Tuesday, 22 May 2012 11:29

Fonterra lowers forecast

Written by 

Fonterra has dropped its forecast farmgate milk price by 30c for the current season to $6.05 and is forecasting a $5.95-$6.05 payout range for the 2012/13 season.

The 30c decrease in the dairy giant's forecast farmgate milk price for the current season to $6.05kg/MS is in response to softening global dairy commodity prices.

The forecast net profit after tax range is unchanged at 40-50c a share, meaning a forecast payout range before retentions is $6.45-$6.55.

Fonterra also announced a lower opening forecast payout for the coming 2012/13 season starting June 1, 2012, reflecting an outlook for higher dairy production around the world flowing through to lower international dairy prices. The opening forecast payout range before retentions is $5.95-$6.05, comprising a farmgate milk price of $5.50kg/MS and a forecast net profit after tax range of 45-55c per share.

The cooperative has also set the Fair Value Share (FVS) price for the 2012/13 season at $4.52 per share, the same level as in the current season.

2011/12 forecast Payout range

The updated forecast payout range for this year comprises a lower forecast farmgate milk price of $6.05kg/MS and a forecast net profit after tax range of $570-720 million, equating to 40-50c per share.

As a consequence, Fonterra forecasts that a 100% share-backed farmer will earn on average in the range $6.45-$6.55kg/MS before retentions.

CEO Theo Spierings says the lower forecast farmgate milk price is due to continued softening of commodity prices.

"The Global Dairy Trade trade weighted index has declined 20.3% since our last farmgate milk price forecast of $6.35 in April," says Spierings.

"Dairy production levels in the US and Europe are high, while we continue to have higher-than-normal production levels from New Zealand. All this is occurring at a time of heightened uncertainties in global markets."

Spierings says with the softening of global commodity prices, operating earnings were expected to be marginally ahead of 2011.

2012/13 Opening Forecast Payout

For the new 2012/13 season and financial year, Fonterra is forecasting a farmgate milk price of $5.50kg/MS plus a forecast net profit after tax range of 45-55c per share. This means Fonterra is forecasting that a 100% share-backed farmer will earn on average in the range of $5.95-$6.05kg/MS before retentions.

Fonterra chairman Henry van der Heyden says the opening forecast for 2012/13 reflected a realistic outlook by the board towards global dairy markets over the coming season.

"There's a lot of milk out there and prices have softened," says van der Heyden. "We think that supply and demand should move more into balance later in 2012 which may help ease the downward pressure on prices.

"However, there is no consensus among outside experts on how soon we can expect to see prices recover so it is important that we give our best possible estimates to farmers so they can plan accordingly."

Spierings says Fonterra was currently preparing its budget for the 2012/13 year but was targeting a net profit after tax in the range of NZD$670 million to NZD$820 million, equating to 45-55c per share. The mid point to this forecast is 5c per share higher than the current season mid-point.

The board has yet to forecast a dividend range for 2013. Fonterra's dividend policy is to pay out 65-75% of net profit after tax (adjusted for one-off items and other factors).

Fair Value Share Price

Fonterra has set the fair value share price for the 2012/13 season at $4.52 per share, the same as the current season's price.

The independent valuer, Grant Samuel, assessed a restricted market value range with a mid-point of $4.38 per share. As this is below the current base price of $4.52 that applies during the transition to restricted market value, the fair value share price has been set at $4.52 per share.

Grant Samuel's latest valuation is up 12c per share or 2.8% on its mid-point restricted market value estimate of December 2011 and up 20c per share or 4.8% on last year's mid-point restricted market value. This compares favourably to an increase in the NZX50 of 2.5%.

Spierings says the improved valuation was mostly due to a significantly higher value for Fonterra's Asia-Africa/Middle East consumer business reflecting continued earnings growth. This was partially offset by a lower enterprise value for the Australia-New Zealand consumer business due to a continuation of challenging market conditions.

Under Fonterra's constitution, the valuer is required to assess two valuation ranges: a fair value range for the cooperative, and a discounted restricted market value range reflecting that Fonterra shares can only be held by supplying farmers. As in previous valuations, the valuer has applied a 25% discount to the fair value range to assess the restricted market value range.

End of Season Share Purchases

Fonterra also announced it would not be issuing dry shares during the 2011/12 end of season period prior to the launch of Trading Among Farmers. Shares will still be issued in anticipation of valid increases in farmers' production for the 2012/13 season.

Van der Heyden says the board had taken the decision to minimise the risk of farmers making decisions about purchasing dry shares ahead of receiving the offer documents in support of the launch of Trading Among Farmers.

"Shareholders will be receiving substantial information leading up to the final vote on Trading Among Farmers in June and on the operation of Trading Among Farmers after that.

"We want farmer shareholders to have the best available information on which to base their investment decisions so it makes sense to put a hold on issuing dry shares until all the detail is in.

"No board would encourage people to invest without access to full information and this is a similar situation.

"Then everyone is making their individual decisions based on the same information and are given the same opportunity."

More like this

Fonterra trims board size

Fonterra’s board has been reduced to nine - comprising six farmer-elected and three appointed directors.

Returns 'not good enough'

Fonterra leaders are making their case for offloading the co-operative's $3 billion consumer business, noting that its return on capital has been nowhere near respectable.

Record milk price!

A record farmgate milk price for Fonterra shareholders is all but confirmed for this season.

Chinese strategy

OPINION: Fonterra may have sold its dairy farms in China but the appetite for collaboration with the country remains strong.

Featured

Massey Research Field Day attracts huge interest

More than 200 people turned out on Thursday, November 21 to see what progress has been made on one of NZ's biggest and most comprehensive agriculture research programmes on regenerative agriculture.

Expo set to wow again

Stellar speakers, top-notch trade sites, innovation, technology and connections are all on offer at the 2025 East Coast Farming Expo being once again hosted in Wairoa in February.

A year of global challenges

As a guest of the Italian Trade Association, Rural News Group Machinery Editor Mark Daniel took the opportunity to make an early November dash to Bologna to the 46th EIMA exhibition.

National

OSPRI's costly software upgrade

Animal disease management agency OSPRI has announced sweeping governance changes as it seeks to recover from the expensive failure of…

Machinery & Products

BA Pumps expand

Cambridge based BA Pumps & Sprayers, specialists in New Zealand-made spraying equipment, has acquired Tokoroa Engineering’s product range, including the…

Entries open for innovation award

Fieldays and its renowned Innovation Awards are celebrating their 57th year, marking a longstanding tradition in the agricultural calendar, with…

» Latest Print Issues Online

Milking It

Chinese strategy

OPINION: Fonterra may have sold its dairy farms in China but the appetite for collaboration with the country remains strong.

Not fair

OPINION: The Listener's latest piece on winter grazing among Southland dairy farmers leaves much to be desired.

» Connect with Dairy News

» eNewsletter

Subscribe to our weekly newsletter