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High Prices and Improved Returns Lift Revenues

29 January 2008
Media Release

High Prices and Improved Returns Lift Fonterra Half Year Revenues

Record commodity prices, combined with improved returns from the sale of ingredients and branded dairy products saw Fonterra Co-operative Group increase its half year revenues by $853 million to achieve total revenues of $7.3 billion in the six months to November 30, 2007.

The result saw Fonterra completing the first half of the season with $4.5 billion available for payout to suppliers, compared to $2 billion in the comparable prior period.

Fonterra Chairman, Henry van der Heyden, said the result reflected higher prevailing prices in a market where supply had been tight, as well as good performances across the whole Fonterra business.

“The selling prices achieved in the first half more than offset the higher average exchange rate of 75 cents. At the same time, we continue to see steady increases in the returns from our equity investments. Returns from equity investments, excluding royalties, were up $46 million to $72 million for the six months, with the majority of the increase coming from the performance of DMV Fonterra Excipients. Other investments including Arla Fonterra Foods, San Lu and DPA also contributed in line with expectations,’ said Mr van der Heyden.

Despite cold wet conditions in some North Island regions ahead of the peak, Fonterra’s suppliers achieved a 2.5 per cent increase in production over the same period last season.

The higher milk price means Fonterra’s total cost of goods sold, including payout to suppliers, was $1 billion ahead of the comparable period at $6.4 billion. However total operating expenses, which include sales and marketing, administration and other operating costs were $841 million for the six months ended November 30 2007, compared to $860 million in the prior year.

Fonterra recorded an operating cash inflow of $77 million. This compares to an inflow of $627 million for the comparable time last season when our result was aided by a strong inventory sell down early in the season.

Fonterra Chief Executive Officer, Andrew Ferrier said that while the high commodity prices had put pressure on margins in the ingredients and consumer brands businesses, both parts of the business were performing ahead of expectations.

Mr Ferrier said the co-operative’s overall performance in the first half of the season left Fonterra well placed ahead of the anticipated slight softening of prices signalled in December as a result of global production increases, particularly in the US.

“We are well positioned having completed our first half of the year with $2.5 billion more available for payout and while prices are easing somewhat as supply increases in response to these higher prices, we do not anticipate there will be any sharp falls given the overall strength of the market and other factors such as the demand for grain and its use in biofuels.”

Fonterra has also advised shareholders that the Board has agreed to change Fonterra’s balance date from May 31 to July 31, effective immediately. The change applies to financial reporting only with no change to the June 1 to May 31 season and no change in the dates for the issuing or redeeming of shares.

Adopting the later July 31 balance date would best reflect the financial performance achieved from the total sales of milk supplied in the season. The change has no significant tax or other implications for shareholders with the seasonal calendar remaining the same.

The payout for the current season, subject to retentions by the Board, will be based on the results for the 14 month period from June 1, 2007 to July 31, 2008.


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