By PHILIPPA STEVENSON agriculture editor
Expert analysis of Fonterra's half-year result has raised concern the giant dairy co-op will have to further cut its payout to farmer shareholders.
Alan Robb, a senior lecturer in accountancy at Canterbury University, said Fonterra's result for the six months to November showed a worrying trend in
net cash flow from operations.
"Because of the falling commodity prices and the appreciating New Zealand dollar operating cash inflows have fallen faster than savings in operating cash outflows," he said.
"In the latest period Fonterra's net operating cash flow was a surplus of only $236 million compared with $855 million in the comparable period of 2001.
"Fonterra incurred a negative operating cash flow of over $500 million in its second half last year. If a similar situation develops in the six months to May 2003 the possibility of a payout of less than $3.60 per kilogram of milksolids could be on the cards."
Fonterra's cut in forecast payout to $3.60 last month was the third reduction in a year since it predicted a $4.50 payout in February last year.
The company had made progress in reducing costs but calculating to what extent had been difficult because of changes in presentation and omissions or over-emphasis of some account items, Robb said.
"In the previous half-yearly report the expected payout to farmers was shown as the balance after meeting all other expenses including interest and tax.
"Now the payout is shown above the line. Comparative figures have been adjusted, as good presentation requires, but this change masks the fact that the payment to suppliers is in fact what remains after meeting all other outgoings."
Robb said it was misleading for Fonterra to treat suppliers payments as an operating expense in a table in its financial report.
"It appears to show that total operating expenses have fallen by $995 million from $6.96 billion in 2001 to $5.97 billion in 2002. This drop of 14 per cent cannot be claimed as evidence of Fonterra's success in taking costs out of the business.
"It's affected firstly by a rundown of inventory, or costs incurred in previous periods. Secondly it is affected by the payout to farmers. Few suppliers would praise the efficiency of management for cutting their payout."
The company had not included the volume of milk solids processed in each period as it had last year, Robb said.
