Fonterra upbeat despite $300m slump in sales

Andrew Ferrier says the outlook is positive for next year. Photo / Sarah Ivey

Sales have slumped by more than a quarter of a billion dollars but dairy giant Fonterra says life is looking brighter as it slashes debt.

Revenue for the six months ending January 31 was $7.7 billion, down from $8 billion the previous year.

Chief executive Andrew Ferrier said there had been volatility in international prices and exchange rates during the period.

However, lower average selling prices that wiped more than $1.6 billion off revenue had been largely offset by increased sales volumes worth $1 billion and a positive impact from net foreign exchange worth $300 million, Ferrier said.

Customer demand had increased during the period as consumer confidence improved, he said.

"Although there is an element of uncertainty as to how supply and demand factors will influence prices, the recent stability means the outlook is positive for the balance of this year and into 2010/11."

During the past five months the average selling price for whole milk powder in Fonterra's online auction had stayed within a band of about US$3250 ($4600) to US$3600 a tonne. "In aggregate I think we're very happy where we are now," Ferrier said.

Fonterra reaffirmed its milk price forecast for this season of $5.70 a kg of milksolids and a distributable profit range of 40-50c a share, of which 10-30c would be retained.

Fonterra's balance sheet had been bolstered by a net equity inflow of $263 million after a capital structure change allowing farmers to buy more shares than required by their milk production.

Chairman Sir Henry van der Heyden said the capital structure changes had strengthened the co-operative and provided a more stable base as it pushed forward with its strategy.

The board was talking to the Shareholders Council on the next step which planned to introduce share trading among farmers but there was no timeframe, van der Heyden said.

The move to farmer share trading would tackle the issue of redemption risk, in which capital can wash in and out of the business because of issues including drought, he said.

However, the co-operative would remain owned and controlled by farmers. "We've made it very clear through last year that any public listing is actually taken off the table - that is the position of the board, it remains the position of the board and it will remain the position of the board."

Fonterra will pay an interim dividend of 8c per share on April 20. Milk production was running nearly 2 per cent ahead of last year, with the South Island up 8-9 per cent and the North Island, which was responsible for two thirds of production, down 1-2 per cent.

"We expect to be up [by the end of the year] but I don't think we'll hold on to the roughly 2 per cent where we are today," van der Heyden said.

Based on last year's production of 1.28 billion kgs the forecast milk payout could be worth $7.3 billion before any increase in production.

Federated Farmers Dairy chairman Lachlan McKenzie said confidence that Fonterra was on the right track had been vindicated.

"This time a year ago, Federated Farmers applauded Fonterra's board and management for navigating some of the roughest trading conditions in a generation," McKenzie said.

"Fonterra suppliers are still in line for the second best payout since formation, showing just how well it's done."

Fonterra Shareholders' Council chairman Blue Read said it was satisfying to see the co-operative's balance sheet strengthened.