Fonterra profit means $2.9b for farmers

By PHILIPPA STEVENSON

New Zealand's largest company, Fonterra, has reported its first financial result - an operating profit of nearly $3 billion for the six months to November.

The mega dairy co-op's turnover for its start-up period in business was $7 billion, reflecting good international market prices at the term's beginning, the company said.

In comparison, the country's largest listed company, Telecom, made a profit of $643 million in the year to last June on turnover of $5.6 billion.

Chief financial officer Graham Stuart described Fonterra's progress as "satisfactory".

"The challenge ahead of us is to maintain our performance in the more difficult international environment for the remainder of the financial year."

World prices have fallen recently, especially for milk powder.

In the same six months last year, the Dairy Board's business units New Zealand Milk and NZMP had combined revenue of $4.42 billion. The two manufacturing companies, Kiwi Dairies and New Zealand Dairy Group, which formed Fonterra with the board also had their own revenue-generating business which is now reflected in the new company's turnover.

Last year, the two companies paid suppliers $5 per kilogram of milksolids, or around $5 billion in total, representing the combined profits of their own activities and those of the Dairy Board. That meant the average farm producing nearly 79,000kg of milksolids had a return of nearly $400,000.

The figures announced yesterday are close to half of Fonterra's forecast for its full year, to the end of May - an operating profit of $5.9 billion, on revenue of $14.1 billion, with all but $13 million of the profit to go to its 13,030 farmer shareholders.

But the seasonal nature of dairy farming means the company's first-half financial performance does not necessarily indicate the likely full-year outcome.

The company recently said it hoped to pay $5.40 a kg this year but it could slip to $5.20 a kg, suggesting the average farmer's return would be between $410,000 and $426,000. But milk production is ahead of last year so farm returns could be even higher.

Mr Stuart said it was assumed the $2.9 billion surplus would be paid to suppliers. Fonterra's board would decide the final payout at the end of the financial year.

Fonterra said it could not provide figures that would allow comparison with the combined performance of its formation companies.

Analysts were unable to comment on the company's performance, "given the nature of the beast" as a supplier-owned co-operative whose shares are not traded publicly.

Broker Neil Craig of ABN Amro Craigs said the result would have no impact on Fonterra's $200 million capital notes which had been "trading nicely."

The statement listed non-current assets of $6.1 billion, including estimates of fair value adjustments to fixed assets ($275 million) and brands ($1.6 billion).