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Current as of 24/02/17 07:39PM NZST

Fran O'Sullivan: Fonterra makes the right call

Fonterra chairman John Wilson. Photo / Alan Gibson
Fonterra chairman John Wilson. Photo / Alan Gibson

Fonterra has made the right call by accelerating dividend payments instead of extending its dairy farmer shareholders more support through a loan package which will hit $383 million by April.

This is a move which will also find favour with bankers to the stressed dairy sector.

The Reserve Bank has stress-tested the effect of various farmer debt scenarios on the New Zealand banking system.

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Not only will the early dividends ensure that farmers get access to additional cash at time when cash flows are under extreme pressure. But it will also ensure that farmers do not unnecessarily pile on more debt - assuming their bankers will allow this in the first place - and instead focus them on achieving further efficiencies to get their stressed balance sheets into shape.

Fonterra chairman John Wilson stressed the two dividends (May and August) will be subject to the board's approval at the time and Fonterra's financial performance continuing to support its forecast earnings per share of not less than the current 45 to 55 cents forecast range per share.

It is also clear that the major reengineering of the business which chief executive Theo Spierings embarked on in the middle of last year is paying dividends.

The ongoing shift to higher value products has contributed to a 123 per cent lift in the interim net profit to $409 million.

Fonterra's net debt levels are still high and the market will be watching closely to ensure the foreshadowed reduction the gearing ratio occurs.

Wilson and Spierings will give their take on Fonterra's performance at 10.30 am.
Watch out for Business editor at large Liam Dann's online coverage.

- NZ Herald

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Head of Business for NZME

Fran O'Sullivan has written a weekly column for the Business Herald since its inception in April 1997. In her early journalistic career she was a political journalist in Wellington and subsequently an investigative journalist who broke many major business stories including the first articles that led to the Winebox Inquiry in both NBR and the Sydney Morning Herald. She has specific expertise in relation to China where she has been a frequent visitor since the late 1990s. She is a former Editor of the National Business Review; has twice been awarded Qantas Journalist of the Year and is a multiple winner of the Westpac Financial Journalism Supreme Award.

Read more by Fran O'Sullivan

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