Fonterra profit slumps but payout high

TIM HUNTER
Last updated 09:41 26/03/2014
John Wilson and Theo Spierings
PHIL REID/Fairfax NZ
Fonterra bosses John Wilson and Theo Spierings.

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Fonterra's half-year net profit has plunged 53 per cent as a record high payout to farmers led to soaring costs, despite healthy sales gains.

The net profit for the six months to January 31 was $217 million, down from $459m a year earlier.

Fonterra's milk costs are tied to global commodity prices, whose high levels boosted interim revenue by 21 per cent to $11.43 billion.

"The past six months has been a period of mixed fortunes for the co-operative," Fonterra chief executive Theo Spierings said.

The dairy giant collected a record supply of milk from its farmer shareholders in the peak October-November period, while overall supplies for the seasons were up 4 per cent.

"We processed as much of this milk into the higher-returning milk powder product streams (reference commodity products) as we could," Spierings said.

"However, our current asset footprint meant that around 25 per cent had to be processed into cheese, casein and other non-reference commodity products which earned negative returns over the period."

Fonterra chairman John Wilson confirmed the forecast farmer payout for the year of $8.65 a kilogram of milk solids, up from $5.84 last year.

The interim dividend would be cut from 16 cents a share to 5c payable on April 17, as previously signalled.

The co-operative said it would fast-track its capital investment plans to improve its production capacity and flexibility, helping its future profitability when milk powder prices were high.

"This will result in additional capital expenditure of $400m to $500m over the next three to four years," Spierings said.

TROUBLED TIMES

Last August Fonterra sparked a worldwide product recall and global food-safety scare, when it admitted there could be a bacteria in one of its products which could cause botulism, a severe form of food poisoning.

The product suspected of containing the bacteria was commonly used in infant formula.

Several countries began blocking dairy products from New Zealand in the wake of the scare, which turned out to be a false alarm.

Prime Minister John Key and Fonterra chairman John Wilson went to China last week on a trip firmly aimed at winning back the media and mothers of New Zealand's largest trading partner.

Earlier this month, Fonterra indicated it would plead guilty to charges laid by the Ministry for Primary Industries (MPI) over the worldwide food-safety scare.

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The charges include failing to meet export standards and failing to alert the regulator that exported product was unfit for purpose.

- Fairfax Media

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