Ann: FLLYR: FSF: Fonterra Announces 2013 Financia

• Release Date: 25/09/13 10:30
• Summary: FLLYR: FSF: Fonterra Announces 2013 Financial Results
• Price Sensitive: No
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					FSF
25/09/2013 08:30
FLLYR

REL: 0830 HRS Fonterra Shareholders' Fund (NS)

FLLYR: FSF: Fonterra Announces 2013 Financial Results

Reporting Period Year ended 31 July 2013
Previous Reporting Period Year ended 31 July 2012

 31 July 2013
(NZD million) 31 July 2012
(NZD million) Percentage
Change
Revenue from sale of goods 18,643 19,769 (5.7%)
Net profit attributable to Shareholders of the company1 718 609 17.9%
Non-controlling interests 18 15 20.0%
Net profit for the period 736 624 17.9%
1 Net profit attributable to shareholders of the company is equivalent to
profit from ordinary activities after tax attributable to shareholders of the
company (as required to be disclosed pursuant to Clause 1.2 of Appendix 1 of
the NZSX and NZDX Listing Rules).

Interim/Final Dividend Amount per Security
(NZ cents) Imputed Amount per Security
(NZ cents)
Interim 16.0 nil
Final 16.0 nil

Record Date Interim:  12 April 2013
Final: 10 October 2013
Dividend Payment Date Interim:    19 April 2013
Final: 18 October 2013

Comments On 24 September 2013, the Board of Directors declared a final
dividend of 16.0 cents per share payable on 18 October 2013 to Shareholders
on the share register at 10 October 2013.

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FONTERRA ANNOUNCES 2013 FINANCIAL RESULTS

Highlights

- Cash Payout $6.16, down 4 %
- Farmgate Milk Price $5.84 per kgMS
- Dividend of 32 cents per share
- Total sales volumes flat at 4 million metric tonnes
- Revenue $18.6 billion, down 6%
- Normalised EBIT $1 billion, down 3%
- Net profit after tax $736 million, up 18%
- Earnings per share 44c, up 7%

Annual Results

Fonterra Co-operative Group announced today a Cash Payout of $6.16 for the
2013 year for a 100 percent share-backed farmer, comprising a Farmgate Milk
Price of $5.84 per kgMS and a dividend of 32 cents per share.

Chairman John Wilson said that while the Payout was higher than forecast at
the beginning of the season, it was 4 per cent down on the previous year.

"2013 was a year that tested our resilience.  After a superb first six months
for both production and performance, our farmer shareholders endured a
drought which in some regions was the worst in nearly 70 years.

"The extremely dry conditions meant a drop in New Zealand milk production of
9 per cent in the last six months of the season.  Overall, New Zealand milk
production declined 2 per cent to 1,463 million kgMS for the season to 31 May
2013, which hit our farmers and the business financially.

"Our strong balance sheet, with a debt to debt plus equity ratio of 39.6 per
cent, and operating cash flows meant we were able to support farmers through
the drought's immediate impact by raising the Advance Rate paid to farmers
for their milk.  This change, however, contributed to a 28 per cent drop in
operating cash flows compared with the previous year.

"We now have a much stronger capital structure which came into its own this
year, following the launch of the Fonterra Shareholders' Market and the
Fonterra Shareholders' Fund.

"The Fonterra Shareholders' Market brought in greater flexibility, with
farmers able to buy and sell shares throughout the year at the prevailing
price.

"Meanwhile, the response to the Fund from both institutions and smaller
investors was a genuine expression of confidence in the Co-operative and our
performance," said Mr Wilson.

Business Overview

Fonterra Chief Executive Theo Spierings said Fonterra had made good progress
with its strategy during the year, particularly in foodservice, everyday
nutrition and advanced nutrition. Climatic and market conditions, however,
frustrated efforts to achieve higher earnings.

"The combined impact of the drought and the reshaping of Fonterra's
Australian business, saw the Co-operative's normalised EBIT of $1 billion for
the 2013 year fall 3 per cent short of last year.

"The business achieved strong EBIT growth in Asia, Africa, the Middle East
and in our Soprole business in Chile.  However, this was offset by a weaker
second half from NZ Milk Products and a 37 per cent decline in normalised
EBIT in Australia and New Zealand (ANZ) as we make changes to our Australian
business.

"The extreme drought caused unprecedented volatility - reflected in a 64 per
cent spike in Whole Milk Powder prices from January 2 to April 16.  This, in
turn, had a significant impact on the cost of milk purchased by NZ Milk
Products, and meant the high returns achieved in the first half as a result
of price premiums, product mix, cost savings and productivity gains were
eroded in the second half.

