March 19, 2019 / 8:48 PM / a month ago

UPDATE 1-NZ dairy giant Fonterra swings to profit but Australian drought weighs

(Adds detail, DFE Pharma sale process)

March 20 (Reuters) - New Zealand’s Fonterra Co-operative Group, the world’s biggest dairy exporter, swung to a first-half profit but remains under pressure from a challenging environment in Australia.

The dairy giant reported net profit of NZ$80 million ($54.8 million) for the six months to Jan. 31, compared with a loss of NZ$348 million a year ago, when it booked a hefty writedown on its stake in Chinese infant formula maker Beingmate.

Revenue for the period fell 1 percent to NZ$9.7 billion, with the company citing drought in Australia, resulting in lower milk collections and aggressive price competition.

“While it is good to see the cooperative back in the black, the cooperative’s earnings performance is not where it should be,” said Fonterra Chief Executive Miles Hurrell.

Fonterra had debt of NZ$7.4 billion at the end January, but Hurrell said it is on track to reduce that by NZ$800 million this year. The target comes after a recent portfolio review, through which it intends to trim costs and simplify its corporate structure.

The milk producer said it has begun a sale process for its 50 percent share in DFE Pharma, an equally held joint venture with Dutch cooperative FrieslandCampina.

In recent years Fonterra has been trying to reduce its exposure to swings in global dairy prices by shifting from its milk powder shipments business to value-added products such as branded yoghurt and cheese.

However, a surge in milk prices since the turn of the year, has increased costs and squeezed margins for its consumer and ingredients businesses.

Last month Fonterra cut its annual earnings guidance and milk collections forecast, citing extreme dry weather in New Zealand that would hit milk supply. It cut the collection guidance further last week.

The milk co-operative, which controls nearly a third of world dairy trade, had also said it would not pay an interim dividend. Fonterra paid an interim dividend of 10 New Zealand cents per share in 2018. ($1 = 1.4590 New Zealand dollars) (Reporting by Aditya Soni and Ambar Warrick in Bengaluru Editing by David Goodman)

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