Fonterra Sales Up 9.6% in H1

The higher revenue was driven by the inclusion of two high sales months due to the change in balance date, stronger contributions from Fonterra’s regional consumer businesses, and the lower Kiwi dollar - offset by lower global dairy prices.

24/03/09 Fonterra, the world’s largest dairy exporter, has reported in its half-year results that revenue was up 9.6% to $8.0 billion. The higher revenue was driven by the inclusion of two high sales months due to the change in balance date, stronger contributions from Fonterra’s regional consumer businesses, and the lower Kiwi dollar - offset by lower global dairy prices.

Commodities & Ingredients revenue was up 2% to $5.0 billion, with Australia/New Zealand revenue up 12% to $1.5 billion. Asia/Africa Middle East revenue was up 53% to $1.2 billion with Latin America revenue up 12% to $358 million. Adjusting for timing factors and including exchange hedging, total revenues would have been down by 7.6%, reflecting the lower international dairy commodity prices.

Operating expenses as reported were up 13%. Adjusting for seasonal and currency factors, operating expenses would have been down by 2%. Debt gearing at January 31, 2009 was 61.5%, compared with 57.4% at July 31, 2008. The increase primarily reflects: The cost of carrying higher inventories over the season’s peak; The devaluation of the New Zealand dollar which resulted in foreign currency debt increasing when converted to NZD. Although the Group has an offsetting hedge on the foreign debt, this hedge is recognised in the accounts as an asset and not as a reduction in debt. And the higher-than-usual advance rate percentage Fonterra has been paying farmer-shareholders this season, which resulted in more than $700 million extra in payments to farmers over and above the normal payment schedule.

Debt gearing is expected to reduce to more normal levels by year-end as working capital requirements ease due to the normal seasonal cycle and with other initiatives such as a freeze on non-essential capital expenditure. Additionally, the requirement announced last October that farmers must bring their shareholdings fully in line with this season’s milk production is expected to bring in around $400 million of additional equity by the end of the financial year offsetting forecast share redemptions.

By paying back short term loans and taking out longer term borrowings, average debt maturity has increased, putting the Co-operative in a stronger position to face uncertain times in financial markets. As at January 31, the weighted average length of borrowings was 4.1 years - up from 3.3 years at July 31, 2008. As at March 31, Fonterra’s successful retail bond issue in New Zealand has extended the company’s average maturity to 4.7 years.

The payout forecast for the 2008/09 season is unchanged from the revised forecast of $5.10 per kilogram of milksolids (kgMS) announced in late January. This would be Fonterra’s third highest payout.

Chairman Henry van der Heyden said the interim result was satisfactory given the global economic meltdown and its impact on dairy markets. “Despite this climate, our payout is still forecast to be $5.10, and our result shows Fonterra to be in reasonable shape given the turmoil in the world economy - it’s a tough time for everyone and Fonterra is no exception. We have taken, and will continue to take, the tough decisions to manage the business prudently in the current climate and get our farmers the highest payout.”