"Although the New Zealand consumer business grew its earnings in a tough
trading environment, Australia faced heightened competition for lower milk
volumes, and continuing margin squeeze for consumer brands.  We expect the
significant reshaping of our Australian operations, which is going to plan,
will turn performance around.  The business has already achieved a 7 per cent
reduction in operating expenses of $49 million (after excluding the impact of
the closure of the Cororooke site and Brand impairments)," said Mr Spierings.

Net finance costs were $41 million lower than last year, mainly due to the
benefit of an increase in gains from fixed interest rate hedging and the
lower cost of funding. Earnings also benefitted from a tax credit of $68
million which was primarily due to the revaluation of deferred tax balances
and recognition of New Zealand tax losses.

Earnings per share were up 7 per cent to 44 cents after taking into account
the bonus issue, and on a normalised basis were up 9 per cent to 47 cents per
share.

Precautionary Recall, Reviews and Rebuilding Reputation

Just as farms and farmer confidence started to recover from the drought,
Fonterra initiated a precautionary recall of some whey protein concentrate,
as a result of test results received on the last day of the Co-operative's
financial year.

"The subsequent all clear following further tests was a relief, but did not
alter our view that the recall was the correct course of action at the time.
Fonterra cannot, and will not, take risks with food safety and the health of
consumers," said Mr Wilson.

"The thorough internal Operational Review instigated by CEO Theo Spierings
has been completed.  The Board is also undertaking its own independent
inquiry and we are fully co-operating with the New Zealand Government's Joint
Ministerial Inquiry which is taking place over a longer timeframe," said Mr
Wilson.

The precautionary recall challenged the Co-operative, but has also provided
the opportunity to make a profound change for the better, said Mr Spierings.

"Within days of locating and quarantining product, we began an operational
review to find out what happened, why, and what we must do to prevent this
from happening again - and we are now implementing the recommendations of the
review.

"Additional resources have also been deployed to ensure we manage change and
rebuild our reputation, while at the same time we continue to run the
business efficiently. The creation of a new role of Group Director of Food
Safety & Quality, reporting directly to me, sends a clear message about the
sharper focus we are giving to continuously improving food safety and
quality.

"In the past year, we have invested $925 million in building production,
manufacturing and supply chain capability to process our New Zealand milk,
developing our China farms, as well as beginning construction of a $144
million new cheese and dairy ingredients plant in partnership with A-ware
Food Group in the Netherlands.

"We have also made a number of key senior appointments to our management
team.  In addition to the appointment of Judith Swales as Managing Director
Australia, we have hired Lukas Paravicini as our new Chief Financial Officer,
and Jacqueline Chow as Managing Director of Global Brands and Nutrition.

"They join an already strong, dedicated management team which will drive the
business forward in the coming year," said Mr Spierings.

Global Situation

Fonterra provided guidance to the market yesterday (24 September) about an
increase to its Forecast Farmgate Milk Price for the 2014 season, and the
likely impact on earnings for the current financial year.

The Co-operative announced that it has increased its Forecast Farmgate Milk
Price for the 2014 season by 50 cents to $8.30 per kgMS.  The increase -
along with an estimated dividend of 32 cents per share - amounts to a
Forecast Cash Payout for 2014 of $8.62.

The record Forecast Farmgate Milk Price reflected continuing strong
international prices for dairy, particularly Whole Milk Powder driven by
robust demand from Asia, especially China. Fonterra is still facing high
volatility around the world.

The business also faced headwinds, especially in the first half of the
current financial year when earnings were expected to be significantly lower
than the strong performance in the first half of 2013.

The higher cost of goods will make it more difficult to drive earnings growth
in Fonterra's consumer and foodservice businesses in the first half of this
financial year.  The Co-operative also expects to see a negative impact on
product mix returns during the first half of the current year as milk powder
prices significantly outpace the relative prices of cheese and casein.

Prospects for the second half look more positive for Fonterra's consumer
businesses, but remain uncertain for NZ Milk Products.

The estimated dividend of 32 cents per share for 2014 currently remains
unchanged. Fonterra can draw upon its balance sheet and cash flow performance
to support the estimated dividend.

It is difficult to predict when extreme price volatility on product mix will
reverse, but expectations are that the impact is likely to be short-term.

