Home' NZ Dairy Farmer : April 2011 Contents 24 The Dairyman APRIL 2011
STRONG international dairy markets
meant 2010/11 was shaping up as one of
Fonterra's best years ever in terms of
returns to its farmer shareholders, Fonterra
Announcing the co-operative's financial
results for the half year to January 31, 2011,
Fonterra confirmed its current forecast pay-
out range for the 2010/11 season of $7.90-$8
(before retentions) and $7.75-$7.80 (cash:
milk price plus dividend). This is unchanged
from the 60 cents increase in the payout
range announced in late February 2011.
This forecast range means this year's pay-
out may surpass Fonterra's previous record
in 2007/08 of $7.90 (before retentions) and
$7.66 (cash comprising, at that time, milk
price plus value return).
The 2010/11 forecast payout range (before
retentions) is based on a forecast milk price
of $7.50kg MS and a distributable profit
range of $550--$690 million, equating to
40--50 cents per share. Fonterra is currently
targeting to pay a dividend of 25--30 cents
per share out of distributable profit.
Fonterra's net profit after tax for the six
months to January 31 was $293 million (21
cents per share). This is the first time
Fonterra has reported a profit for the half
year. As a consequence, there is no prior half
Fonterra chairman Sir Henry van der
Heyden said the forecast payout would be
welcomed by farmers, many of whom had
businesses that remained under pressure after
several challenging years and a current sea-
son marked by some difficult weather condi-
"It is also good news for the New Zealand
economy in the post-earthquake environ-
ment, underlining the importance of dairying
to New Zealand's economic wellbeing."
Sir Henry said the current levels of dairy
prices appeared to reflect a change in supply
and demand for food internationally.
"We are benefiting from a combination of
demand growth from China and other Asian
markets, and tighter international supply due
to adverse weather conditions in many parts
of the world.
"To date, these higher prices have more
than offset the negative effects of a stronger
New Zealand dollar against the US dollar, in
which most international dairy sales are
However, with global prices for many hard
and soft commodities, including dairy,
approaching all-time highs, Sir Henry sound-
ed a note of caution.
"We must be mindful of the impact that
dairy prices can have on demand in some
markets, as well as on supply growth around
the world. As prices continue to climb, the
possibility of a downward correction can
increase and farmers should always need to
be prepared for a potential global price
Fonterra chief executive Andrew Ferrier
said the rising milk price was putting some
pressure on Fonterra's operating earnings,
which were primarily driven by the ability to
make and sell a range of dairy products at a
margin above the cost of milk collected from
"This margin squeeze is particularly sig-
nificant in our ingredients businesses, where
the cost of raw milk represents a substantial
proportion of total operating costs. Thanks to
our strategy of building leading brand posi-
tions in key categories, our consumer busi-
nesses are better placed to withstand price
increases -- but they are not immune."
The tragic events of February and March
in Christchurch and Japan will be reflected in
the second half of the financial year.
At this stage, Fonterra is in the process of
quantifying the impacts on its business,
which will be primarily in the area of inven-
tory losses. To some extent Fonterra expects
these losses will be covered by insurance.
Fonterra heading for a record year
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