Fonterra Co-operative Group Limited gave an update on its strategy review and shared timeframes for turning around the Co-op’s performance, including selling the Dennington site in Victoria.
At the same time, it announced its third-quarter business update, revised forecast earnings range, narrowed the range for its 2018/19 forecast Farmgate Milk Price, and gave an opening forecast Farmgate Milk Price range for the 2019/20 season.
- Key third-quarter financial performance numbers:
- Sales volumes: 16.6 billion LME, up 4%
- Revenue: $15 billion, up 1%
- Gross margin: $2.2 billion, down 3%
- Normalised operating expenses: $1.8 billion, down $73 million
- Normalised EBIT: $522 million, down 9%
- Capital expenditure: $419 million, down 28%
- Revised forecast earnings per share range: 10-15 cents from 15-25 cents per share
- 2018/19 forecast Farmgate Milk Price range: $6.30 – $6.40 per kgMS
- Opening 2019/20 forecast Farmgate Milk Price range: $6.25 – $7.25 per kgMS
- 2019/20 Advance Rate Schedule has been set off $6.75 per kgMS
Fonterra Chief Executive Miles Hurrell said that good progress is being made on the strategy review and reiterated that the benefits from those changes will take time to flow through into the Co-op’s financial performance.
“I appreciate that our farmers and unit holders want clarity on our new strategy and expect a decent return on their investment.
“We’re on-track to share our new strategy in September. In the meantime, we’re getting on and making decisions to reduce complexity and simplify our business so we can focus on where we have competitive advantages.
“Farmers and unit holders can expect to see some fluctuation in our earnings over the next couple of years and there will be one-off transactions and adjustments (some positive, some negative) as we reset the business and deliver on our new strategy.
“We are committed to keeping people updated as we make progress. Today’s update is:
- We are commencing a strategic review of our two wholly-owned farm-hubs in China
- We have agreed with our partner Nestle to review options for the future ownership of our Dairy Partners Americas (DPA) Brazil joint venture, including a potential sale of respective stakes
- We are closing our Dennington site in Australia.
“These decisions relate to our new strategic direction – in particular, prioritising our New Zealand milk supply and simplifying our global portfolio, which, as we have said previously, requires us to review every part of business to ensure it meets the needs of the Co-op today.”
Commenting on the strategic review of its China farms, Mr Hurrell said China remains a key market for Fonterra.
“We have contributed to China’s dairy industry by developing high quality model farms and showing there is a valuable opportunity for fresh milk in China’s consumer market,” he said.