Fonterra has lifted its current forecast cash Payout for the 2012/13 season to $6.12 for a fully shared-up farmer, based on a higher forecast Farmgate Milk Price of $5.80 per kgMS and a forecast dividend of 32 cents per share.
The co-operative also narrowed its earnings per share guidance to 45-50 cents per share.
The higher forecast was on the back of a strong first half performance by Fonterra, which saw net profit after tax increase by 33% to $459 million, following a particularly robust performance by NZ Milk Products and significant lifts in sales volumes in Fonterra’s Asian and Latin American brands. These achievements were partly offset by continuing challenges affecting the performance of the Australian business.
“The new forecast reflects a recovery in global dairy commodity prices over the past two months,” said chairman John Wilson. “Prices have increased in seven of the last fortnightly auctions on the online trading platform GlobalDairyTrade (GDT). The GDT-Trade Weighted Index is now 26.7 per cent above where it stood in February when the Board issued its last forecast. World dairy trade growth is being led by powders (combined whole milk and skim), reflecting strong demand at a time when global supply is constrained.”
Commenting on the co-operative’s half year performance, Wilson said: “We had excellent spring and early summer growing conditions across most of the country leading to strong growth in New Zealand dairy production and record volumes in the first half.
However, the dry conditions in the North Island since January have created real challenges for our farmers, with many turning to supplementary feeds and shifting to once a day milking to maintain the condition of their herds. The drought in the third quarter has been more severe and lasted longer than anyone might have predicted, and means we are currently forecasting total milk collection volumes for the full season to finish in line with last season.”
“Coping with the climate is part of farming. But there is no denying the stress that a drought causes and at times like these, farmer shareholders are looking for support from their co-operative. Backed by our strong balance sheet and operating cash flows, we were able to increase the advance rate paid to farmers for their milk. The faster advance rate together with the higher forecast Milk Price means on average farmer shareholders will receive $100,000 earlier in the season. This is particularly important to our farmers. It means we are getting cash to them faster, as they begin to dry off their herds for the winter earlier because of the drought and no longer have milk flowing.”
With the strong first half performance, the Board has lifted the interim dividend from 12 to 16 cents, 33 per cent higher than the comparable period. Sixteen cents represents 50 per cent of Fonterra’s forecast dividend for the current financial year, and the maximum available under the 40-50 per cent range in its dividend policy.
Fonterra collected 6% more milk by volume compared with the prior year, while total external sales.
The company said that while its consumer business performance in New Zealand was slightly better than last year, Australia’s consumer business had to contend with a very competitive retail environment. Meanwhile, the ingredients business experienced a significant margin squeeze as the competition for milk supply in Australia intensified. This was compounded by an adverse product mix due to lower demand in the export sales of value-added nutritional powders, and more milk being channelled into lower value milk powder sales.
In Asia/AME, higher volume growth in the Foodservice and consumer brands business across China, Indonesia, Malaysia, Middle East and Vietnam, contributed to a 13% increase in sales volume to 186,000 MT.
Fonterra said that Latam did well with normalised EBIT up 5% driven by solid earnings growth from Soprole, which was offset to some extent by a weaker result from Dairy Partners Americas (DPA). In particular, product innovation in the Chilean market with the successful launches of new dairy desserts and yoghurts supported earnings growth.
The company said that its strong first half earnings were unlikely to be repeated in the second half, with total milk volumes for the current season in line with last season. Fonterra also noted the potential adverse impact of ongoing volatility in commodity markets, slowing in Asian demand and intensified competition, particularly in Australia.
