Fonterra profit drops 11%, books impairment on Beingmate investment

Fonterra Cooperative Group posted an 11% decline in full-year profit as margins fell across its ingredients and consumer and food service divisions, and it took an impairment on Beingmate Baby & Child Food.

Profit was $745 million in the 12 months ended July 31 from $834 million a year earlier, the Auckland-based company said in a statement. Sales rose to $19.2 billion from $17.2 billion while cost of sales climbed to about $16 billion from $13.6 billion.

Rising prices offset a 3% decline in volumes at 22.9 billion LME (litres of milk equivalent). Normalised earnings before interest and tax dropped 15% to $1.2 billion, which Fonterra said reflected "reduced margins across the business." The company affirmed its forecast 2017/18 payout of $6.75 per kilogram of milk solids plus earnings per share in a range of 45-to-55 cents, making the forecast total available payout of $7.20 to $7.30, before retentions. The final cash payout was $6.52 for the 2016/17 season for a 100% share-backed farmer. 

“We will always need to manage variability across our cooperative – both in global markets and in our local farming conditions," chairman John Wilson said. "We’ve demonstrated our ability to deal with those conditions and deliver on our strategy again this year.” He said being able to maintain its forecast dividend "despite the milk price increasing by 57% over the year and the impact of negative stream returns was an excellent result."

The results include an impairment loss of $35 million on Fonterra's investment in Beingmate, its distribution partner in China, reducing the carrying value to $617 million.

"Throughout the year, Beingmate’s shares traded significantly below the share price at the time Fonterra acquired its investment," the company said. "In addition, Beingmate reported losses for the full year ended December 2016 and the half year ended June 30, 2017."

Still, "the market fundamentals remain strong and the changes to the regulatory regime, anticipated to be effective from January 1, 2018, are expected to have a positive impact on Beingmate’s financial performance," it said.

Units of the Fonterra Shareholders' Fund were last at $6.10 and have gained 1.7% this year.

(BusinessDesk)