Scoop has an Ethical Paywall
Work smarter with a Pro licence Learn More

Video | Agriculture | Confidence | Economy | Energy | Employment | Finance | Media | Property | RBNZ | Science | SOEs | Tax | Technology | Telecoms | Tourism | Transport | Search

 

Fonterra Delivers Solid Performance In First Half

News Release
28 January 2004

FONTERRA DELIVERS SOLID PERFORMANCE IN FIRST HALF

Good demand in international markets coupled with improved commodity prices enabled Fonterra to achieve a solid operating performance in the six months to November 30, 2003, while reducing its debt, costs and demand for working capital, Chairman Henry van der Heyden said today.

In contrast to the same period last year, when Fonterra had a significant inventory surplus, the co-operative began this season with appropriate stock levels due to its aggressive de-stocking programme last year.

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

"We saw world economic conditions gradually improve and this helped restimulate the market. The growth in consumption coincided with supply constraints caused by lower production over Europe's summer heat wave and Australian supply being affected by drought. As a result, we were able to take advantage of the firmer prices for most commodities."

Revenues in the six months were strongly impacted by the strengthening New Zealand dollar resulting in 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," said Mr van der Heyden. These negative effects were 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 of $350 million to $5.6 billion for the six months to 30 November 2003, compared to $6.0 billion in the corresponding period last year.

Advertisement - scroll to continue reading

Are you getting our free newsletter?

Subscribe to Scoop’s 'The Catch Up' our free weekly newsletter sent to your inbox every Monday with stories from across our network.

Fonterra achieved a $330 million reduction in its total cost of goods sold ($4.6 billion to November 30 2003 versus $4.9 billion in November 30 2002). Mr van der Heyden said this included approximately $100 million in real cost reductions. These came from the ongoing realisation of merger benefits and lower manufacturing costs. The lower volumes were also reflected in the reduction in the total cost of goods sold.

"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," said Mr van der Heyden. He said that with dairy being 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.

"However, 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/MS in December.

Fonterra's balance sheet was further strengthened during the period with tight working capital management and close control of capital expenditure contributing to a more than $530 million reduction in net debt since 31 May 2003.

"Our debt levels are the lowest they have been since the merger, so we are very well positioned to take advantage of investment opportunities to accelerate growth in the business and build our value-added earnings," said Mr van der Heyden.

Chief Executive Andrew Ferrier said Fonterra was increasing its focus in terms of time and investments in growing its value-added businesses.

"We are taking a balanced approach here, looking at short-to-medium term opportunities which will deliver us immediate growth and complementing these with investments which we believe will secure us more long-term growth prospects."

He cited the co-operative's work to secure a stake in the Chinese dairy company, Shijiazhuang Sanlu Group Co Ltd, as a longer-term investment initiative.

"China is expected to offer growth opportunities, as growth in dairy consumption is expected to remain well above China's domestic production capacity. We have a good track record in the market and achieve good sales there, so our experience makes us confident we can achieve long-term growth through the Sanlu investment if we are successful in our negotiations."

Fonterra is also making investments to produce high-value, specialist products marketed by its Growth Businesses in Ingredients. As a result, the co-operative's Hautapu site will begin production of Lactoferrin, a minor component in milk with clinically proven anti-viral and anti-microbial properties. While, at just over US$30 million, the international market for Lactoferrin is small, it is growing at more than 20% a year.

"The Lactoferrin manufacturing process also creates a number of future opportunities for Fonterra to develop and market other specialty nutritional ingredients," said Mr Ferrier.

Fonterra is also investing to expand production of pharmaceutical grade lactose at Kapuni. Pharmaceutical lactose is used in pills and other drug delivery systems. Fonterra's Pharmaceutical Lactose business is continuing its strong growth trend with revenues up 14%.

Mr Ferrier said both investments, the value of which is not being disclosed, reflect Fonterra's increasing focus on growing its value-added earnings.

"This is a priority for us and will require us to be prepared to make further investments when we are confident they will deliver growth, either in the short term or the longer term."

Despite experiencing higher raw material costs because of higher commodity prices, and the negative economic environment affecting the DPA operations in Brazil, Argentina and Venezuela, our consumer products business, New Zealand Milk, is still performing to plan and was continuing to invest in expanding its brand portfolio through additional value-added products.

The company leveraged the strong market reputation of its ANLENE milk powder brand in Asia and launched ANLENE Gold in Taiwan, a milk powder with added glucosamine that promotes healthy joints. It is a first for New Zealand Milk and is aimed at the 50+ age group.

Other new products included Mainland's "every day" organic cheddar launched in New Zealand, and, in Australia, Peters & Brownes' ZOOM, a new category product which is a fresh milk meal replacement with 16 added nutrients, as well as high fibre, calcium and protein. Its September 2003 launch saw incremental growth in the flavoured milk category and further growth is expected following an extensive promotional campaign.

"Through our Bonland subsidiary, we are also entering the rapidly growing Australian snack food category with the acquisition of Favourite Foods Ltd, a niche player in branded retail snack food products," said Mr Ferrier.

Second half prospects for Fonterra were favourable with commodity prices and demand expected to remain firm.

-Ends

© Scoop Media

Advertisement - scroll to continue reading
 
 
 
Business Headlines | Sci-Tech Headlines

 
GenPro: General Practices Begin Issuing Clause 14 Notices

GenPro has been copied into a rising number of Clause 14 notices issued since the NZNO lodged its Primary Practice Pay Equity Claim against General Practice employers in December 2023.More

SPADA: Screen Industry Unites For Streaming Platform Regulation & Intellectual Property Protections

In an unprecedented international collaboration, representatives of screen producing organisations from around the world have released a joint statement.More

 
 
 
 
 
 
 
 
 
 
 
 

Join Our Free Newsletter

Subscribe to Scoop’s 'The Catch Up' our free weekly newsletter sent to your inbox every Monday with stories from across our network.