Fonterra revenue up 1pc despite weather challenges

A cow in front of Fonterra Kauri plant
A cow in front of Fonterra Kauri plant
Claire Fox

Claire Fox

Fonterra’s revenue for the nine months to 30 April 2019 was $15 billion, up 1pc on the same period last year it has emerged despite weather playing a significant role in determining milk prices.

According to its latest business performance update sales volumes were 16.6 billion liquid milk equivalent (LME), up 4pc.

Fonterra Chief Executive Miles Hurrell said the New Zealand Ingredients business is performing as expected but Australia Ingredients continues to face challenges and it is taking longer than planned to lift performance in some parts of the Co-op’s Consumer and Foodservice business.

“Due to the challenges in Australia Ingredients and tightening relative price differences between reference products, or those products that inform the Farmgate Milk Price, and non-reference products –that’s all our other products,” said Mr Hurrell.

“We are reducing the forecast full year normalised earnings before interest and taxes for the whole ingredients business to $645 -$725 million, down from the $750 -$850 million range we shared at our Interim Results.

“Consumer and Foodservice improved its performance in the third quarter relative to the first half. Due to our performance in Latin America we have lowered our forecast normalised EBIT from $475 -$525 million to $400 -$430 million for this part of the Co-op.

He added that China Foodservice recovered as demand for butter bounced back which helped pricing and in-market inventory return to more normal levels.

Mr Hurrell said that there are some increased risks in the fourth quarter to the Co-op’s previous forecast earnings – in particular, the recovery in key markets is slower than expected and there are tightening price relativities between non-reference and reference products along with the on-going challenges in Australia Ingredients.

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As a result, Fonterra is revising its earnings guidance range from 15 - 25 cents per share to 10 - 15 cents per share.

Chairman John Monaghan said, as farmers get ready to start the new season on 1 June, the forecast 2019/20 Farmgate Milk Price range will be $6.25 - $7.25 per kgMS.

“This is a realistic opening forecast. We are having to look out more than a year into the future which is difficult, but what the information available is continuing to show us is that demand remains strong across key trading partners and this is reflected in GDT prices.

“We are giving farmers a wide range for the opening forecast milk price. It will be narrowed as the season goes on. The 2019/20 Advance Rate Schedule has been set off $6.75 per kgMS.

“Weather plays a significant role in determining global milk volumes, and therefore price. We are forecasting our New Zealand collections to be 1,520 million kgMS for the new season, which is up slightly on the current season.

"There’s still a lot of water to go under the bridge before we’ll have a clear view of what the season holds for both our Co-op’s production and global dairy supply.”

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