Norgate upbeat as cashflow data worse than forecast

By PHILIPPA STEVENSON

Fonterra chief executive Craig Norgate says a cashflow $525 million worse than forecast is still extremely positive for the dairy giant.

The new company, formed last October, yesterday issued its first annual report, confirming figures issued last month showing a $50 million loss in the year to May after paying farmer shareholders $5.9 billion.

The company was criticised then for omitting cashflow data from its annual results presentation. A forecast last October in an investment prospectus of cashflow of $879 million had deteriorated to $354 million.

Yesterday, Norgate said several factors including plunging international commodity prices and the company's investments, mainly factory expansions, had had an impact.

"Yes, it's worse than what was forecast just prior to Christmas. That partially reflects the situation in the marketplace and that at balance date we were holding more inventory than we would have liked to."

Inventories were now down on July last year, so good progress had been made turning them into cash, Norgate said.

The company had record turnover of $13.9 billion but to some extent the record season was a distant memory, he said.

The low world commodity prices have already forced the company to forecast payouts to farmers for this year of at least $1 billion less than the one just finished.

Norgate said the report showed the strength of the company's balance sheet for the first time now it was not divided between Kiwi and New Zealand Dairy Group and their marketer, the Dairy Board.

Total borrowings of $4.5 billion were $647 million higher than forecast.

The company was also caught out by a need to value US dollar-denominated overseas assets at an exchange rate of 47.5USc to the kiwi dollar, compared with its budgeted 43USc.

Equity of $4.4 billion was $685 million lower than the forecast $5.1 billion, and the report blamed this partly on "the fair value" of assets and liabilities $471 million less than forecast.

Also, an additional $249 million having to be provided as a foreign currency translation reserve was partially offset by $214 million in contributions from owners which had also not been forecast.

The company said one highlight was progress ahead of schedule in realising the merger benefits promised to shareholders in the run-up to company formation at $74 million, exceeding its May 31 target by $43 million.