Farmers to be given 2c top-up

1.00pm

Fonterra's farmers are to be given a 2c/kg top-up to the 2003-2004 payout, lifting it to $4.25/kg milksolids, 17 per cent up on the 2002-2003 payout of $3.63.

The company announced today it will distribute $5.1 billion to shareholders, up $969 million on the 2002-2003 season. This included a $576 million contribution from value-added activities, up 7 per cent, despite a flat performance by its arm selling fast-moving consumer brands, New Zealand Milk.

An average farmer producing 98,000kg of milksolids this season will be paid $416,500, including $2000 from the 2c/kg increase announced today.

Fonterra executives said in a statement they had retained only a $16 million net surplus for the 2003-2004 season, compared with a retention last year of $284 million from gains on sales of businesses.

The co-operative's total revenues were down 5.2 per cent to $11.8 billion, for the year to May 31, 2004 but Fonterra chairman Henry van der Heyden said the total payout distribution was up as a result of higher commodity prices, tight control of costs and Fonterra's ability to rapidly convert strong milk volumes in New Zealand into products.

He said the final boost to farmers' incomes was made possible by a strong finish to the financial year in which the company collected a record 1201 million kg of milksolids in New Zealand, sold a record 2.4 million tonnes of dairy ingredients, lifted total value-added earnings and closely controlled costs.

Mr van der Heyden said the company delivered the full annualised merger benefits of $310 million, five months ahead of its October 2004 schedule.

"As Fonterra approaches its third anniversary, its full potential is starting to show through," he said.

"Farmers can have increased confidence that Fonterra is on a solid growth track".

Mr van der Heyden said Fonterra's balance sheet also strengthened considerably during the season, with tight working capital management and close control of capital expenditure reducing debt levels from $4.4 billion last season to $4.0 billion as at May 31.

The co-operative's cashflows from operations were $779 million, up $245 million on the previous season.

Fonterra chief executive Andrew Ferrier said the 17 per cent improvement in payout was despite higher milk costs from increased volumes of milksolids and the higher price paid to suppliers.

At the same time, Fonterra reduced its total cost of goods sold by $142 million to $9.7 billion in the season, and operating expenses were down by $246 million to $1.8 billion with close control of costs a contributing factor.

Operating expenses benefited from reduced distribution and storage costs, lower management costs, cost reductions in New Zealand Milk, and the impact of a higher New Zealand dollar on international operating costs.

Mr Ferrier said the reduction in revenues mainly stemmed from New Zealand Milk selling off businesses in Britain and Latin America. Last year's financial statements included $404 million of operating revenues from businesses since divested and $315 million of surplus on these sales, which was recorded as revenue last year.

The divestments included businesses moved into joint ventures with Arla and Nestle, from which Fonterra now reported returns on an equity accounting basis.

The stronger New Zealand dollar also hurt Fonterra's revenues compared to the previous year: revenues were converted in the season at an average rate of US52c compared with US48c in 2003. This was equivalent to a cost of 45c/kg of milksolids and could only be partially offset by higher commodity prices, which were on average up 30 per cent in US dollar terms.

This increase benefited the ingredients business, which increased revenues on the back of record sales of 2.4 million tonnes, including 2 million tonnes produced in New Zealand. Ingredients revenue increased by $500 million to $9.5 billion in the current year.


- NZPA