Fonterra posts small gain in revenue

Fonterra Co-operative today said its first half revenue was up 2 per cent at $5.74 billion, from $5.63 billion in the previous same period.

Trading revenue was up 2.0 per cent at $5.68b, from $5.57b in the same six month period a year earlier.

However, the firm's net profit after tax for the half was down 6.3 per cent at $15m, from $16m.

At the earnings before tax level, Fonterra posted a surplus of $31 million, down 40.4 per cent on the previous November half's $52m.

Fonterra said in a statement to the sharemarket that strong global demand for dairy commodities and continued firming in prices were behind its mild increase in revenue.

"Commodity prices reaching historically high levels helped offset a stronger New Zealand dollar and lower production volumes in New Zealand caused by unfavourable weather conditions," Fonterra said.

Chairman Henry van der Heyden said the higher forecast payout of $4.30/kg milksolids for the 2004/05 season meant farmers' incomes would, on average, "be broadly in line with those of last season".

He said Fonterra was essentially paying more for less with the forecast payout up 5c on last season, which would go some way to offsetting the "impact of lower production on farmers' incomes".


Production for the first half of the season was below expectations, but gradually improving, Mr van der Heyden said.


However, he said Fonterra expected a shortfall for the full year, ingredient production down by about 75,000 tonnes.


While domestic production was down, Fonterra was able to meet customer commitments for the rest of the season with its global sourcing strategy.


The lower volumes meant cost of goods sold, excluding payments to suppliers, fell $60m to $2.3b.


Operating expenses rose by $56m, or 6.6 per cent, to $897m, largely due to prior year non-recurring items.


Chief executive Andrew Ferrier described the financial performance as "good", and said sustained progress in all areas of business underpinned the result.


He said the November half showed how Fonterra's financial performance was linked to a mix of commodity prices, exchange rates and, this season, climatic conditions.


"These dominant factors are the ones we have least control over," he said in the statement to NZX.


"That is why we continue to be unrelenting in our efforts to drive the most efficient, low cost structures across the business."


Fonterra's global milk diversification strategy was, Mr Ferrier said, "showing through, with our international dairy ingredient supply partnerships balancing the shortfall from New Zealand".


The strategy meant Fonterra could manage supply risks for customers, who placed store in security of supply.


He expected prices to "hold through the remainder of the season", and said Fonterra's currency hedging had helped absorb the impact of the weakening US dollar on revenues.


Meanwhile, Mr van der Heyden said Fonterra's debt position was stable in the November half, with a balance day debt to debt plus equity ratio of 46.4 per cent, from 45.6 per cent in the same period in 2003.


Total net interest bearing debt was essentially unchanged at $4 billion, while total assets had increased to $11.5b, from $11.1b.


- NZPA