27 March 2013 2 min read

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Fonterra Co-operative Group Limited today lifted its current forecast cash Payout for the 2012/13 season to $6.12 for a fully shared-up farmer, based on a higher forecast Farmgate Milk Price of $5.80 per kgMS and a forecast dividend of 32 cents per share.


Fonterra Co-operative Group Limited today lifted its current forecast cash Payout for the 2012/13 season to $6.12 for a fully shared-up farmer, based on a higher forecast Farmgate Milk Price of $5.80 per kgMS and a forecast dividend of 32 cents per share.

The Co-operative also narrowed its earnings per share guidance to 45-50 cents per share.

The higher forecast was on the back of a strong first half performance by Fonterra, which saw Net Profit After Tax increase by 33 per cent to $459 million, following a particularly robust performance by NZ Milk Products and significant lifts in sales volumes in Fonterra’s Asian and Latin American brands.  These achievements were partly offset by continuing challenges affecting the performance of the Australian business.

“The new forecast reflects a recovery in global dairy commodity prices over the past two months,” said Chairman John Wilson.  

“Prices have increased in seven of the last fortnightly auctions on the online trading platform GlobalDairyTrade (GDT). The GDT-Trade Weighted Index is now 26.7 per cent above where it stood in February when the Board issued its last forecast.  

“World dairy trade growth is being led by powders (combined whole milk and skim), reflecting strong demand at a time when global supply is constrained.”

Interim Result
Click here to see the 2013 Fonterra Interim Report

Commenting on the Co-operative’s half year performance, Mr Wilson said: “We had excellent spring and early summer growing conditions across most of the country leading to strong growth in New Zealand dairy production and record volumes in the first half.

“However, the dry conditions in the North Island since January have created real challenges for our farmers, with many turning to supplementary feeds and shifting to once a day milking to maintain the condition of their herds.

“The drought in the third quarter has been more severe and lasted longer than anyone might have predicted, and means we are currently forecasting total milk collection volumes for the full season to finish in line with last season.

“Coping with the climate is part of farming.  But there is no denying the stress that a drought causes and at times like these, farmer shareholders are looking for support from their Co-operative.

“Backed by our strong balance sheet and operating cash flows, we were able to increase the advance rate paid to farmers for their milk. The faster advance rate together with the higher forecast Milk Price means on average farmer shareholders will receive $100,0001 earlier in the season.

“This is particularly important to our farmers.  It means we are getting cash to them faster, as they begin to dry off their herds for the winter earlier because of the drought and no longer have milk flowing,” said Mr Wilson.

With the strong first half performance, the Board has lifted the interim dividend from 12 to 16 cents, 33 per cent higher than the comparable period. Sixteen cents represents 50 per cent of Fonterra’s forecast dividend for the current financial year, and the maximum available under the 40-50 per cent range in its dividend policy.

The interim dividend will be paid on 19 April 2013.

The Co-operative’s strong growth contributed to a Normalised Earnings Before Interest and Tax (EBIT) of $693 million, up 26 per cent.  Revenue, however, was 7 per cent lower at $9.3 billion, reflecting lower dairy commodity prices and the strength of the New Zealand dollar against the US, more than offsetting the higher volumes sold.

Highlights compared to the same period last year include:

  • Record milk volumes collected up 6 per cent;
  • Total external sales volume growth of 8 per cent to 2.1 million metric tonnes;
  • Normalised EBIT of $693 million was up 26 per cent (Normalised EBIT has been adjusted for the $24 million cost associated with he planned closure of the Cororooke plant);
  • Net Profit After Tax of $459 million, up 33 per cent;
  • Economic Debt to equity of 40 per cent, an improvement from 47 per cent last year;
  • Earnings per share up 21 per cent;
  • An interim dividend of 16 cents per share, up 4 cents per share.
CEO Theo Spierings said NZ Milk Products’ strong first half reflected the drive to achieve increased Volume and Value – two core elements of Fonterra’s business strategy.

“NZ Milk Products’ performance was achieved through increased volumes, effective management of our product mix and a focused effort by the sales team to achieve higher price premiums compared to dairy commodity prices.
“Despite the drought taking effect in the North Island in January, it was a different story for those in the South Island where the rainfall was higher than last summer.  Fonterra’s milk collections for the season to the end of January were up 6 per cent on the same period in 2012 – which in turn flowed into record production, and another new export volume record achieved in December 2012.

 “The commissioning last year of the Co-operative’s new Darfield site – where the Darfield Drier 1 can process 2.2 million litres of milk at peak in one day and produce 15 metric tonnes of milk powder per hour – was one of the factors that enabled NZ Milk Products to process the higher peak milk flows and deliver a strong performance.

“The business reacted swiftly to higher price signals for cheese, casein and Milk Protein Concentrate compared with Whole Milk Powder and other powder prices for most of the first half of the financial year. By moving our discretionary manufacturing, we were able to take advantage of this pricing differential.  This flexibility at an operational level was a significant contributor to NZ Milk Products’ 9 per cent rise in sales volumes to 1,474,000 MT.  

“At the same time, the sales team kept its focus on adding value for customers and attaining prices for products above GlobalDairyTrade (GDT).

“Despite the average USD commodity price being 16 per cent lower than the same period last year, NZ Milk Products’ focus on performance was reflected in a 65 per cent increase in Normalised EBIT to $422 million.

“The Australia-New Zealand business’ earnings declined, with Normalised EBIT down 32 percent.  While our consumer business performance in New Zealand was slightly better than last year,  Australia’s consumer business had to contend with a very competitive retail environment.  Meanwhile, the ingredients business experienced a significant margin squeeze as the competition for milk supply in Australia intensified.  This was compounded by an adverse product mix due to lower demand in the export sales of value-added nutritional powders, and more milk being channelled into lower value milk powder sales.

“A recovery plan is now in place, with the planned closure of our Cororooke site, continuing rationalisation of the brands portfolio, and cost reductions following a recent restructure of the business.

“In Asia/AME higher volume growth in the Foodservice and consumer brands business across China, Indonesia, Malaysia, Middle East and Vietnam, contributed to a 13 per cent increase in sales volume to 186,000 MT, which helped underpin a strong first half performance with Normalised EBIT up 27 per cent.

“Latam did well with Normalised EBIT up 5 per cent driven by solid earnings growth from Soprole, which was offset to some extent by a weaker result from Dairy Partners Americas (DPA). In particular, product innovation in the Chilean market with the successful launches of new dairy desserts and yoghurts has supported earnings growth,” said Mr Spierings.


Looking ahead, Mr Spierings said Fonterra’s strong first half earnings were unlikely to be repeated in the second half.

“For the full year, we expect to see total milk volumes for the current season to be in line with last season.

“The ongoing volatility in commodity markets could have a negative impact on product mix profitability.

“In many of our consumer markets, we are expecting intensified competition in the second half – particularly in Australia – and in Asia we are seeing signs of demand slowing,” said Mr Spierings.

(Further detail on Fonterra’s half year financial highlights follows in Appendix One.)

1As at June 2013, compared to the opening advance rate schedule

Click here to view the 2013 Fonterra Interim Report presentation

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