Fonterra On Track For One Of Best Years Ever

NEW ZEALAND - Fonterra shareholders will welcome the strong and positive performance turned by Fonterra Cooperative Group over the past half-year.
calendar icon 23 March 2011
clock icon 4 minute read

Announcing the Co-operative’s financial results for the half year to 31 January 2011, Fonterra confirmed its current forecast Payout range for the 2010/11 season of $7.90-$8.00 (before retentions) and $7.75-$7.80 (cash: Milk Price plus dividend). This is unchanged from the 60 cents increase in the Payout range announced in late February 2011.

This forecast range means this year’s Payout may surpass Fonterra’s previous record in 2007/08 of $7.90 (before retentions) and $7.66 (cash comprising, at that time, Milk Price plus Value Return).

Fonterra’s net profit after tax for the six months to 31 January 2011 was $293 million (21 cents per share). This is the first time Fonterra has reported a profit for the half year. As a consequence, there is no prior half year comparison.

Fonterra Chairman Sir Henry van der Heyden said the forecast Payout would be welcomed by farmers, many of whom have businesses that remain under pressure after several challenging years and a current season marked by some difficult weather conditions. “It is also good news for the New Zealand economy in the post-earthquake environment, underlining the importance of dairying to New Zealand’s economic wellbeing.”

Sir Henry said the current levels of dairy prices appear to reflect a change in supply and demand for food internationally.

“We are benefitting from a combination of demand growth from China and other Asian markets, and tighter international supply due to adverse weather conditions in many parts of the world. To date, these higher prices have more than offset the negative effects of a stronger New Zealand dollar against the US dollar, in which most international dairy sales are denominated.”

However, with global prices for many ‘hard’ and ‘soft’ commodities, including dairy, approaching all-time highs, Sir Henry sounded a note of caution. “We must be mindful of the impact that dairy prices can have on demand in some markets, as well as on supply growth around the world. As prices continue to climb, the possibility of a downward correction can increase and farmers should always need to be prepared for a potential global price drop.”

Fonterra CEO Andrew Ferrier said the rising Milk Price is putting some pressure on Fonterra’s operating earnings, which are primarily driven by the ability to make and sell a range of dairy products at a margin above the cost of milk collected from farmers.

The tragic events of February and March in Christchurch and Japan will be reflected in the second half of the financial year. At this stage Fonterra is in the process of quantifying the impacts on its business, which will be primarily in the area of inventory losses. To some extent Fonterra expects these losses will be covered by insurance.

"To have a result like this in a period of high commodity prices is a major achievement in itself," says Willy Leferink, Federated Farmers Dairy vice-chairperson.

"It comes only a day after the International Monetary Fund (IMF) downgraded its growth projection for the New Zealand economy to just one per cent . The nation's dairy farmers and dairy cooperatives, like Fonterra, are showing the way forward.

"This is also the first time Fonterra has reported a profit for the half year so it is an impressive performance. In terms of adding value, revenue from commodities and ingredients is up almost a quarter on last year at $6.3 billion.

"What strikes me is the 21 per cent surge in revenue to $9.4 billion. This is revenue that largely comes back into New Zealand and that benefits all New Zealanders.

"As a direct consequence of these results, Fonterra shareholders will have greater certainty on the forecast payout and that is most welcome.

"That said Federated Farmers is keen for Fonterra to explore greater retentions in order to strengthen its balance sheet and to take advantage of opportunities that may come its way. In terms of this, Fonterra's progress in Asia, Africa, Middle East and Latin America is very exciting.

"Given the IMF wants the New Zealand Government to be back in surplus by 2015-16, we need to export and Fonterra and its farmer shareholders are really showing the way.

"In fact, it's just what the IMF ordered," Mr Leferink concluded

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