Fonterra on Track to Break the NZ$20 Billion Barrier

NEW ZEALAND - Fonterra Cooperative Group’s half year results mean it could be on track to break the NZ$20 billion revenue barrier; corporate New Zealand’s equivalent of the four minute mile.

29 March 2012

3 minute read

Oceania

“The word ‘up’ is Fonterra Cooperative Group’s impressive performance for the first half of the financial year,” says Willy Leferink, Federated Farmers Dairy chairperson.

“While full-year revenues last financial year were a smidgen below NZ$20 billion, Fonterra could be poised to become the first New Zealand company to smash the NZ$20 billion revenue barrier. That’s not just big for New Zealand, that’s pretty big globally.

“At this point last year Fonterra’s half-year profit was NZ$293 million, but in 2012, that’s grown to NZ$346 million.

“The big question for farmer-shareholders is whether the year’s back end will remain as strong.

“Signals from the globalDairyTrade auction platform are that soft commodities are undergoing a price correction. That’s been expressed in Fonterra’s recent downwards revision of the in-season forecast and price corrections our colleagues are seeing for meat and fibre.

“That’s why we’re increasingly concerned at the dollar’s strength. The dollar ought to be tracking down in concert with what our exports are doing.

“If the high dollar continues, it will start to cause problems. This is why farmers should base their budgets on less than NZ$6 per kilogram of milksolids. Anything more is extremely brave.

“Great farming weather, excluding some regions, drove a ten percent increase in milk volumes. It underscores why water storage and government policy on water is economically vital. We cannot bank on Mother Nature to behave like some weather metronome.

“New Zealand isn’t the only country to enjoy exceptional growing conditions either. While we face added competition the global population growth trend is New Zealand’s friend. One billion people now join the human race every decade.

“Reliably growing milk volumes underpin Fonterra’s strategy refresh. This is about getting into growing markets on the ground floor and in that respect, we’re in the right part of the world at the right time.

“Federated Farmers believes Fonterra has the capital means to take advantage of new markets and opportunities. This is by using retentions and a gearing ratio now at 47 per cent.

“Last financial year, for instance, Fonterra retained 35 cents per kilogram of milksolids and that translated into about NZ$470 million. It has to be remembered Federated Farmers pushed Fonterra hard to develop a retentions policy; it’s only a recent evolution.

“We’re excited to see Fonterra plan to grow milk supply outside of New Zealand, so long as the parent Fonterra brand is firewalled. New Zealand farmers would be nervous if our reputation was based on what farm workers did or didn’t do overseas.

“Since 2002, Fonterra has paid out over NZ$60 billion to its farmer-shareholders. That doesn’t take into account what it spends as a company in its own right. Every New Zealander gets to benefit from the direct and indirect economic activity these vast sums generate.

“Fonterra is to New Zealand what Nokia is to Finland,” Mr Leferink concluded.