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Fonterra looks at growth rather than past

By Hugh Stringleman

Friday 24th January 2003

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In its second full calendar year Fonterra Co-operative Group will leave any merger issues behind and work harder on cost controls and growth strategies.

During the past month, two indications of the financial health of the giant dairy company were released: a strong and stable AA- credit ranking from Fitch Ratings and a small increase in the estimated fair value share price of 10c to $3.95.

Fonterra chief executive Craig Norgate said the updated Fitch report confirmed the group's financial strength and positive growth prospects for 2003.

"It confirms that we are financially sound and well-placed to implement our growth strategy. Given the number of credit rating downgrades globally, this is a very pleasing result."

The rating places Fonterra on a par with other Fitch-rated entities such as Telstra, ANZ and Westpac.

It seems Mr Norgate intends to fight to retain his job when his two-year contract ends in July. The Fonterra board recently announced a worldwide search for chief executive candidates to be sure the very best person would be appointed at the end of Mr Norgate's initial term.

Chairman Henry van der Heyden said he and his board had complete confidence in Mr Norgate. "However, we are all in agreement that we have a responsibility to identify what the international market has to offer."

Mr Norgate said subsequently he wanted to be around when the merger benefits were fully confirmed and Fonterra was fulfilling its potential as New Zealand's largest company.

Mr van der Heyden said the slightly improved share valuation reflected the success of Fonterra's business strategy in the face of a difficult international environment. It also reflected the independent valuer's confidence in Fonterra's ability to deliver good returns for shareholders in the future.

"This is a positive outcome for Fonterra and its shareholders. It indicates our business strategy has served us well through a testing time on world markets."

These included the continued capture of merger benefits, synergies from the reorganisation of the group's Australian investments, the gains from joint ventures and new products, and the continued successes of value-added activities.

Standard & Poor's noted that these factors had offset external factors that would detract from the value of the business, such as the appreciation of the New Zealand dollar against the US dollar and a deterioration in the global economy.

"The scorecard indicates that we will have banked ­ or are on-track to achieve ­ $193 million in merger benefits by the end of year two," Mr van der Heyden said.

Fonterra has also appointed Mike Moore as a part-time senior consultant of trade and global strategy.

Bond Offer: Infratil Ltd, 7.2 year & 10.2 year unsecured unsubordinated bond


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