strategy to drive sustainable value for New Zealand milk and remaining committed to our 2021 priorities.

From a performance perspective, Hurrell says the co-op has had a great first six months of the 2021 financial year with total group normalised Ebit up $100 million to $684m, a total group normalised gross margin of 17.4% (up from 16%) and total group normalised operating expenditure down $37m.

“Our standout performer continues to be Greater China. The team has delivered a 38% increase in normalised Ebit to $339m, reflecting the strength of our Foodservice business in this region, improvements in our consumer business and China’s strong economic recovery following the initial impact of covid-19,” he said.

“Asia Pacific’s normalised Ebit is up 9% to $190m as a result of improvements in foodservice and consumer. Consumer has benefitted from more people staying at home and cooking with dairy and a renewed focus on our brands of Anchor, Anmum and Anlene.”

Commenting on the global supply chain challenges, Hurrell says while it’s tough going out there, the co-op is proactively managing the situation and working with its ocean freight partnership Kotahi to keep product moving.

“Our sales book is well contracted, however, as a result of some small shipping delays, our product inventory is higher than it was this time last year and this means our investment in working capital is also higher,” he said.

“By the end of the financial year we expect this to be back to more normal levels as we have confidence in our supply chain to get product, already contracted, delivered to our customers.

“There’s still more work to do, but our improved performance and reduced debt levels are helping us build the financial strength of the co-op and we’re on track to achieve our target debt/Ebitda ratio of less than 3.5 this year.

“The board wanted to be in a position to continue paying dividends. It is encouraging to have got the co-op’s earnings and debt to a level that supports a 5c dividend at this point in the year.”

The record date for the payment of this dividend is March 24, 2021, and the payment date is April 15, 2021. Given Fonterra’s ongoing capital structure review, the co-op’s dividend reinvestment plan will not apply to this dividend, which will be paid in cash.

As part of Fonterra’s continuous review of its asset portfolio, Fonterra says that, along with the joint venture partner, it has decided to undertake a sales process for the JV farms in China.

Hurrell says as with Fonterra’s own China farms, the decision to sell the JV farms is in line with the co-op’s strategy to focus on NZ milk.

“We expect the sales of our farms to be completed this financial year and the sale of the JV farms to be completed this calendar year.”

Fonterra has also continued to reduce its shareholding in Beingmate, which on January 31, 2021 was sitting at 3.94% and is now 2.82%.

THE Dairy Industry Code of Conduct has brought about a “significant culture change” within the dairy sector and helped increase competition at the farmgate, according to Australian Competition & Consumer Commission deputy chair Mick Keogh.

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