Fonterra posts drop in sales revenue

3.15pm


Fonterra's earnings dropped to $5.635 billion for the six months to November 30, 2003 from $5.98 billion in the same period of 2002.

New Zealand's biggest company today released its interim result, showing a drop of 5.7 per cent in operating revenue for the six months. The $345 million drop was mostly due to a $361 million fall in sales revenue.

The sales revenue for the six months to November 30 -- the first half of the current dairy season -- was $5.577 billion, 6 per cent down on the corresponding figure of $5.938 billion in 2002.

Fonterra earned other revenue of $58 million ($42 million the previous year) in the six months, and its pre-tax operating surplus was $52 million ($9 million).

Fonterra last July posted a net surplus of $257 million for the full year to May 2003, compared with a loss in 2002 of $50 million.

But Fonterra chairman Henry van der Heyden said today in a statement to the stock exchange that the company's performance in the six months was a "solid operating performance" made possible by good demand in international markets coupled with improved commodity prices.

Fonterra had also reduced its debt, costs and demand for working capital, he said. And stock levels had been "appropriate" compared with the same period in 2002, when there was a significant surplus of inventory.

"We began the year more confident that supply could be better matched with demand, leading to improved prices," Mr van der Heyden said.

World economic conditions had gradually improved and this helped "re-stimulate" the market, with growth in consumption coinciding with supply constraints caused by lower production over Europe's summer heat wave and the effects of drought on Australian supply.

"As a result, we were able to take advantage of the firmer prices for most commodities," he said.

But Mr van der Heyden said revenues in the six months were "strongly impacted" by the strengthening New Zealand dollar, which he blamed for a reduction of over $650 million from the corresponding period last year.

"With opening inventories lower than those of last year, our sales volumes for the first six months were also lower, and this resulted in a further impact on revenues of $150 million."

Mr van der Heyden said these negative effects had been partially offset by stronger ingredients selling prices that contributed over $440 million to revenues over the corresponding period. The net impact of these, and other factors was a reduction in revenues.

Mr van der Heyden said Fonterra cut the total cost of goods sold by $330 million ($4.6 billion to November 30 2003, down from $4.9 billion in November 30 2002), including about $100 million in "real" cost reductions from the continuing merger benefits and lower manufacturing costs.

The rest of the lower cost of goods sold was also attributed to lower sales volumes and the stronger dollar.

"The strength of the New Zealand dollar meant our international overheads were lower, and this, coupled with the deconsolidation of businesses when we established our Dairy Partners Americas partnership, accounts for the remaining reduction," Mr van der Heyden said.

Because dairying was a seasonal business, and peak production not in full swing until October, the half-year accounts were not necessarily an indicator of Fonterra's likely full year performance, he said.

"What we have achieved in our first six months underlines that we have a very stable balance sheet and we are doing well." The amount available for payout, at November 30 2003, was $810 million higher at $2.2 billion than the corresponding period in 2002 and was a factor in Fonterra's decision to increase its forecast payout by 20 cents to $4.15/kg milksolids in December.

- NZPA