Dairy heavyweight Fonterra has posted a flat sales and a dip in revenue and earnings for the 2013 year, blaming weather and market conditions for frustrating its efforts to achieve higher earnings.
As the company signalled in July, earnings before interest and tax was $1 billion, down 3 per cent on last year and falling short of the prospectus guidance of $1.079 billion.
Revenue was $18.6 billion, down 6 per cent on last year. However net profit after tax was up 18 per cent at $736m and earnings per share lifted 7 per cent to 44c.
The farmer-owned cooperative declared a final dividend of 16c per share, taking its dividend for the full year to 32c, as forecast.The final dividend will be paid out on October 18.
Directors announced a cash payout of $6.16 for the 2013 for a 100 per cent share-backed farmer, comprising a milk price of $5.84 and the 32c dividend.
Chairman John Wilson, who described the year’s performance as »solid» in an email to shareholders today, acknowledged the payout was 4 per cent down on the 2012 year.
»2013 was a year that tested our resilience. After a superb first six months for both production and performance our farmer shareholders endured a drought which in some regions was the worst in nearly 70 years.»
The company’s strong balance sheet with a debt to debt plus equity ratio of 39.6 per cent and operating cash flows meant it could support farmers through the drought’s immediate impact by raising the advance rate milk payment, but the move contributed to a 28 per cent drop in operating cash flows compared with 2012, Wilson said.
Fonterra chief executive Theo Spierings said the world’s biggest dairy exporter, tainted by a false botulism contamination scare last month which panicked its markets and sparked Government inquiries, had made good progress with its strategy during the year, particularly in the food service and nutrition divisions, but weather and market conditions frustrated its efforts.
He blamed the combined impact of the drought and the restructure necessary for the company’s underperforming Australian business for the 3 per cent shortfall in projected ebit to $1b.
The drought had caused unprecedented volatility which saw a 64 per cent spike in whole milk powder prices between early January and mid-April.
The result comes on the heels of a surprise announcement last night that the big cooperative was hiking the forecast milk price for the 2014 season by 50c to a record $8.30.
The forecast increase adds up to $5 billion more for the economy from dairying than last year.However the company in the same breath warned that the higher milk costs would squeeze its margins and affect product mix earnings in the first half of the current 2014 financial year.
In the result announcement, the company defended its handling of the August botulism contamination scare which led to a major global recall of baby formula, and embarassment in its markets. The scare turned out to be a false alarm – 38 tonnes of whey protein concentrate manufactured at a Waikato plant was contaminated, but with spores that caused food spoilage, not botulism.
Spierings said the fact it was a false alarm did not alter the company’s view that the recall «was the correct cause of action at the time».
Four inquiries, including a ministerial-led investigation into the incident and Fonterra’s handling of it, were launched after the fiasco. Three have yet to report back.
Spierings said the recall «challenged» the company, but it provided an opportunity to «make a profound change for the better». He revealed that in the past year Fonterra had invested $925m in building production, manufacturing and supply chain capability to process New Zealand milk, developing a major Chinese farming hub, and starting construction of a $144m new cheese and ingredients plant in the Netherlands, in partnership with A-ware Food Group.
Breaking down the result, Spierings said the Australia-New Zealand business had another difficult year with a 37 per cent fall in normalised earnings to $142m.Total transtasman sales were 9 per cent down on last year. A restructure of the business is continuing.
NZ Milk Products, the domestic manufacturing operation, posted a 1 per cent fall in earnings to $494m, although total sales were up 1 per cent. Revenue fell 7 per cent to $13.9 billion.
There was better news from the Asia/Middle East/China business, which reported a 15 per cent increased in earnings to $209m. Sales volumes increased by 11 per cent, driven mainly by new farming operations in China, growth in foodservice across all Asian markets, and growth in nutrition in Indonesia and Malaysia.
Earnings from the Latin American business increased 4 per cent to $137m, with sales up 6 per cent and revenue up 12 per cent to $1.1billion.
Source: Stuff
