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Fonterra lifts forecast payout, 1H profit climbs 33 percent

Wednesday 27th March 2013

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Fonterra Cooperative Group, the world's biggest dairy exporter, expects to pay 30 cents more to farmers per kilogram of milk solids as drought pushed up global dairy prices and the cooperative lifted first half profit by a third.

The Auckland-based company will pay $5.80 per kgMS and expects to pay an annual dividend of 32 cents per share, meaning a fully-shared up farmer will get a cash payout of $6.12 this season, down from $6.40 last year. Net profit climbed to $459 million in the six months ended Jan. 31 from $346 million a year earlier. Fonterra firmed up annual earnings guidance to between 45 and 50 cents per share, from a previous range of between 40 cents and 50 cents.

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

Prices on Fonterra's GlobalDairyTrade auction site have jumped 27 percent since February when the dairy company's board last reviewed the payout, with New Zealand's supply limited by the worst drought in the North Island for almost seven decades.

Chief executive Theo Spierings said the strong first half is unlikely to be repeated in the second half of the year, with annual milk volumes expected to be in line with last season. Fonterra had previously estimated 1 percent growth, having already trimmed expectations from 6 percent growth due to the drought.

"The ongoing volatility in commodity markets could have a negative impact on product mix profitability," Spierings said. "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."

The profit gain was in spite of a 6.9 percent fall in sales to $9.33 billion, as the strength of the kiwi dollar eroded increased export volumes.

NZ Milk Products' total sales volumes rose to 1.47 million tonnes from 1.35 million tonnes a year earlier, with normalised earnings before interest and tax jumping 65 percent to $422 million. Asia/Africa, Middle East sales volumes grew 13 percent to 186,000 for a 27 percent increase in EBIT to $100 million, while Latin America reported 11 percent sales volume growth to 187,000 with EBIT at $67 million.

Sales volumes in Australasia fell 4 percent to 471,000 tonnes, with a 32 percent decline in EBIT to $98 million.

The board declared an interim dividend of 16 cents per share, up from 12 cents a year ago, payable on April 19 to shareholders on the register at March 31. The annual payout is expected to be unchanged at 32 cents.

Fonterra confirmed its supply offer to farmer shareholders to sell the economic rights of up to 25 percent of their 'wet' shares to the Fonterra Shareholders' Fund. Units in the Fund were unchanged at $6.95 yesterday.

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