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Cloudy outlook for co-op's growth

By Duncan Bridgeman

Friday 25th July 2003

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Fonterra is sticking to its forecast milk solid payout of $3.80/kg for the 2003/04 season despite operating in an unstable global market.

Chairman Henry van der Heyden said the company's foreign exchange hedging policy would help negate volatility.

The forecast assumed international commodity prices for dairy products stayed at current levels but he would not give a worst-case scenario.

"You can't say that because it just depends on international prices ... there are some signs that cheese prices and casein prices are strengthening but there is no more upside as far as milk powder is concerned."

Following this week's profit announcement, where Fonterra recorded a $284 million surplus, attention has moved toward the company's future growth strategy.

Ratings agency Standard & Poor's said the transition of new chief executive Andrew Ferrier raised questions over Fonterra's future strategy which, along with the company's overall financial performance, could influence credit quality.

Mr van der Heyden was quick to counter: "Fonterra will not change its strategy because of a changing chief executive."

Canadian Mr Ferrier takes up his position in September, just as the major dairying season moves into full swing.

Mr van der Heyden said Fonterra aimed to direct more production into whole milk powder while deepening its joint venture partnerships overseas.

Alan Robb, senior lecturer in accountancy at the University of Canterbury, said he was surprised Fonterra had placed a large emphasis on the past and future growth in milk powder in its results presentation.

He said that in May last year former CEO Craig Norgate remarked that high-quality bulk ingredients would remain the core of the business in the foreseeable future.

"I will be interested to see the report from the Shareholders' Council and find out if they are concerned about any apparent change in direction."

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