Fonterra puts extra $36m in farm kitty

Henry van der Heyden says Fonterra production soared.

Dairy farmers received the end-of-season bonus they hoped for after Fonterra yesterday announced an average payout boost of about $3000 a farm - $36 million extra for the rural economy.

The final payout of $4.10 a kilogram of milksolids was up from a forecast of $4.07/kg.

The 3c/kg improvement followed a strong sales performance by Fonterra.

It said better returns from value-added activities, cost cutting, record sales and higher-than-forecast commodity prices had contributed to the size of the payout.

Average prices were 2.4 per cent up, pushed by protein and milk powder sales.

Chairman Henry van der Heyden said a strong final quarter, including a late season production surge, was the key to the payout increase.

"We shifted nearly 100,000 tonnes more in the last quarter than we did in the same period last season."

When mutiplied by the record production of 1.21 billion kilograms of milk solids, the 3c/kg comes to $36.3 million.

The payout is also 25c/kg better than Fonterra forecast at the start of last season.

But the total payout for 2005/06 - about $5 billion - will be $300 million less than the previous year, reflecting the higher values for the dollar that prevailed through much of last season.

The average conversion rate was US66c against US61c the previous season.

But Fonterra had much to trumpet about.

Revenue, at $13 billion, was up 6 per cent; ingredients division sales were up $663 million at $9.2 billion.

The operating surplus was up 21 per cent at $725 million.

The consumer brands business' operating revenue - excluding one-offs - was up $192 million to $3.7 billion. The operating surplus of $288 million was up 9 per cent.

The $5 billion total payout to farmers included returns from value-added activities of $578 million, or 48c/kg of milk solids - back to the 2003/04 level - after a drop to 45c/kg in 2004/05.

"So overall, good solid organic growth in the brands business," said chief executive Andrew Ferrier, who had forecast an extra $120 million-plus in profits from value-added activities.

Van der Heyden said the brands business results had exceeded sales and profit targets last season, "at the same time as paying their highest prices for commodities in five years".

Ferrier said the result reflected a good overall performance, growth, the benefits of projects from earlier seasons and close attention to costs.

Fonterra saved more than $130 million last season in a cost-cutting drive.

More savings are planned this season, although Fonterra has refused to say how many jobs it expects will be lost during restructuring.

Chief financial officer Guy Cowan also said about $100 million had been spent during the year on restructuring that would result in cost savings.

Debt had risen to $5.6 billion by season's end, up $1.3 billion, because of factors such as acquisitions, buying new property and plant, and a weakening dollar.

This contributed to higher interest costs of $364 million compared with $269 million the previous season. But Cowan said debt remained at a comfortable level.

Van der Heyden said wet and cold weather had hurt some farmers this season, but he did not believe Fonterra's supplies would be significantly affected.

He said about 100 new suppliers were joining Fonterra.