New Zealand milk will be used for a new certified organic grass-fed infant formula offering by Bubs Australia Ltd.
Chairman John Wilson says a solid performance during the nine months to April 30 in the current financial year enables the cooperative to declare the 10 cents per share dividend today. Payment will be made on June 7, bringing dividend payments so far this year to 30 cents per share.
"While the milk supply and demand imbalance continues to impact global milk prices and our forecast farmgate milk price, the business is delivering on strategy and has maintained the good performance levels seen in the first six months of the financial year," he says.
"The earlier payment meets our goal of getting cash to farmers earlier in winter when they need it, as we signalled at our interim results announcement.
"Our total forecast dividend is 40 cents per share for the year. We intend to declare another 10 cents per share dividend in August, subject to financial performance continuing to support the current forecast earnings per share range of 45 to 55 cents.
"Our forecast New Zealand milk collection for the current season is 1,558 million kgMS, which is 3% lower than last season."
Chief executive Theo Spierings says despite lower milk collections, ingredients gross margins improved to 16%.
"We have continued to optimise our product mix by adjusting volumes away from reference products, such as whole milk powder, towards non-reference products, such as cheese and casein, to take advantage of the relative pricing," Spierings says.
"A strong sales performance has resulted in ingredients inventory volumes being 11% lower than the same period last year.
"Our determination to convert as much milk as possible into the highest-returning products has resulted in an additional 300m litres on a liquid milk equivalent (LME) basis going to consumer and foodservice products in the past nine months. The continuing strong performance of our consumer and foodservice businesses is reflected in gross margins which have increased to 28%, supported by volume growth of 9% and lower input costs.
"The development of International Farming Ventures to provide access to locally-sourced high quality milk is progressing as planned. We retain our focus on reducing on-farm costs and good operating performance. Earnings continue to be impacted by the development phase of the business and by the low domestic milk price in China."
Looking ahead to the final three months of Fonterra's financial year, Wilson says the cooperative's good operating performance was expected to continue.
"We are maintaining our earnings per share range of 45-55 cents, and our forecast total dividend of 40 cents per share.
"The range reflects assumptions about:
- Normal impact of end of season milk production on NZ ingredients earnings
- Timing of completion of announced business sales in Australia
- No further geopolitical deterioration in Venezuela and Brazil.
Wilson says ongoing financial discipline and the business' performance are resulting in strong cash flow - we are on target to reduce gearing to between 40 and 45% by year-end.
"We will be providing our opening 2016/17 season forecast farmgate milk price for our farmers at the end of May, as we do every year in line with our obligations under the Dairy Industry Restructuring Act."
Fonterra Shareholders' Fund unit holders will receive a part payment of the forecast final distribution of 10 cents per unit.
The record date for the early part payment of the final dividend and distribution is May 30, and the payment date is June 7.
The cooperative and Fonterra Shareholders' Fund will continue to offer a dividend and distribution reinvestment plan, at a discount of 2.5% to the strike price. Eligible shareholders and unit holders who want to participate for this dividend and distribution need to submit a notice of participation by May 31, 2016.