Product mix cuts Fonterra profit

Farmer shareholders on on track to receive a record cash payout of $8.75/kgMS, consisting of a farmgate milk price of $8.65/kgMS and an estimated dividend of 10c per share. This contrasts to a cash payout of $6.16/kgMS last year.

Chief executive Theo Spierings says the season saw record milk volumes collected across the October - November peak period, and milk volumes collected for the season to date increased by 4% on the prior year to 1,120 million kgMS.

"We processed as much of this milk into the higher returning milk powder product streams (Reference Commodity Products) as we could. However, our current asset footprint meant that around 25% had to be processed into cheese, casein and other non-reference commodity products which earned negative returns over the period," says Spierings.

The divergence between reference commodity product and non-reference commodity product returns accounted for the cooperative's highest-ever forecast farmgate milk price being 70 cents per kgMS less than that calculated in the Farmgate Milk Price Manual.

Fonterra chairman John Wilson says a forecast cash payout of $8.75 represents a $13.8 billion injection into the New Zealand economy. "An estimated 50 cents in every $1 of payout is spent by our farmers locally, meaning the benefits will be felt in urban as well as rural communities," says Wilson

"Our current season forecast reflects sustained strong milk powder prices which, on average, are ahead by US$1,200 per tonne compared to last season.

"Although we are forecasting the highest-ever farmgate milk price returns and have achieved strong revenue growth, NPAT (net profit after tax) is down 53% per cent to $217 million. Normalised EBIT (earnings before interest and tax) is also down 41% to $403 million, compared with the very strong earnings in the first half of last year," says Wilson.

Interim result highlights:

• Forecast Cash Payout for the 2013/14 Season of $8.75, up 42%
- Farmgate Milk Price $8.65 per kgMS
- Estimated full year dividend of 10 cents per share
• Revenue $11.3 billion, up 21 per cent
• Normalised EBIT $403 million, down 41%
• Net profit after tax (NPAT) $217 million, down 53%
• Earnings per share 13 cents, down 54%
• Interim dividend of five cents per share