Fonterra Announces Record Financial Results for 2011

On its 10th anniversary, the dairy giant reports that record financial performance and record milk production will result in the distribution of $10.6 billion in milk payments and dividends.

Source: Fonterra

A bumper year for dairy exports and strong contributions from overseas businesses have boosted Fonterra to record results for the 2011 financial year.

Fonterra Co-operative Group Limited has announced a record payout (before retentions) of $8.25, comprising a farmgate milk price of $7.60 per kilogram of milk solids (kgMS) for the 2011 milk season and a distributable profit of 65 cents per share for the 2011 financial year.

The payout (before retentions) is $1.55 ahead of the prior period’s $6.70 and exceeds the previous record of $7.90 achieved in 2008. The cash payout (comprising farmgate milk price plus dividend) of $7.90 is also a record and is $1.53 higher than the prior period’s $6.37.

Other highlights of the financial result include:

• A 13% increase in after-tax profit to $771 million for the year ended July 31, 2011.
• A 19% increase in revenue to $19.9 billion, a new record for Fonterra.
• The annual dividend is being increased to 30 cents per share, a 3 cents per share or 11% increase on last year’s 27 cents per share. Dividends are paid out of distributable profit.
• Fonterra’s balance sheet is in its strongest shape ever, with an economic gearing ratio of 41.8%, compared with 44.9% a year earlier.
• Fonterra collected a record 1,346 million kgMS of raw milk in the 2011 season, 5% higher than the prior season.
• Dairy exports for the year totaled 2.1 million tons, another record for Fonterra.

The results reflect an improved performance by Fonterra’s ingredients businesses, which export to more than 100 markets, as well as by its overseas consumer businesses, especially across Asia and the Middle East. However, consumer business profits in New Zealand and Australia were down in a tough market environment.

Chairman Sir Henry van der Heyden said the record financial performance and record milk production meant Fonterra would distribute milk payments and dividends totaling $10.6 billion –- $2.4 billion more than in 2010 and $1.5 billion more than in Fonterra’s previous best year, 2008.

"As Fonterra is a cooperative that is 100% owned and controlled by New Zealand farmers, that money flows right back into the local economy as farmers reinvest in their businesses and buy more farm supplies and equipment," he said. "An independent report by the New Zealand Institute of Economic Research last December found that the benefits of a higher Fonterra payout extend well beyond farmers, as they spend around 50 cents out of every dollar earned on locally produced goods and services."

Sir Henry said the record farmgate milk price of $7.60 per kgMS was well up on the prior season’s $6.10 per kgMS and reflects the recent strength of world dairy markets, with prices in some categories reaching or nearing historical highs during the past year. In addition, Fonterra’s hedging policy shielded farmers from the full brunt of a stronger New Zealand dollar, especially over the latter stages of the year.

"We also benefited from record milk production, as some of the best autumn conditions in recent years offset poor weather in many regions earlier in the season."

CEO Andrew Ferrier said Fonterra achieved a 13% increase in net profit after tax, to $771 million, even after paying farmer shareholders 29% more for the milk they supplied.

"Although the business was impacted by higher dairy ingredient prices and a fragile global economy, our underlying profitability showed solid growth over last year due to improvements within our ingredients businesses and the strength of our consumer brands," Ferrier said.

Revenue from the consumer businesses hit a new record of $6.1 billion. However, the consumer businesses faced a challenging year as margins came under pressure from the rise in commodity prices.

Ferrier said the standout consumer business segment was Asia/Africa, Middle East, with normalized earnings rising 12%.

The Fonterra Board has also confirmed its previously announced forecasts for the current 2012 season and 2012 financial year. The forecast farmgate milk price is $6.75 per kgMS and the forecast distributable profit range is 40 to 50 cents per share. The lower forecast farmgate milk price relative to 2011 reflects a softening of global commodity prices since early 2011.

Sir Henry said it was fitting that the record result was achieved as Fonterra marked its 10th anniversary.

"Ten years ago, the New Zealand dairy industry came together to form a national champion in Fonterra," he said. "Our collective vision was to create a business with the scale to become a world leader in dairy ingredients and maximize dairying’s contribution to the New Zealand economy. That’s exactly what Fonterra is doing."

Sir Henry noted that Fonterra’s new CEO, Theo Spierings, will take office on Sept. 26, 2011, succeeding Ferrier, who announced in March he was stepping down after eight years as CEO.