Fonterra doubles profit but says Aussie business is 'unsatisfactory'

Fonterra, the world's biggest dairy exporter, has more than doubled its net profit despite tumbling global milk prices.

The New Zealand dairy co-operative's chairman, John Wilson, said farmers' incomes continued to come under pressure but Fonterra's focus on higher value and more profitable products had helped mitigate the fallout from the bleak global outlook.

Fonterra chief executive Theo Spierings expects global dairy prices will start to lift later this year.Credit: Pat Scala

"The low prices have placed a great deal of pressure on incomes, farm budgets and our farming families," Mr Wilson said.

"Our priority is to generate more value out of our farmers' milk by focusing on the areas within our control."

"We aim to efficiently convert as much milk as possible into the highest returning products."

That strategy hoisted Fonterra's net profit for the six months to January 31 to $NZ409 million ($362 million) - a 123.5 per cent increase on the same period last year.

However, the company said the financial performance of its Australian ingredients business - the gross margin of which dived 25 per cent to $NZ9 million - is "still not satisfactory".

The poor result fuelled an earnings before interest and tax loss of $NZ28 million for its Australian operations.

Fonterra said a fire at its cheese factory at Stanhope in Victoria and a "lower proportion of nutritionals being produced" at its Darnum plant, also in Victoria, hit its local profits.

"We have a clear plan in Australia and making progress on returning the business to profitability," the company said in a statement.

"The Stanhope cheese plant rebuild is underway and we have signed a number of major supply agreements in nutritionals at Darnum.

"As these come on-stream, the business will return to profitability and the product mix will improve."

Long-term prospects

Chief executive Theo Spierings expects milk prices to begin to lift later this calendar year.

"The balance between available dairy exports and imports has been unfavourable for 18 months," he said, citing Russia's trade embargo on many western imports and falling demand in China.

"This imbalance is likely to continue in the short term."

But he said the "long-term fundamentals for global dairy are positive".

"Demand [is] expected to increase by 2 per cent a year due to the growing world population, increasing middle classes in Asia and favourable demographics.

"The business will continue to work on capturing demand and margins in the second half of the year, just as it did in the first half, by focusing on our consumer and food service volumes and those of speciality ingredients."

Revenue for Fonterra's entire operations sagged 9.3 per cent to $NZ8.8 billion.

The co-operative will pay a interim dividend of 20 NZ cents a share, compared with 10 NZ cents for the same period last year.