Its ingredients business earned $510 million before interest and tax but its food service arm recorded a 30% increase in earnings of $313m.
It maintained its $6/kg of milksolids payment to farmers and predicted earnings of 45 cents to 55 cents a share with an interim dividend of 20 cents a share payable on April 20.
The forecast cash payout for shareholding farmers was maintained at $6.40/kg MS.
Its net profit after tax was $418m, up 2%.
In the half year it moved an extra 227m kg of liquid milk equivalent into consumer and food service products.
Chairman John Wilson described it as a strong first half.
“The co-operative continues to get stronger. We have further reduced net debt which is down $793m or 11% and we have a gearing ratio of 46.6% compared with 49.2% in the first half of 2016.
“Fonterra’s strong balance sheet means we are well placed to develop our markets and position our co-operative for the future.”
Milk collection in New Zealand was down 54m kg MS on the corresponding period last season at 1053kg MS.
“The poor spring in NZ saw us forecasting milk collection to be down 7% for the season but following good rainfall in autumn onfarm conditions are improving which means we are now expecting NZ collections for the season to be down by 3% on last season,” Wilson said.
The confirmed forecast farmgate milk price of $6/kg MS continued to reflect global dairy markets with steady demand and relatively stable prices.
“World dairy prices have continued to show signs of volatility but we believe that the fundamentals are sound and expect pricing over the balance of the season to remain stable.
“Our forecast cash payout reflects a 54% increase in the farmgate milk price compared to last season and consistent earnings.
“An improved $6 milk price supported by strong performance will result in an additional $3b going into the NZ economy this season.
“We see some challenges and opportunities ahead in the second half. The additional milk at the end of the season is welcome for our farmers and our management team are focused on ensuring that we get the highest value from this milk.
“The impact of more volatility in product stream returns in our Ingredients business, some tightening of margins in the coming months and the potential for extra milk in the autumn could result in some pressure on our earnings in the second half.
“The board considered these factors and, while continuing to have confidence in achieving a target dividend of 40 cents per share, has revised the forecast earnings per share range to 45-55 cents to reflect the additional volatility.
“We remain positive but cautious.”
Chief executive Theo Spierings said Fonterra’s strategy of moving more volume into higher-value products was working.
“Our Ingredients business maintained good margins.
“We made the most of our manufacturing capacity and the flexibility it provides to match production to demand and secure the best returns for our farmers’ milk.
“This shows us doing what we said we would and how we continue to deliver value even in a volatile environment,” Spierings said.
“We increased volumes and value across our consumer and food service business.
“Greater China continued to increase its earnings through the strong performance of the food service business and key markets like Chile grew on the back of successful brand relaunches. It was also good to see the benefits of continued improved performance in our Australian business.
“In line with our focus on value in the first half, we are looking to channel as much of our milk into products that create the most value for our farmers as well as optimising the farmgate milk price.
“We have continued our business transformation work and a continued strong focus on costs drove operating expenses down a further 6%.
“We are well-positioned to take up opportunities and to deal with any headwinds. Our strategy is working and the co-operative is strong. I know that our teams are working hard to keep up the momentum in the second half of 2017,” Spierings said.
Wilson said “We remain confident in our forecast for the Farmgate Milk Price but continue to advise our farmers to budget cautiously.
“The fundamentals of dairy are strong but there will be ongoing volatility in our global markets.
“Our strategy to grow volume and value will continue to underpin our performance in the second half of the financial year,” Wilson said.
