Fonterra reports 21% rise in revenue

Fonterra, the country's biggest company and the world's leading dairy exporter, says its revenues jumped $1.7 billion in the past half year, with the co-operative on track for its best year yet.

Fonterra's financial results for the six months to the end of January, show revenue climbed 21% to $9.4 billion from the $7.7 billion for the same period a year ago.

The co-operative confirmed its forecast payout to farmers for the 2010/11 season of $7.90-$8/kg milksolids before retentions as the sector clearly benefits from rising commodity prices.

Sir Henry van der Heyden, Fonterra chairman, said the current levels of dairy prices appeared 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, he 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.” 



Operating earnings under pressure

Outgoing chief executive Andrew Ferrier said the rising milk price was putting some pressure on Fonterra’s operating earnings, in respect of shrinking margins.

“This margin squeeze is particularly significant in our ingredients businesses where the cost of raw milk represents a substantial proportion of total operating costs.”

Earnings before interest and tax were unchanged at $492 million.

The cost of goods sold was $7.9 billion, compared to $6.8 billion with the increase mostly reflecting the increased cost of milk sourced both in New Zealandand overseas. 

Mr Ferrier said the effects of the earthquakes 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.


Maiden half year profit

Fonterra reported after tax net profit of $293 million, of which 21 cents per share is attributable to shareholders. It was the first time the co-operative has reported a six month profit.

It is forecasting profit of $550-690 million (40-50c a share) for the full year.

Operating expenses were up slightly at $1.031 billion.

Sir Henry said the forecast payout would be welcomed by farmers, many of whom remained 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.”

Key financial highlights for the six months to January 31 2010:

•Revenue was up 21% from $7.7 billion to $9.4 billion.

•The forecast Milk Price for the 2009/10 season stays at $7.90 to $8 per kilogram of milksolids (kgMS), as announced in february. That compares with an opening forecast of $7.30 per kgMS.

•An interim dividend of 8 cents per share will be paid to shareholders on April 20. The full-year target dividend range remains at 25-30 cents per share.

*Fonterra’s gearing ratio was 48.5% at the end of January, an improvement on the 54.3% a year earlier but slightly higher than the 44.9% at July 2010. Fonterra said the seasonal nature of Fonterra’s business means the more meaningful comparison is with the position at the previous half year.