Ann: FORECAST: FSF: Fonterra maintains 2013/14 Fo

• Release Date: 11/12/13 10:30
• Summary: FORECAST: FSF: Fonterra maintains 2013/14 Forecast farmgate milk price
• Price Sensitive: No
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					FSF
11/12/2013 08:30
FORECAST

REL: 0830 HRS Fonterra Shareholders' Fund (NS)

FORECAST: FSF: Fonterra maintains 2013/14 Forecast farmgate milk price

FONTERRA MAINTAINS FORECAST FARMGATE MILK PRICE FOR 2013/14 SEASON AND
CONTINUES INVESTING IN THE FUTURE

Forecast

Fonterra Co-operative Group Limited is maintaining its forecast Farmgate Milk
Price for the 2013/14 season at $8.30 per kgMS.

Chairman John Wilson said milk powders are continuing to sell at very high
prices because of the strong global demand and limited supply.

"Only four months into the season, we are in an extraordinary situation.

"The gap between prices for milk powders compared to cheese and casein is
greater than it has ever been before.

"The high powder prices are good for our farmer shareholders, and good for
New Zealand.

"The forecast Farmgate Milk Price, which is calculated under the Milk Price
Manual, is based on processing and manufacturing milk powders. The
calculation is also based on the costs involved in production for an
efficient manufacturer of Fonterra's size and scale.

"However, Fonterra's actual asset base includes a number of cheese and casein
manufacturing plants which means that we are not able to maximise profits
from these plants in the current environment.

"In such abnormal circumstances, the Board has the discretion to pay a lower
Farmgate Milk Price than that specified under the Manual, if it is in the
best interests of the Co-operative.

"Today's forecast is our best estimate, but given the current volatility it
may change over the course of the season. As a result of this volatility, the
Board has also lowered the dividend forecast for the 2014 financial year to
10 cents per share," said Mr Wilson.

CEO Theo Spierings said "Doing nothing, and forecasting a Farmgate Milk Price
that is higher than we can afford to pay at this stage in the season, is not
an option.

"We will maintain our financial discipline and not pay the Milk Price out of
borrowings - particularly in a year when we are forecasting a record payout
for our farmers."

Fonterra is required to consider its Farmgate Milk Price every quarter as a
condition of the Dairy Industry Restructuring Act (DIRA).

Following the Board's decisions, today Fonterra is announcing that:

- The Farmgate Milk Price will be maintained at its current level of $8.30
per kgMS;
- This is 70 cents per kgMS below the theoretical Farmgate Milk Price of
$9.00 per kgMS calculated in accordance with the Milk Price Manual;
- The estimated full year dividend will be 10 cents per share - delivering a
forecast Cash Payout of $8.40;
- Forecast EBIT (Earnings Before Interest and Tax) for the financial year
ending 31 July 2014 is currently estimated at $500-$600 million.

The Board has also approved an increase in the Advance Rate schedule of
monthly payments to farmer shareholders.  The December payment, paid in
January 2014, will be increased by 30 cents to $5.80.

Impact of the global situation on stream returns and the forecast Farmgate
Milk Price

Fonterra processes its milk into two main product groups - powders (whole
milk powder and skim milk powder) and other products (including cheese,
casein, milk protein concentrate, nutritionals, and liquid milk). These
product groups are referred to as "streams".

Mr Spierings said "This season, we have devoted the maximum possible volume
of milk to whole milk powder and skim milk powder streams to maximise
payments to our farmers. However, we have not been able to lift powder
production above the current 70 per cent level as we are limited by the
nature of Fonterra's existing production facilities in New Zealand.

"That is why the remaining 30 per cent of milk is being converted to cheese
and casein which are currently generating lower returns.

"The current strong prices for milk powder are being driven by increasing
levels of demand from China, and emerging economies in Asia and North Africa.

"Meanwhile, domestic factors in key markets such as Europe, the United States
and Japan mean cheese and casein prices are not keeping pace with powders.
These factors include local milk pricing regulations, trends in local demand
for cheese, and trade barriers.

"Since Fonterra was formed, we have not invested in any new cheese or casein
plants and have been evolving our manufacturing asset base to invest in
additional milk powder production facilities. Last weekend we officially
opened the world's largest powder drier at Darfield in Canterbury," said Mr
Spierings.

Mr Wilson said that the Board has approved $235 million for the development
of a third powder drier at Pahiatua in the lower North Island.

"We anticipated that the market would likely change and that demand for milk
powders would increase - but the demand is increasing at a faster rate than
anyone predicted.

"Today's forecast Farmgate Milk Price ensures the Co-operative can stay on
course with its strategy and continue optimising the value of our New Zealand
milk," said Mr Wilson.

Staying on strategy and investing in the future

Volatility has become the new norm, and Fonterra must have the flexibility to
respond quickly to shifting global demands for dairy nutrition, said Mr
Spierings.

"We need to continue investing in greater flexibility in our manufacturing
assets so we can meet changes in global demand and commodity cycles.

"The new market realities mean new opportunities - and we must go after them
now as we have in the past by driving forward with our volume and value
strategy.

 "We are already doing this. Along with the approval of the new drier at
Pahiatua, work is well underway on our new UHT plant at Waitoa and the new
drier at Darfield has already produced more than 50,000 metric tonnes of
whole milk powder since it was commissioned at the beginning of the season.

"We have also recently made significant investments to expand our global
foodservice capabilities. These include doubling the capacity of our
Clandeboye plant to produce individual quick frozen (IQF) grated mozzarella,
and expanding our cream cheese plant at Te Rapa. The foodservice category
includes full and quick service restaurants, institutions, hotels, airline
catering facilities and other commercial kitchens.

"Over the next few months we will look at additional measures that will
further improve our ability to provide higher volumes of the dairy
commodities global customers want - when they want them," said Mr Spierings.

Further information relating to this announcement is available on
Fonterra.com.
End CA:00244980 For:FSF    Type:FORECAST   Time:2013-12-11 08:30:09