Download Report

Fonterra 2015 Interim Results
25 March 2015
Milk price holding, profits and dividends slipping
Key Results
• In line with market expectations Fonterra has maintained its 2014/15 farmgate milk price at $4.70/kg of milk solids.
• In contrast, first half profits were weaker than anticipated.
• Resulting in Fonterra downgrading its dividend estimate range by 5 cents to 20 to 30 cents per share.
• Meanwhile, Fonterra also lifted its production forecast for the season to 2% below last season’s (from 3% below).
Fonterra maintained
its 2014/15 milk price
forecast at $4.70/kg.
Detail
As expected Fonterra maintained its 2014/15
milk price forecast at $4.70/kg.
On the profits and
dividend front,
Fonterra continues to
struggle.
But on the profits and dividend front, Fonterra
continues to struggle. Fonterra revised down its
dividend estimate range by 5 cents to 20 to 30
cents per share. Fonterra pointed to the
carrying over of high-value inventory from last
season as dragging on this year’s profits:
“Higher inventory costs were not recovered due
to rapidly falling Whole Milk Powder (WMP)
prices in the first quarter of this financial year,
which dropped to a low of around USD2,400 per
MT.”
Heading into the announcement, we had hinted
that the dividend may lift. For most of the
season, cheddar and casein prices have been
good relative to milk powder prices, and the
lower milk price would normally help Fonterra’s
margins. Moreover, Fonterra has signalled that
it has been tightening its cost belt. So the profit
announcement will be somewhat disappointing
for farmers and shareholders alike.
Normalised EBIT was
down 7% to $376
million for the first
half of the year.
All up, this this saw normalised EBIT down 7% to
$376 million for the first half of Fonterra’s year,
with net profit after tax (NPAT) of $183 million
(down 16 percent). The interim dividend was
set at 10 cents per share.
There was less surprise in the milk price
forecast. Overall dairy prices have lifted 16%
since the end of 2014, with key whole milk
powder (WMP) up 28%. Although, since
Fonterra’s 26 February update, overall auction
prices have fallen 8% and WMP by 10% as
markets realised that production was not falling
as fast as first feared.
Fonterra has
increased its
production forecast to
be 2% below last
season’s.
Farmgate Milk Price Forecasts*
Season
Fonterra
2014/15
$4.70
2015/16
N/A
Long run
N/A
* per kg of milk solids
ASB
$4.70
$6.50
$7.00
Informal
Market
Median
$4.70
N/A
N/A
GLOBAL DAIRY TRADE AUCTION
RESULTS SINCE DECEMBER 2014
Index
1200
Fonterra
Update
26 Feb
AMF
1100
1000
Butter
900
Skim Milk
Powder
800
GlobalDairyTrade
Price Index
Whole Milk Powder
700
Sources: GlobalDairyTrade
600
Dec 14
$
Jan 15
Feb 15
Mar 15
MILK PRICE AND DIVIDENDS
(per kg milksolid)
10
Source: Fonterra, ASB
Dividend
ASB Milk Price
forecasts
8
Milk Price
6
4
2
0
05 06 07 08 09 10 11 12 13 14 15 16 Long Run
On that note, Fonterra has increased its production forecast, although it does remain cautious. It
now expects its production to be 2% below last season’s rather than 3% below as previously
forecast. In contrast, we are not as pessimistic. We forecast Fonterra’s production to fall just 1%
and for nationwide production (i.e. for all processors) to be on par with last season.
The NZD has also helped support the milk price to a degree, adding “a benefit of approximately 30
Nick Tuffley – Chief Economist – 649 301 5659 – nick.tuffley@asb.co.nz
Nathan Penny – Rural Economist – 649 448 8778 – nathan.penny@asb.co.nz
Please refer to the important disclosures at the end of this document
25 March 2015
cents per kgMS to the forecast Farmgate Milk Price, as at 31 January.”
Implications
There was little surprise in the milk price announcement, and thus markets were largely unchanged
following the result.
We maintain our milk
price forecasts for this
season and next at
$4.70 and $6.50/kg,
respectively.
Looking at the revision to the production forecast, markets had already factored in the less bad
production outlook, so we don’t expect prices to react a great deal further over coming auctions.
We maintain our milk price forecast for this season at $4.70/kg, and look to next season for better
things to come. With that in mind, we also maintain our 2015/16 forecast at $6.50/kg, though
recent dairy price falls point to some downside risk.
ASB Economics & Research
Chief Economist
Senior Economist
Senior Economist
Rural Economist
Phone
Nick Tuffley
Jane Turner
Chris Tennent-Brown
Nathan Penny
nick.tuffley@asb.co.nz
jane.turner@asb.co.nz
chris.tennent-brown@asb.co.nz
nathan.penny@asb.co.nz
H
H
(649) 301 5659
(649) 301 5853
(649) 301 5660
(649) 448 8778
Fax
(649) 302 0992
H
https://reports.asb.co.nz/index.html
ASB Economics
ASB North Wharf, 12 Jellicoe Street, Auckland
Important Disclosures
This document is published solely for informational purposes. It has been prepared without taking account of your objectives, financial situation, or needs.
Before acting on the information in this document, you should consider the appropriateness and suitability of the information, having regard to your
objectives, financial situation and needs, and, if necessary seek appropriate professional or financial advice.
We believe that the information in this document is correct and any opinions, conclusions or recommendations are reasonably held or made, based on the
information available at the time of its compilation, but no representation or warranty, either expressed or implied, is made or provided as to accuracy,
reliability or completeness of any statement made in this document. Any opinions, conclusions or recommendations set forth in this document are subject
to change without notice and may differ or be contrary to the opinions, conclusions or recommendations expressed elsewhere by ASB Bank Limited. We
are under no obligation to, and do not, update or keep current the information contained in this document. Neither ASB nor any person involved in the
preparation of this document accepts any liability for any loss or damage arising out of the use of all or any part of this document.
Any valuations, projections and forecasts contained in this document are based on a number of assumptions and estimates and are subject to
contingencies and uncertainties. Different assumptions and estimates could result in materially different results. ASB does not represent or warrant that
any of these valuations, projections or forecasts, or any of the underlying assumptions or estimates, will be met.
2