Most heartening for dairy farmers were the restatement of a milk price forecast between $7 and $7.60/kg milksolids and the earnings per share guidance of 15c to 25c.
However, because of the covid-19 uncertainties the directors decided not to pay an interim dividend.
“Our aim is to be in a financial position to pay a full-year dividend,” the interim report said.
Chief executive Miles Hurrell said the key goals for 2020 are to achieve the earnings guidance, push gross margin over $3 billion, reduce debt to no more than 3.75 times earnings and keep capital expenditure below $500m.
The improved interim results were achieved after total revenue increased 7% to $10.4b and gross margin increased 12% to $1.67b.
In the six months to January 31 Fonterra cut group operating expenses by 11% to $1.09b, including the reduction of 200 jobs in New Zealand.
Net debt on January 31 was $5.8b, down from $7.4b after bringing in $624m from the sale of DFE Pharma and Foodspring, both in Europe.
China Farms and Fonterra’s half share in DPA Brazil are now in sales processes and further valuation writedowns totalling $134m were recorded.
Fonterra’s shareholding in Beingmate has been sold to below 15% on the Shanghai stock exchange, chief financial officer Marc Rivers said.
The Australian consumer and food service businesses are performing well but there remains more work to do on ingredients, where throughput was down 23% and gross margin was a slim $21m.
By comparison NZ ingredients production was more than 10 times the size of Australia’s and returned a gross margin of $736m.
Global consumer and food service revenue was 29% of total revenue, slightly smaller than in 2019.
Hurrell said the previous turning-the-wheel drive to increase consumer and food service sales is now confined to geographies where greater profits can be made, not just to increase the overall proportion of value-add products.
During the second half Fonterra faces risks outside its control including covid-19 disruption, political uncertainties in Chile and Hong Kong and ongoing dry weather in NZ.
“As I said a few weeks ago we have already contracted a high percentage of this year’s milk supply.
“But our teams know we have to keep our foot on the pedal and navigate very carefully through the challenges we’ll face in the second half,” Hurrell said.
