This morning, the world's largest dairy exporter, FONTERRA ORD UNIT (ASX: FSF), announced its 2015 interim report to the ASX, showing some lacklustre results for shareholders.
Reporting in New Zealand dollars, during the six months to 31 January 2015 the owner of brands such as Bega Cheese, CalciYum, Mainland, Ski Yoghurt and more; reported a 13.7% drop in revenue, to $9,746 million, and just $183 million in net profit after tax, down 15.7% from the prior corresponding period.
The company held its forecast Farmgate Milk Price at $4.70 per kilogram of milk solids (kgMS), but cut its full year dividend forecast by 5 cents to between 20 and 30 cents.
It declared an interim dividend of 10 cents, payable on 20 April 2015.
Commenting on the results chairman John Wilson said, "These half-year results are below our farmers' expectations, in a period when the Farmgate Milk Price is low and we are reducing the forecast dividend range."
"Our half-year results are a snapshot of tough conditions in dairy with variable production, demand and pricing," he said.
Adding, "There was also the challenge of generating profit from inventory made in the previous financial year when the cost of milk was higher, but sold in the first quarter of the financial year when global dairy prices were falling."
During the half supply from dairy producing regions around the world outweighed demand, leading buyers to undervalue milk and push the trade-weighted GlobalDairyTrade price index to a five-year low in December.
Lower commodity prices squeezed profit margins but were partially offset by a weaker NZ dollar.
Despite the tough outlook, there were some positives from today's announcement.
For example, the company said its Ingredients business (which produces its vast array of dairy products) achieved normalised EBIT (earnings before interest and tax) of $299 million, up 2%. And the consumer and foodservice business also reported a healthy jump in EBIT, up 23% to $116 million.
Looking ahead, Fonterra CEO Theo Spierings said the company is strongly committed to its V3 strategy which it launched three years ago.
"We have the building blocks in place to deliver on our vision and strategy for the long term," Mr Spierings said in an ASX announcement. "This will require some tough decisions. We are committed to improving performance. We have made good progress so far but we need to increase the pace of change."
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