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Fonterra Dividends Brought Forward to Help Farmers as Profits Rise

24 March 2016

NEW ZEALAND - Dairy co-operative Fonterra has reported a good financial performance in the first half of its current financial year, despite global imbalance in the dairy markets.

Normalised earnings before interest and tax (EBIT) were $665 million, up 77 per cent on the comparable period, and net profit after tax of $409 million up 123 per cent.

Chairman John Wilson said that the supply and demand imbalance in the globally traded dairy market has brought prices down to unsustainable levels for farmers around the world, and particularly in New Zealand. The strong New Zealand dollar has also had a negative impact on the Milk Price.

“The low prices have placed a great deal of pressure on incomes, farm budgets, and our farming families.

“Our priority is to generate more value out of every drop of our farmers’ milk by focusing on the areas within our control. We aim to efficiently convert as much milk as possible into the highest-returning products.

“Our management is aware of the need for strong performance to ensure that we get every possible cent back into farmers’ hands during a very tough year.

“We have lifted profitability from last season to this season, resulting in higher earnings per share to help offset low global dairy prices. As a result, we have delivered an interim dividend of 20 cents per share, up from an interim dividend for last year of 10 cents per share.

“Our forecast Farmgate Milk Price of $3.90 per kgMS reflects low global dairy prices, with Whole Milk Powder decreasing around 17 per cent this season to date. Forecast total available for payout of $4.35-$4.45 per kgMS currently equates to a forecast cash payout of $4.30 per kgMS after retentions for a fully shared up farmer.

“Our forecast total dividend for the current financial year is 40 cents per share. The Board has today declared a 20 cent dividend which will be paid in April. We intend declaring the remaining 20 cents per share in two dividends of 10 cents in May and 10 cents in August to help support farmers at a time when cash flows are extremely tight,” said Mr Wilson.

The timing of these payments is a specific response to the current, very challenging, financial conditions farmers are facing and does not signal any intention to move away from Fonterra’s normal practice of twice-yearly dividends paid in April and October.

Current global economic conditions remain challenging and are impacting dairy demand and prices, said Fonterra's Chief Executive Theo Spierings.

“The balance between available dairy exports and imports has been unfavourable for 18 months following European production increasing more than expected and lower imports into China and Russia.

"This imbalance is likely to continue in the short term, with prices expected to lift later this calendar year.

“The long term fundamentals for global dairy are positive with demand expected to increase by two to three per cent a year due to the growing world population, increasing middle classes in Asia, urbanisation and favourable demographics.”

Mr Wilson said the Co-operative’s solid performance was set to continue.

“The business will continue to work on capturing demand and margins in the second half of the year, just as it did in the first half, by focusing on our consumer and foodservice volumes and those of speciality ingredients.

“We remain firmly on track to achieve our forecast earnings of 45-55 cents per share, ahead of the 40-50 cents per share we indicated at the commencement of the season.

“Our net debt is $6.9 billion and we are expecting this to reduce significantly in the second half of the year. We are on track to reduce gearing to 40-45 per cent by the end of the current financial year.”

The record date for the interim dividend is 8 April, and the payment date is 20 April. The Co-operative will continue to offer a dividend reinvestment plan, at a discount of 2.5 per cent to the strike price.

Eligible shareholders who want to participate for the interim dividend need to submit a notice of participation by 11 April 2016.

TheCattleSite News Desk

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