Fonterra debt grows with stockpiles, weaker kiwi dollar

Tuesday 24th March 2009

Fonterra Cooperative Group, the world's largest exporter of dairy products, reported an increase in gearing in the first half on increased stockpiling, the impact of the weak kiwi dollar on overseas debt and the timing of payments to farmers.

Debt gearing increased to 61.5% at January 31 from 57.4% at July 31, the Auckland-based company said in a statement. Gearing will ease back to "more normal levels" by the end of the year as it freezes non-essential capital spending and requires less working capital. Total borrowings rose to $8.1 billion as at January 31, from $6 billion a year earlier.

The cooperative kept its milk payment forecast unchanged at $5.10 a kilogram, having slashed the estimated payment from last year's record $7.90 to reflect a drop in world prices. Fonterra changed its balance date and its first-half results aren't directly comparable.

Sales in the six months ended Jan. 31 rose 9.6% to $8 billion from $7.3 billion of revenue in the six months ended Nov.30, 2007. Adjusting for timing differences and including currency hedges, sales fell 7.6%, it said.

Fonterra is "in reasonable shape given the turmoil in the world economy - it's a tough time for everyone and Fonterra is no exception," chairman Henry van der Heyden said.

Total payments to farmers will sink to about $6 billion this season from $9.4 billion last season.

Global prices for dairy products have tumbled 57% from the record highs in the past 15 months, according to Bloomberg.

Fonterra's commodities and ingredients business lifted sales by 2% to $5 billion in the first half. Revenue in Australia and New Zealand gained 12% TO $1.5 billion, Asia/Middle East/Africa rose 53% to $1.2 billion and sales in Latin America advanced 12% to $358 million.

By Jonathan Underhill

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