Fonterra posts $257m surplus for 2002/03

11.00am

New Zealand's largest company, Fonterra Cooperative Group today posted a May year net surplus of $257 million, compared with a loss last year of $50 million.

Turnover was down 12.4 per cent at $12.06 billion compared with $13.77 billion last year.

Fonterra acting chief executive Jay Waldvogel said that in a year that saw record milk volumes and record production, Fonterra also achieved record sales internationally despite difficult market conditions and a steadily rising exchange rate for the New Zealand dollar.

The company's final payout for the 2002-2003 season was set at $3.63/kg milksolids, before a 3c/kg deduction for industry good purposes.

The payout was 3c/kg above the $3.60 forecast in February, but significantly down on the $4.50 predicted at the start of the season, and even further behind last season's record $5.33/kg.

Fonterra said this season's payout would give Fonterra's 13,000 shareholders and 5000 sharemilkers $4.1 billion.

It also predicted a $3.80/kg payout for the current season.

Fonterra chairman Henry van der Heyden said in a statement the company had made a "huge effort" to tightly control costs and secure sales in a difficult market where commodity prices were on average 24 per cent lower than the previous year and where the New Zealand dollar appreciated by 10c against the US dollar.

He said the currency's appreciation had a direct impact on revenues, eroding them by $850 million (equivalent to 74c/kg millsolids), which was only partially offset by hedging gains of $640 million (56c/kg).

"The board appreciates the final payout this year is much lower than last year's record $5.33/kg," he said.

The payout was funded entirely from revenues, and the company had also recorded a surplus of $284 million -- mainly from the sale of its Latin American assets to Nestle. This capital would not be distributed to farmers because the board believed that generally profits from asset sales should be retained and used to fund new investments. The total operating surplus, including extraordinary items, was $284 million,

"We have ended a very difficult year in the markets in a very stable position," Mr van der Heyden said.

Fonterra's net-of-cash borrowing was $330 million lower at $4.4 billion at the close of the 2002/03 season. At 48 per cent, it was within Fonterra's target debt-to-debt-plus-equity range of 45-50 per cent.

Mr vander Heyden said Fonterra had exceeded its goal of annual total shareholder returns (TSR) of 13-15 per cent. It had delivered a "hedged" TSR of 16.7 per cent for the year (10.2 per cent excluding hedges), after company tax but before personal tax.

Fonterra's fair value share price also increased, by 53 cents to $4.38 for the 2003-04 season.

The co-operative had also reduced the gap between the commodity milk price (CMP) and estimated actual milk return (AMR), bringing it down to 25c/kg milksolids.

But he noted the smaller gap in the important performance benchmark was partly due to changes in the methodology for calculating estimated actual milk returns, rather than improved performance.

Fonterra had improved its management of areas it could control, including the cost of production and sales, inventory and delivery of merger benefits, but areas it did not control, including world demand, commodity prices and the impact of currency movements remained a challenge.

Fonterra's acting chief executive, Jay Waldvogel, said the effect of $1.4 billion drop in revenues, to $12.5 billion, was accompanied by a jump in the exchange rate of the New Zealand dollar from US48c at the start of the season to around US58c at the close.

Total ingredients sales -- excluding sales to Fonterra's own New Zealand Milk arm -- were 2.01 million tonnes, a 31 per cent increase over the previous year. The sales included the entire production for the season, up 11 per cent at 1.94 million tonnes, and the surplus inventory carried over from strong end-ofseason production in the past two years.

With sales to New Zealand Milk and Fonterra's DairiConcepts included, ingredients sales totalled 2.39 million tonnes.

Fonterra collected a record 1148 million kg of milksolids from its farmers, a lift of 3 per cent. "We were able to sell record amounts in a difficult market, and we still were able to lead prices up significantly in the second half," Mr Waldvogel said. Fonterra was $31 million ahead of target this year in delivering annualised merger benefits, achieving $206 million of the total $310 million in benefits due to be captured by October 2004.

Fonterra continued to cut operating costs and expenses, which reduced in total by $634 million, helped by the rising exchange rate.

New Zealand Milk, Fonterra's fast-moving consumer goods business, generated 37 per cent of total annual revenue this season, delivering earnings before interest and taxes (EBIT) of $387 million, 28 per cent higher than last year.

Mr van der Heyden said Fonterra's best estimate of payout for the 2003-200404 season was still $3.80/kg and the company's best chance to boost payot lay in continuing to drive for higher selling prices for commodities, and by continuing to reduce costs and deliver merger benefits.

- NZPA