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Fonterra breaks records for sales, profit and payout

Thursday 22nd September 2011

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Fonterra Cooperative Group, the world’s largest exporter of dairy products, posted record sales, profit and farmer payout as rising milk production coincided with strong global demand.

Net profit rose 13% to $771 million in the year ended July 31, the company said in a statement. Sales jumped 19% to $19.9 billion.

Fonterra will make milk and dividends payments totaling $10.6 billion, 29% up on the 2010 payments.

Agriculture was the bright spot in New Zealand in the second quarter, growing by 4.3% as the broader economy expanded by an unexpectedly weak 0.1%, government figures today show.

Global prices for dairy products fell to a 13-month low this week, based on Fonterra’s latest online auction, retreating from recent highs amid signs of faltering global economic growth and increased supplies.

Today, Fonterra reiterated its forecast for a 2012 farm gate milk price of $6.75 per kilogram of milk solids and distributable profit of 40 cents to 50 cents a share. That’s down from 2011’s record farm gate payout of $7.60 and distributable profit of 65 cents, a total of $8.25 before retentions.

The results underline Fonterra’s towering position in the local economy, with its annual revenue almost three times greater than for Fletcher Building, the biggest company on the NZX 50 Index.

Dairy products account for 26% of the nation’s exports, more than twice that of meat, the next biggest. Fonterra collected a record 1.3 billion kgMS of raw milk in the 2011 season, up 5% from 2010. Total shipments overseas were a record 2.1 million tonnes.

Chairman Henry van der Heyden said the record payout to farmers “reflected the recent strength of world dairy markets, with prices in some categories reaching or nearing records during the past year.” After a poor start to the season, farmers enjoyed “some of the best autumn conditions in recent years,” which helped drive milk production to a record, he said.

Fonterra managed to lift earnings even as milk payments rose 29%, with Fonterra feeling the impact of higher dairy ingredient prices and a fragile global economy. Normalised earnings from Fonterra’s ingredients arm gained 36% from a year earlier. Revenue from its consumer business rose to a record $6.1 billion, even as margins were squeezed by the rise in commodity prices, said chief executive Andrew Ferrier, who steps down on Sept. 26 after eight years in the job and will be replaced by Theo Spierings.

Normalised earnings in the Australia/New Zealand business segment fell 17%, which Ferrier said reflected a margin squeeze in a “fiercely competitive market environment.” The company’s ratio of debt to debt plus equity fell to 41.8% from 44.9% and Fonterra said its balance sheet was “in its strongest shape ever.”


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