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Fonterra provides 2022/23 opening forecast

31 May 2022

It also provided an update on its Q3 performance

In a company press release, Fonterra CEO Miles Hurrell said the strong opening forecast reflects continued demand for dairy coupled with constrained global supply.

“The long-term outlook for dairy remains positive, despite recent geopolitical and COVID-19 related events impacting global demand in the short-term," he said. “On the supply side, growth from key milk producing regions is expected to remain constrained as high feed, fertiliser and energy costs continue to impact production volumes."

“These demand and supply dynamics are expected to support dairy prices in the medium to long-term," he added. “However, we are operating in an increasingly volatile global environment and are managing a wider range of risks than usual."

“This includes the potential for further impacts from COVID-19, financial markets and foreign exchange volatility, global inflationary pressures, a tightening labour market, increasing interest rates, geopolitical events, as well as the possible impact on demand from higher dairy prices," he continued. “This is why our 2022/23 forecast range is so wide at this point in the season.”

For the 2021/22 season, Fonterra has maintained its 2021/22 forecast Farmgate Milk Price of $9.10 - $9.50 per kgMS.

“At a midpoint of $9.30 per kgMS, this would be the highest forecast milk price in the Co-op’s history and would see us contribute almost $14 billion into the New Zealand economy through milk price payments," said Hurrell.

For the nine months ending 30 April 2022, Fonterra’s sales volumes were down as a result of lower milk collections and the timing of sales due to short-term impacts on demand including the lockdowns in China, the economic crisis in Sri Lanka and the Russia-Ukraine conflict.

Total Group normalised EBIT was $825 million, down $134 million reflecting lower sales volumes, continued pressure on margins from the significantly higher milk price, on-going COVID-19 disruptions, and the rapid decline of the Sri Lankan Rupee.

This was also reflected in Fonterra’s Normalised Profit After Tax of $472 million, down $115 million and reported Profit After Tax of $472 million, down $131 million.

Commenting on Fonterra’s performance, Hurrell said despite significant market disruption, the Co-op continued to deliver a strong milk price and solid earnings.

“As an exporter, many of the markets we operate in have been prone to sudden shocks, which can impact what we sell, where we sell it and when, but right now we’re feeling the impact of multiple events across multiple markets," he said.

“We are actively managing the challenges arising from COVID-19 and other geopolitical and macroeconomic events," Hurrell continued.

"However, increasing market volatility and uncertainty, on-going supply chain disruptions and growing inflationary pressures have added increased complexity," he added, pointing to lockdowns in China which have disrupted markets.

Hurrell said the Co-op’s focus on financial discipline has put it in a good position to manage the impacts of these recent events.

“With over 95% of our milk contracted for the season, our strong balance sheet gives us the ability to hold higher inventory to manage the short-term impacts on demand and our sales profile," he said.

“When combined with the increased value of our inventory, which is up due to the higher milk price, this has meant our working capital, and therefore debt, is higher than usual at this point in the season," he concluded. "We expect this to balance out over the course of the year."

Hurrell said, despite facing additional challenges in the third quarter, the Co-op has continued to take steps towards its long-term strategy.



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