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Fonterra 2013 earnings to lag forecasts over NZ drought, Australian competition

Thursday 25th July 2013

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Fonterra Cooperative Group, the world's largest exporter of dairy products, said earnings would miss its forecast by about 7.3 percent because of the drought in New Zealand and intense competition in Australia.

Earnings before interest, tax and one-time items would be about $1 billion in the year ending July 31, down from the $1.079 billion forecast in its Shareholders' Fund Prospectus last year, the Auckland-based company said in a statement. Earnings per share were likely to be at the lower end of the 45 cent to 50 cent per share forecast range, the company said.

Last summer New Zealand experienced the worst drought in the North Island for almost seven decades which the dairy company said today had caused "unprecedented" volatility on its second-half earnings. The company is reshaping its Australian business, which handles its consumer brands, in the face of weak consumer spending and aggressive competition.

"The drought has contributed to a 64 percent rise in whole milk powder prices on GlobalDairyTrade since early 2013, and this had a temporary but significant negative impact on NZMP's margins," said chief executive Theo Spierings. "At the same time, our Australian business remains under pressure."

Fonterra is in the early stages of reshaping its Australian unit, which has resulted in a number of additional write offs, Spierings said, without providing details.

The company expects to release its full earnings on Sept. 25. Its latest forecast is subject to continued volatility in dairy prices, foreign exchange and other market uncertainties that may occur in the final month of the financial year, the company said today.

Fonterra's forecast annual dividend per share of 32 cents remains unchanged, as does its forecast cash payout to farmer shareholders this financial year of $6.12. That means the farmgate price remains forecast to be $5.80 per kilogram of milksolids.

The company expects to update its forecast cash payout expectations for the 2014 financial year following its board meeting next week.

Units in the Fonterra Shareholders' Fund slipped 0.1 percent to $7.48 yesterday, and have gained 6.3 percent this year.

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