Fonterra' first half descended into a bottom line loss of $348 million after accounting for a $183m legal settlement and the writing down of its investment in China's Beingmate by $405m.
The co-operative cut its interim dividend to 10c from 20c the previous year but raised its farmgate milk price to $6.55 a kg — its fourth highest on record — from a previous forecast of $6.40/kg. In a departure from the norm, Fonterra forecast a full year dividend range of 25c to 35c a share.
Revenue for the six months ended January 31 was $9.8 billion, up 6 per cent from the previous year.
"Normalised earnings before interest and tax (ebit) was $458m, down 25 per cent.
Fonterra's ingredients business posted ebit of $558m, up 9 per cent, while its consumer and foodservice posted earnings of $193m, down 38 per cent.
"While our reported net profit after tax shows a loss of $348 million, it includes the payment to Danone and the Beingmate impairment," said chairman John Wilson. "As these are one-off events, our normalised net profit after tax of $248m is a better reflection of our underlying operating performance for the half year."
The company said it had written down the value of its investment in Beingmate by $405m to $244m. It had earlier announced that its legal settlement with former customer Danone came to $183m.
Fonterra pointed to high inventory levels, low milk collections and higher input costs — milk prices are Fonterra's biggest input cost — as contributing to the fall in profit.
ASB rural economist Nathan Penny said the Beingmate charge "was on the upper end of what we were expecting".
"We thought they might defer some, but they decided to do it all now. Have they stopped the bleeding? From where I'm sitting and what I've seen reported it does appear things could get worse before they get better."
Fonterra chairman John Wilson said shareholders and unitholders "will be rightfully disappointed with this outcome".
"Beingmate's continued under-performance is unacceptable," Wilson said. "The turnaround of the investment is a key priority for our senior management team. The opportunity in the Chinese infant formula market remains, as does the potential for our Beingmate partnership — but an immediate business transformation is needed for Beingmate to benefit from the ongoing changes in the market."
Ingredients gross margin was unchanged at 11.1 per cent and normalised ebit rose to $558m, while consumer and foodservice gross margin tumbled about 24 per cent, pushing earnings down to $193m.
ANZ rural economist Con Williams said the lift in the 2017/18 milk price forecast to $6.55/kg, with the season's production 86 per cent sold was the major bright spot. "This will be the fourth-highest milk price on record and helps underpin farm-gate earnings despite a difficult production year for most farmers."
- additional reporting BusinessDesk