Despite a horror year Fonterra’s sales book is starting to clear, and with it the company’s high debt levels it told reporters today.

Fonterra today announced its finalised fair value share price for the 2008/2009 season, as well as its projection for next seasons payout price.

It has been plagued by problems in the last year, including a disastrous joint venture in China with now-defunct Sanlu, a collapse in commodity prices and a mountain of product it could not sell, leaving it with a mountain of debt and low working capital.

As at 31 January, the company reported a debt-to-debt plus equity ratio of 61.5% - well outside its own board guidelines of 45-55%.

By comparison, its debt was at 57.4% at year end 31 July 2008.

Fonterra’s chief financial officer Jonathon Mason told reporters at the announcement that this level has been trimmed by 2% in the interim.

“There will be a material improvement by July year end,” he says.

No specific figures were provided to verify these claims, but the executives say the  improvement has come through the rapid clearing of inventories as prices hit their bottom.

World whole milk powder prices are hovering around $US2000MT compared to nearly $US5000 in mid 2007.

While demand has yet to recover, customers are taking advantage of the low prices to buy up, ameliorating the company’s inventory problems.

The USDA estimates that Fonterra's inventory levels were around 200,000 tonnes above normal levels in March.

"The principal driver is inventory. We predicted that our inventory levels would be particularly strong, our shipments in April and May and our forecast shipments in June are all materially above, by volume, what we normally do at this time of year,” chief executive Andrew Ferrier says.

This has resulted in a revised gearing projection of 53.5% for the year, and down to 50% shortly in to the new financial year he says.

Mr Ferrier believes the market signs are encouraging for a demand recovery in late 2009 early 2010, which should see a gearing ratio of between 45-50% annualised.

But chairman Henry van der Heyden made it very clear that any projections made by the co-operative were subject to high levels of uncertainty in international markets.

The New Zealand dollar has bounced between 49c and 62c against the US dollar, unstable commodity prices and the recent US subsidies have increased market uncertainty – probably delaying recovery by nine months.

Neither Mr Mason, Mr Ferrier nor Mr van der Heyden would disclose the level of hedging the co-operative is engaged in to mitigate currency risk.

Potential retentions from this years final milk payout price will be determined at the end year result.

Fonterra confirmed that production for the year is up around 7.5%, to around 1.28 billion kilograms of milk solids. The company offered no production forecasts for 2010.