Fonterra profit slides 16pc, dividend forecast cut video

FRONTING UP: Fonterra chief financial officer Lukas Paravicini (left), chief executive Theo Spierings and chairman John ...
Chris Skelton/Fairfax NZ

FRONTING UP: Fonterra chief financial officer Lukas Paravicini (left), chief executive Theo Spierings and chairman John Wilson.

Fonterra chief executive Theo Spierings is not ruling out job cuts as the company looks to make the "tough decisions" needed to lift its game.

The country's biggest exporter reported a net profit of $183 million for the six months to January 31, down 16 per cent.

While the forecast farm-gate return for this season was held steady at $4.70 a kilogram of milk solids, Fonterra reduced its forecast dividend range by 5 cents to between 20c and 30c a share.


Fonterra chief executive Theo Spierings admits farmers will be disappointed with the company's result, which has partly been driven by volatility in dairy markets.

Spierings acknowledged that the payout of $4.90 to $5 for a fully shared-up farmer was a lot tighter than the previous season's bumper $8.50 payout.

"Farmers definitely expected a result which was better than this," he said.

"Disappointment is a big word, but yes, some of the farmers could be disappointed by that."

The company's 14 per cent fall in income, to $9.7 billion, was primarily driven by having to sell stockpiled product into a weak market.

Dairy prices sank to a five-year low in December, before beginning to recover this year.

At last week's GlobalDairyTrade auction, the first since an anonymous 1080 poisoning threat, prices plunged 8.8 per cent again, reversing a run of six consecutive increases.


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* Threat to poison baby formula 

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Spierings said the 1080 threat had been an unwelcome distraction, but the company was focused on its strategy to grow volume, increase the value of products, and do it fast.

"Have we been turning the wheel? Yes. Have we been turning it fast enough? Probably not."

He said his team was leading an overhaul that would require some tough decisions, and would not rule out job cuts.

"In the end, if people don't want to be on the bus, or don't want to make a change, it could mean restructure."

However, he said the transformation programme was primarily about making decisions faster, as well as moving people away from focusing on processes and systems and into the money-making parts of the business.


Federated Farmers Waikato dairy chairman Craig Littin said farmers would be "extremely disappointed" with the result.

There was an expectation the dividend would be higher, especially as there was a low dividend during last season's record payout.

Fonterra needed to improve its communication with farmers rather than "shell shocking" them at announcement time, Littin said.

READ MORE: Southland farmers 'shocked and disappointed'

Fonterra chairman John Wilson admitted the results were below farmers' expectations, saying they were a snapshot of tough conditions in the dairy industry.

He said farmers needed to remain cautious with their budgets, given the volatility still buffeting international commodity prices.

However, he said farmers were used to the ups and downs.

"What we're seeing is extreme peaks and troughs," he said. "Our farmers are very much buttoned down and are managing their business very carefully."

Fonterra Shareholders' Council chairman Ian Brown said shareholders wanted to see the strategy provide a return on their investment.

He said farmers should ask questions of the Fonterra board and management during upcoming meetings.

In the meantime, Brown encouraged them to remain prudent with financial planning and to get their businesses in the best possible shape for next season.


Units in the Fonterra Shareholders' Fund have fallen 5 .5 per cent to $5.66.

However, the New Zealand dollar was unaffected, recently trading at US76.47 cents.

BNZ senior economist Doug Steel said the result simply confirmed what the market already knew; that the dairy market was challenging.

"The big picture still looks pretty much the same, but cashflow for dairy farmers in the coming months will be very tight."

Steel said one silver lining was that Fonterra's production outlook had improved, with a revised forecast of 1,551 million kilograms of milk solids now just 2 per cent below the 2013-14 season.

 - Stuff

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