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Fonterra Lifts Payout Forecast To $4.15

For Immediate Release
9 December 2003


FONTERRA LIFTS PAYOUT FORECAST TO $4.15

Improved commodity prices, lower costs and a positive position on forward sales have enabled Fonterra Co-operative Group to lift its payout forecast by 20 cents to $4.15 for the current season.

Announcing the higher forecast today, Fonterra Chairman Henry van der Heyden said the increase, which is the second in four months, reflects a solid performance by the co-operative in the current season.

"We are benefiting from firmer commodity prices in international markets and good demand for our products. In addition, we are in the relatively strong position of having a significant percentage of our forecast production contracted."

Mr van der Heyden said Fonterra had also continued to drive costs out of the business and reduce demand for working capital while reducing debt. The co-operative's interest bearing debt has been reduced substantially since the start of the financial year in June.

"Our debt level per kilogram/milksolids is at its lowest level since the merger." Mr van der Heyden said there had been a real determination across Fonterra to beat the forecast payout of $3.95 per Kg/MS made at the co-operative's annual meeting in September.

Fonterra's foreign exchange policy means the continued rise of the New Zealand dollar will not impact on payout this season, but it will the next.

The policy, which is designed to give farmers more certainty around earnings in the current season, delays the impact of currency gains by a year, as Fonterra converts earnings in the current season at the average exchange rate prevailing in the season before.

"This year's average conversion rate is around US52 cents, which helps us to maintain our confidence in our forecast payout for this season. However, the continued strengthening in the New Zealand dollar means our average conversion rate next season will certainly be higher," said Mr van der Heyden. "This will have an unavoidable impact on payout for 2004/05, and is why we have continued to reinforce to farmers since September the need for caution for next season."

Mr van der Heyden said the Board would be in a position to give a preliminary indication of the 2004/05 forecast payout by March.

Ends

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