Fonterra Cooperative Group reported a strong first-half result but opted not to declare an interim dividend given the possible impact of the covid-19 pandemic on the rest of the year's earnings.

The Auckland-based cooperative posted a normalised net profit after tax of $293 million in the six months to Jan. 31 versus $72 million in the prior year. Normalised earnings, which exclude one-off costs and minority interests, before interest and tax were $584 million versus $312 million in the prior year.

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Despite the strong performance so far this year, the board didn't declare a dividend.


"After considering the current uncertainty of the impact covid-19 could have on earnings in the second half of the year, the board has elected to not pay an interim dividend," said chairman John Monaghan.

"At the end of the financial year, the board will reassess the co-op's financial position and review the decision to pay a dividend."

Chief executive Miles Hurrell said the cooperative is progressing its key financial targets for 2020.

Listen to Jamie Mackay interview Miles Hurrell on The Country below:

These include meeting earnings guidance of 15-25 cents per share, achieve a gross margin in excess of $3 billion, reduce leverage so Fonterra's debt is no more than 3.75 times earnings and cap capital expenditure at $500 million.

Hurrell said he is pleased with the progress and momentum Fonterra has achieved in the first six months of the financial year, but that it's now operating in a very different global context as a result of covid-19 outbreak.

He did reaffirm the forecast farmgate milk price range of $7.00-to-$7.60 per per kilogram of milk solids.

The result included writedowns of its China Farms and DPA Brazil assets.

Fonterra said its net debt dropped to $5.8 billion, down from $7.4 billion a year earlier.


Hurrell said Fonterra had built on the work done in 2019 and has continued to reset its business, introducing a new strategy, reorganising and "resizing" its teams.

"We are now a very different Co-op to this time last year – we're prioritising New Zealand milk and staying focused on what we know we're good at and what makes a difference to our farmer owners, unit holders, employees and communities," he said in a statement.

"No doubt the world is experiencing an almost unprecedented situation and response to Covid-19, I'm pleased with the progress we've made so far against our four priorities for 2020," he said.

Hurrell said he was pleased with the progress and momentum Fonterra has achieved in the first six months of the financial year, "but Fonterra is now operating in a very different global context as a result of Covid-19".

"We've delivered this through stable underlying earnings from our Ingredients business, improving gross margins in Foodservice and reducing our operating expenses," he said.

Fonterra's foodservice business had been the stand-out performer in the first half as the co-op grew its sales to bakeries and coffee and tea houses across Greater China and Asia.

Fonterra completed its sale of DFE Pharma and foodspring in the first half of the year with cash proceeds of $624 million and this has helped reduce net debt by 22 per cent or $1.6 billion, compared to this time last year.

Hurrell said Fonterra had completed strategic reviews on China Farms and DPA Brazil, and sales processes for both assets were well under way.

"Through these sale processes and strategic reviews, we have gained additional information and further insights and, as a result, we have revised down the valuation of China Farms and DPA Brazil by a total of $134 million.

Fonterra also reduced the value of our China Farming joint venture by $65m "and we continue to look for opportunities to improve the ongoing performance of the business," Hurrell said.


- More to come