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Fonterra reiterates milk payment forecast

Wednesday 24th March 2010

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Fonterra Cooperative Group reiterated its forecast milk price for the 2010 season after posting a 3.7% decline in first-half sales.

The milk price was affirmed at $5.70 a kilogram of milk solids. Sales declined to $7.7 billion in the six months ended January 31, from $8 billion a year earlier, the Auckland-based cooperative said in a statement today.

Chief executive Andrew Ferrier said the decline in revenue reflected volatility in global milk prices and exchanges rates. Lower average selling prices sliced $1.6 billion off first-half revenue, though this was mostly offset by $1 billion of higher sales volume and foreign exchange gain of about $300,000. The value of inventories fell to $4.2 billion at January 31 from $5.1 billion a year earlier.

“Although there is an element of uncertainty as to how supply and demand factors will influence prices, the recent stability means the outlook is positive for the balance of this year and into 2010/11,” Ferrier said.

Gearing fell to 53.3% at January 31 from 61.5% a year earlier and Ferrier said Fonterra is targeting a gearing ratio “of less than or equal to 50% by year end. Finance costs tumbled to $172 million from $368 million, with $160 million of the improvement reflecting changes to the value of interest rate hedges and $60 million from lower borrowing costs.

Fonterra’s balance sheet was strengthened by a net inflow of equity of $263 million, as a result lf the cooperatives decision to allow farmers to hold shares amounting to up to 120% of production.

Discussions are ongoing with the Shareholders’ Council on the third step of the cooperatives capital restructuring, which would allow its shares to be traded among farmers, chairman Henry van der Heyden said.

Operating expenses excluding finance costs and foreign exchange gains rose 5.8% to $1 billion, which Fonterra said reflected increased spending on advertising and promotion “to grow and defend market share in Fonterra’s regional consumer brands businesses.”

Fonterra will pay a first-half dividend of 8 cents a share on April 20, with the full-year payment target reiterated at 20 cents to 30 cents.

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