The Co-operative has continuing confidence in its Volume and Value strategy
in our key markets. Looking ahead, prospects for the dairy industry and for
Fonterra look positive and its growth ambitions remain unchanged.

Business units

NZ Milk Products
NZ Milk Products had a mixed year, resulting in a 1 per cent decline in
normalised earnings to $494 million.  Although total sales volumes were 1 per
cent higher, revenue declined 7 per cent to $13.9 billion for the year.  At
the half year, milk collection was up 6 per cent compared to the same period
last season.  Excellent spring and early summer growing conditions across
most of the country led to robust growth in New Zealand dairy production.

In the second half of the season, milk collection was down 9 per cent as the
drought led to poor pasture conditions across New Zealand.  In the second
half, unprecedented volatility caused by the extreme drought had a negative
influence on earnings. The drought contributed to a spike in Whole Milk
Powder (WMP), up 64 per cent from 2 January to 16 April peak price.  This had
a significant impact on the cost of milk purchased by NZ Milk Products, which
was offset to some extent by a positive contribution from price achievement,
global sourcing and tighter cost control.

Australia New Zealand (ANZ)
The integrated ANZ business experienced another difficult year with a 37 per
cent decline in normalised earnings to $142 million. Total sales volumes for
Australia and New Zealand were 9 per cent lower than last year. Normalisation
adjustments relate to $30 million in costs associated with the planned
closure of the Cororooke site in Australia, and $19 million in costs
associated with restructuring. Revenue declined 13 per cent to $3.7 billion.
 Fonterra Brands NZ volumes (excluding the impact of RD1) were 5 per cent
ahead of last year, but volume in our consumer brands business in Australia
was lower, driven primarily by the loss of a large private label contract
which offset the volume growth in butter and spreads.

The reshaping of the Australian business is progressing.  Our strategy
includes streamlining our brands, expanding our high value nutritionals
output to capitalise on the growing demand for these dairy products in
emerging markets and ensuring our manufacturing facilities are aligned to our
best market demand prospects. The significant reshaping of the Australian
operations has already resulted in a 7 per cent reduction in operating
expenses of $49 million after excluding the impact of Cororooke and brand
impairments.
Asia/ Africa Middle East (AME) - including China
Asia/AME is now Fonterra' largest consumer business by normalised EBIT. The
business achieved a 15 per cent increase in normalised earnings to $209
million.  On a constant currency basis, normalised EBIT was up 22 per cent
compared to last year due to the Asia/AME basket of currencies weakening
against the NZD.

Sales volumes increased by 11 per cent, driven primarily by new operations in
China Farms, strong growth in foodservice across all markets, and growth in
Everyday Nutrition in Indonesia and Malaysia. This was supported by
distribution expansion of advanced nutrition in Vietnam and geographic
development in China foodservice.   Revenue grew 3 per cent to $2 billion.

Everyday nutrition, advanced nutrition and foodservice are key platforms for
growth in terms of Fonterra's Group strategy. Across South East Asia, the
Middle East and North Africa, all three platforms delivered growth in EBIT
with everyday nutrition up 21 per cent, advanced nutrition up 6 per cent and
foodservice up 45 per cent.

Normalised EBIT for Greater China was up 20 per cent on last year with a
strong result from China foodservice, Hong Kong and our businesses in Taiwan.
This was partially offset by a lower contribution from China Brands, as a
result of increased investment to grow market share and roll out Anlene into
new cities. On a constant currency basis normalised EBIT for Greater China
was up 21 per cent compared to last year.

Latin America (LATAM)
LATAM's normalised earnings increased 4 per cent to $137 million.  Sales
volumes increased 6 per cent, and revenue was up 12 per cent to $1.1 billion.
Soprole, our largest operation in Latin America, performed well with strong
growth in its consumer business. Normalised EBIT of $109 million was up 31
per cent compared to last year driven by volume increases, product innovation
and improved pricing in the yoghurt and dairy dessert categories. On a
constant currency basis normalised EBIT was also up 31 per cent as the
currency was relatively stable.

Normalised EBIT in Dairy Partners Americas (DPA) was 46 per cent lower at $25
million driven mainly by lower earnings in DPA manufacturing as a result of
last year's $19 million benefit arising from the review of manufacturing cost
recovery arrangements. In addition, EBIT in DPA was negatively impacted by
currency movements.

Click here to view Annual Results presentation; the Annual Review; and the
Financial Statements & Statutory Information

NB: All dollars quoted are NZ dollars.
End CA:00241520 For:FSF    Type:FLLYR      Time:2013-09-25 08:30:14