Fonterra confident it can stay strong through coronavirus outbreak

With the economic ramifications of the coronavirus hitting every sector, Fonterra says its half-year results show it’s in a good position to weather the storm.

FONTERRA has reaffirmed a farmgate price of NZ$7 to $7.60 per kilo milk solids in spite of the international upheaval triggered by the coronavirus outbreak.

Releasing its first-half result in Auckland this morning, the processor opted not to declare an interim dividend given the potential impact of the pandemic on the rest of the year’s earnings.

Today’s balance sheet revealed a normalised net profit after tax of NZ$293 million in the six months to January 31 compared to NZ$72 million in the previous year.

Normalised earnings, which exclude one-off costs and minority interests, before interest and tax were NZ$584 million in contrast to NZ$312 million in the comparable reporting period last year.

Fonterra Australia chief executive Rene Dedoncker told The Weekly Times that the processor’s financial performance was sound with bolstered underlying earnings and reduced debt.

The release of the interim results show net debt down from NZ$7.4 billion to NZ$5.8 billion, a figure trumpeted on both sides of the Tasman.

“Fonterra is in a strong position for a potentially challenging second half. We’re already seeing results from the decisions we’ve made in recent times – including the reduction in net debt by NZ$1.6 billion,” Mr Dedoncker said this morning.

“Obviously, there are many moving parts to the situation unfolding with the coronavirus but we are responding accordingly. For instance, demand for our Western Star butter will shift from the bulk offerings for chefs and restaurants towards the smaller lines sold in supermarkets as consumers go from eating out to eating at home.”

New Zealand Prime Minister Jacinda Ardern imposed stringent international travel restrictions on Saturday with her Australian counterpart Scott Morrison mirroring the approach in an announcement this morning.

Despite the company being reliant on trans-Tasman travel more than most, Mr Dedoncker said the processor was prepared for the aviation alterations.

“We’re an IT savvy business. We’ve been preparing for weeks through the increased use of Skype and teleconferencing,” he said.

Over in New Zealand, Fonterra chief executive Miles Hurrell outlined the processor’s key financial targets for the remainder of the calendar year.

The targets included an earnings guidance of 15-25 NZ cents per share and ensuring capital expenditure was no more than NZ$500 million.

“We are now a very different Co-op to this time last year – we’re prioritising New Zealand milk and staying focused on what we know we’re good at and what makes a difference to our farmer owners, unit holders, employees and communities,” Mr Hurrell said.