Hart firm scores 7pc profit lift

An improved full-year profit for Graeme Hart's New Zealand Dairy Foods (NZDF) - 7 per cent up on last year - will have reassured Fonterra that it was justified in paying a top price for the company's prized brands this month.

Yesterday's result was the last for NZDF in its present form after Fonterra's purchase of such market-leading brands as Anchor milk and Fresh 'n Fruity yoghurt.

Sources said the final price paid by Fonterra was proportionately in line with Hart's original target for the total business - as much as $1 billion including the debt.

The complex deal involved the swapping of Fonterra's less dominant domestic dairy brands and a cash payment of $338 million.

Analysts say Hart has certainly succeeded in extracting a premium for the additional strategic value Fonterra will be able to extract.

Fonterra has highlighted the Fresh 'n Fruity yoghurt brand as one with international potential.

Yesterday's solid NZDF result will at least allay any fears that the dairy giant has bought a lemon.

NZDF chief executive Peter McClure said the result was driven by a good performance across all areas of the business.

Given that he is himself part of the asset swap - and will soon be working for Fonterra - he was understandably diplomatic about where the improvements were made.

McClure put the successful year down to "a little bit of growth and a little bit of cost work".

Rather than any major movements in market share there had been category growth in the whole consumer dairy sector, especially in the cultured foods area.

While there were no parts of the business with any significant issues, exports had been "a bit tough" because of the high dollar.

"We've lost a bit of volume there but managed to maintain our margins," McClure said.

NZDF's export business had turnover of about $40 million out of the firm's total revenue of $535 million.

The cost of fresh milk had risen during the year but those costs were passed on to consumers at the end of February.

McClure said cost increases for other raw ingredients were marginal and had been absorbed.

He was "feeling pretty good" about the restructuring process in the wake of the Fonterra deal.

"It's quite complex," he said. "To try and to get it completed in such a short time there is a lot of work going on around systems and distribution and ... where everyone's going to sit. Those kinds of things."

About 1500 Fonterra workers will switch sides to work for NZDF and 800 NZDF workers will head to Fonterra as part of the deal.

NZDF's Anchor milk business and its cultured foods business will be combined with Fonterra's Mainland cheese business to create the new domestic dairy group.

"It gives us a pretty solid lineup of number one brands," McClure said.

Hart will take the Meadow Fresh brand and Kiwi Meats business.

McClure was circumspect about any ambitions Hart might have to recapture the number one dairy brand position.

"I'm sure Graeme will have a plan for what he's acquired."