Fonterra sees good times rolling on

It might be his last (official) day in the office but Fonterra chief executive Andrew Ferrier was no less enthusiastic about the future while presenting a bumper result today.

The co-operative unleashed a record payout to its 10,500 farmers – distributing some $10.6 billion from the $8.25/kg milk solids it was able to deliver for last season.

The total cash payout after retentions of $7.90/kg was $1.55 up on last year’s $6.70, and was built on the back of a record profit after tax of $771 million for the year to July 31.

Revenue was a “hair’s breath” short of $20 billion, another record, while exports out of New Zealand totaled 2.1 million tones of milk-based products.

It was a fine achievement and a fitting way for Mr Ferrier to bow out on. His successor, Dutchman Theo Spierings, starts as chief executive on Monday.

Despite volatile markets Mr Ferrier remains calm over what lies ahead.

At the half-year presentation back in April he and chairman Sir Henry van der Heyden gave the prediction that dairy prices would soften from their extraordinary peak. And they did.

But not enough to dent the current forecast.

Fonterra confirmed its previously announced farm gate milk price forecast for the current 2011-2012 season of $6.75/kg milk solids plus the forecast distributable profit range is 40-50c per share.

The lower forecast milk price for this season compared to last reflects that softening of global commodity prices since early this year.

Looking into his crystal ball today, Mr Ferrier reckons the weakness in recent months has probably settled and he expects some improvement again by early next year.

“It remains a very volatile time and a delicate time so forecasts are tricky,” he said.

“But we’re comfortable with where we are forecasting now. We see no need to change but you need quite a crystal ball to see what’s going to happen between now and July of next year and obviously the group will continue to watch it very carefully.

“The market is trending the way we expected it to. We did expect the market to soften as we came into this year and as we came off peak production and we expect the market to recover in the second half of our fiscal year and early calendar 2012.”

That sounds like good news for New Zealand Inc, although perhaps not for milk prices at the supermarket.

Sir Henry likes to point out that farmers spend 50% of their income on goods and services in their communities. That’s after debt costs of course.

“As Fonterra is a co-operative that is 100% owned and controlled by New Zealand farmers, that money flows right back into the local economy as farmers reinvest in their businesses and buy more farm supplies and equipment," he said.

Fonterra Shareholders’ Council chairman Simon Couper said Fonterra’s record payout was a great result that all New Zealanders will benefit from.

“The record payout has been driven by record revenues, which equates to over 10 times the forecast total economic activity of $1.15 billion for the 2011 Rugby World Cup,” Mr Couper said.

Mr Ferrier said the co-operative had demonstrated resilience to global market volatility.

“We’ll be able to continue to drive profits up and continue to extract the absolute best returns out of global commodity prices and bring it back to be a very competitive milk price here in New Zealand," he said.

“And it’s a fabulous outlook for the co-operative.”

Other highlights of the result included Fonterra’s debt gearing which fell to 41.8% from 44.9% on a debt-to-debt plus equity ratio.

The balance sheet was the strongest since the dairy merger more than a decade ago, Sir Henry said.

Meanwhile, Fonterra also published its farm gate Milk Price Manual, a document that attempts to explain how Fonterra quantifies the price it pays to its farmer shareholders.

The co-operative has come under fire along with supermarkets for the high prices consumers end up paying for the milk.

The manual confirms that Fonterra largely bases the domestic price of milk on the price achieved on the global market.