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Fonterra Holds Payout Forecast

15 December 2006

Fonterra Holds Payout Forecast

Fonterra Co-operative Group has reaffirmed its forecast payout of $4.05 for the 2006/07 season. The forecast payout comprises a milk price component of $3.60 per kilogram of milk solids, and a forecast value add component of 45 cents.

Chairman Henry van der Heyden said "the growing strength of the New Zealand dollar is having an increasingly negative impact on payout. However, we are capitalising on the recent increases in commodity prices to offset this very strong dollar, resulting in a stable forecast."

Mr van der Heyden said Fonterra was holding with its 45 cent forecast for the value add dividend component of payout, despite the combined impact of the high New Zealand dollar and the fact that rising commodity prices were putting increasing pressure on value-add margins.

Yesterday's meeting of the Board adopted an interim Fair Value for Fonterra shares for the 2007/08 season of $6.56, unchanged from the May 2006 final determination. The independent valuer, Duff & Phelps, assessed the interim Fair Value range for the 07/08 season at $6.40 to $7.43, with a midpoint of $6.91.

Mr van der Heyden said that the valuer had advised that it is undertaking a review of the treatment of taxation in the valuation process and this will be completed by May in time for the final determination.

"This is a highly technical matter and as this is an interim valuation only, the Board felt it prudent to maintain the status quo ahead of the final valuation of our shares in May for the coming season."

At its meeting the Board also agreed in principle to paying a one-off autumn premium for milk produced in the last few months of this season. The premium will be an opportunity for farmers to improve their cash flows through higher production.

"We will be advising farmers of the detail of the premium next week. We are able to offer this seasonal premium because market conditions are currently buoyant, global supply is constrained and Fonterra has confidence that we can quickly convert any increased autumn production into sales before the end of the season," said Mr van der Heyden.

"We think farmers will welcome a chance to boost revenue at a time when cash flows are tight and we would expect farmers who are in a position to increase supply will take advantage of this opportunity after weighing up the costs involved," Mr van der Heyden said.


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